There were no major surprises in Ceconomy’s Q3 results. The announcement of new steps (harmonisation of management structure and standardisation of processes across all count) and c.€100m cost savings from FY22/23 seems to bode well for the investor’s sentiment. We maintain a positive stance on the stock valuation.
Companies: CECONOMY AG
Ceconomy’s preliminary trading update was better than our expectations. A strong showing in the online format and the COVID-19-related cost-cutting measures were instrumental in ensuring that the Q3 EBIT was similar to the previous year’s. The exit run-rate of online is also noticeable considering that 100% of the stores were operational in June. We maintain our positive stance on the stock’s valuation.
Despite the decent Q4 performance, the shuffling at the top has raised fresh questions about the revitalisation of top-line performance and the successful implementation of operational efficiency plan. While the domestic performance is still in the black, management needs to address multiple pain-points for sustained top-line growth. We take a cautious stance on the future performance of the stock, although the positive recommendation is maintained.
Q2 performance was in line with our expectations. Despite the lfl decline, the negative calendar impact and a 50bp slump in the gross margin, the adjusted EBIT margin (even after excluding the Fnac Darty contribution) remained flat. While new management needs to focus more on the Netherlands, the Spanish issue seems non-structural. The launch of initiatives like a centralised pricing strategy is also a step in the right direction. No change to our stock recommendation.
New management has announced a restructuring and efficiency programme, which promises to uplift profit by c.25% (vs FY17/18 performance). The one-time impact is also not a concern, with a pay-back period of less than 1.5 years (if implemented successfully). We will revise our financial updates and stock recommendation upwards.
Ceconomy has finally posted a good performance (vs three profit warnings announced over the past year). The key takeaways were: 1) overall positive lfl growth (despite a weak October performance), 2) stable profitability despite a 60bp slump in the gross margin, and 3) further reduction in the tax rate (which we believe is structural in nature). Although the stock price is up c.15% today, we do not see any growth trigger unless the new CEO shares the performance turnaround plan (expected on 21 May 2019).
The appointments of a new CEO and CFO were much awaited but is still a step in the right direction. Although Jörn Werner has a good track record, we expect the stock price to remain range-bound unless he comes up with a tangible performance turnaround plan.
The poor guidance for FY18/19 has caught almost everybody by surprise (although our earnings estimates were below the consensus). There seems to be no end to Ceconomy’s struggles in its core market of Germany. We do not see any growth trigger for the stock price unless the new CEO (who is yet to be hired) shares a convincing performance turnaround plan. We have slashed the earnings and target price for the stock.
In Q4, while management was able to honour its annual revenue guidance (at CER), the lfl and reported revenue came in below our expectations. Softer lfl performance outside DACH is a negative surprise for us – we estimated that the majority of the pain (related to 8 October 2018 profit warning) was attributable to Germany. Although the company’s Board is scouting for a new Captain of the ship, a performance turnaround looks to be an uphill task. No change to our stock recommendation.
Nothing seems to be going right for Ceconomy at present. Today’s profit warning has cast serious questions on the strength of Ceconomy’s business model, especially regarding its ability to generate positive growth and margins in the home country Germany. A solid performance during the peak trading season ‘Black Friday to Christmas’ is the next vital trigger in the near-term. Our earnings estimates and target price are reset significantly lower. The stock recommendation has also been downgraded by one notch.
The double-whammy of weak Q3 results plus a subsequent profit warning has battered the FY18 earnings estimates. The stock price is unlikely to regain strength unless management presents a credible plan for its core market Germany. The next crucial trigger is the performance in the peak trading season (especially Black Friday week). We have also applied a peer discount to factor in weaker growth prospects, poor investor sentiment and the delay in sorting the pressing issues. Our stock recommendation is reset downwards – from ‘Buy’ to ‘Add’.
Ceconomy’s decision to dispose of the Russian operations to Safmar and, simultaneously, acquire a 15% stake in its subsidiary M.Video is a good strategic step but at a very high cost. Management needs to solve the Kellerhals issue and improve the operating performance in order to regain investors’ confidence in the stock. Not forgetting, product pricing and customer convenience will remain vital to survive the likes of Amazon, especially on the home turf.
