Ceconomy announced a double bonanza with a promising ‘Strategic Day’ and the resolution of its dispute with MediaMarkt Saturn’s minority shareholder Convergenta. We believe this deal is a win-win situation and the company’s performance is likely to improve further in the forecast years. However, Ceconomy might to face the issue of two CEOs (one of them might need to move out) in the mid-term.
Companies: CECONOMY AG
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.
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.
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HeiQ is a materials innovation technology company, marketing products