Ceconomy reported weak sales growth in Q2 primarily due to the discontinuation of the VAT campaign in Germany. However, the group’s profitability improved thanks to cost savings associated with the campaign, a higher contribution from Fnac Darty and the absence of insolvency losses in the Netherlands. We have trimmed the target price to incorporate the negative investor sentiment on the stock – the company’s inability to grow inorganically, no decision on ailing Russian and Swedish businesses, and the decline in value of the Metro AG investment. Our stock recommendation remains unchanged.
Ceconomy reported weak Q1 FY17/18 results (c.15% slump in profitability). We believe the shift in consumer demand (from a profitable Christmas season to an immensely competitive Black-Friday, particularly in Germany) is structural in nature. Although management expects to cover-up most of the Q1 miss (and partially compensate for the shortfall in profitability and net working capital) over the coming quarters and has kept the annual guidance unchanged, we are sceptical in the short term. We have trimmed our estimates but maintain the stock recommendation.
After the demerger, the food business has been listed separately as Metro Wholesale & Food Specialist (MWFS), while the remaining (consumer electronics) business has been renamed as Ceconomy. Each shareholder in the previous Metro AG has received a share in both MWFS and Ceconomy, with dividend entitlements for the financial year beginning 1 October 2016. Ceconomy still holds 10% in MWFS.
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G4M has reported a substantial uplift in profitability, notably EBITDA margin >11% from <3%. While conditions in Q1 contributed through abnormally rich margin and marketing efficiency, results underline what G4M is capable of on higher volumes. We prudently upgrade by another 15% but note that it is well prepared for Brexit, has a continuing focus on higher margin products, is taking market share through digital innovation, and has ongoing software development at the core of its growth strategy. Valuation is extremely undemanding.
Companies: Gear4music (Holdings) PLC
The UK-based low-cost carrier easyJet reported a pre-tax loss of £1.27bn in FY20. Funding needs seem to have been fulfilled to allow the wait for the plausible surge in demand next summer, despite the mediocre improvement in cash burn.
Companies: easyJet plc
Cambria has delivered a resilient set of FY results in very turbulent times for the automotive industry at present. Underlying EBIT was within 4% of last year (or 7% if IFRS 16 impact is stripped out) mainly driven by strong cost control and Government support. Cash generation and the balance sheet remains robust, and we continue to see Cambria as a strong survivor, albeit with more turbulent times ahead as we head into 2021 and beyond.
Companies: Cambria Automobiles Plc
N Brown is taking crucial steps in its transition to being a pure-play online retailer (currently 77% of sales) and to strengthen its leading position in the under-serviced market for fashionable plus-size apparel. While strategic updates may be on hold until a new CEO is appointed, the company closed the loss-making portfolio of high-street stores in H119 and further brand consolidation seems inevitable. The shares trade on a low FY19e P/E of 5.5x and yield 7.2%.
Companies: BWNG BGUA NBRNF
Alongside its AGM, STU has released an impressive update on trading. Notably, growth has strengthened in the last 6 weeks vs the preceding 8 weeks. After an exceptionally strong start due to lock-down, product sales are therefore up 39% in H1. FS income growth was 5.5% and, with no material change in collections/arrears, this could accelerate in H2. It has exited with a clean (spr/sum) stock position and starts H2 with 15% more customers. This performance means PBT is expected to be ahead of management’s expectations, albeit guidance remains withdrawn. Findel Education’s trading has returned to normal levels too, and the two parties are still working closely with the CMA to obtain clearance.
Companies: Studio Retail Group plc
Although the group’s results have been heavily affected by the pandemic, the solid performance in the food business, the faster-than-expected online growth in the C&H business, and tightened cost management have all resulted in good cash generation.
The group’s rapid reactions to respond to the pandemic and improved operating efficiency have sent a positive signal to the market, and the downtrend has helped the group to reach the inflection point.
Companies: Marks and Spencer Group plc
Reporting a modest adj. PBT loss of £158k, H1-21A results to 30 September are as guided in SCHO's October update, but with cash slightly better than expected at £348k (anticipated: c.£300k). P&L results are also better than the company originally expected, helped by a strong online performance by Shapero Rare Books and SCHO's philatelic business. Net cash at these levels represents a £67k / 24% jump on the full year, while YoY the business has reversed a small level of net debt into a healthy cash balance. Stock standing at close to £9m is a significant plus both in underpinning the value of the business and in feeding trading flows for SCHO as a leader in a fragmented, but consolidating, market, where in our opinion the opportunity to take market share has seldom been greater.
Companies: Scholium Group Plc
Dart Group has released an AGM statement this morning indicating satisfaction with load factors and financial performance achieved year-to-date in the context of the challenging operating environment. In addition, the Group has applied to change its name to Jet2 Plc in recognition of the recent sale of the Fowler Welch distribution business and the sole focus on leisure travel. We keep our forecasts withdrawn at this time.
Companies: Jet2 PLC
The final results revealed adjusted PBT up 99% year-on-year, which was 10% better than forecast despite four upgrades during the financial year. This strong performance reflects the financial benefits that have accrued following the shift in the business model to online only, as well as management’s strategic decision to significantly increase marketing spend. A second special dividend for the 2020 financial year has also been announced, reflecting the strong cash flow characteristics of the business model. Our 2021 profit forecast implies continuing momentum and a year-on-year increase in PBT of 86%. We raise our target price to 1050p.
Companies: Best of the Best plc
Despite the significant impact caused by the pandemic to the global events industry, Arena was able to record positive Adj EBITDA of £4.4m in H1/21A, and achieve zero cash burn. This was attained by securing numerous Covid-related projects, and tight cost control. With uncertainty remaining around the speed at which normality could return to the event industry, we do not produce forecasts, and maintain our Under Review rating. However, we note that liquidity remains robust at the group, which should enable Arena to trade through 2021.
Companies: Arena Events Group Plc
Flutter reported strong Q3 20 revenue growth of 30%, driven by broad-based growth across all segments, which more than offset the 2% decline in retail revenues and a 10% drop in poker revenue (within the PokerStars brand). Management now expects FY20 EBITDA of ~£1.14bn (£1.275-1.35bn ex-US EBITDA offset by the £160-180m loss in the US). Following the strong Q3 showing as well as the guidance upgrade, we will be raising our estimates.
Companies: Flutter Entertainment Plc
Gear4music (G4M) has delivered an outstanding set of interim results figures, based on its position as a beneficiary from the Covid restrictions across Europe. The previously disclosed 42% sales increase included new customer numbers jumping 52% over last year to just over 400,000, who will bring benefits over the medium- and longer-term. Performance increases and profit margins were leveraged going down the profit & loss account, with PBT of £4.9m delivered against last year’s small loss of £0.1m. With November seeing a continuation of strong trading patterns, G4M expects FY21E results to be ahead of recently upgraded market forecasts. We have consequently increased our EBITDA forecast by £1.1m (+9%) to £13.5m.
In Q3 FY20/21, Kingfisher continued to benefit from the DIY-boosting pandemic – its lfl revenue increased 17.4% yoy with a massive 153% yoy growth in the e-commerce channel. Even during the first two weeks of November 2020, the momentum remained strong. However, management refrained from guiding for the full-year revenue and margin, as the second round of lockdowns in its key markets (France and the UK) and the Brexit scenario unfold uncertainties.
Companies: Kingfisher Plc
The UK-based leading caterer reported its FY20 results, which missed the market’s expectations but indicated an ambitious margin forecast for Q1, despite the revenue recovery being with many unknowns.
Companies: Compass Group PLC
The French-based international hotel leader Accor today confirmed a lifestyle joint-venture and the full acquisition of sbe, a lifestyle operator.
Companies: Accor SA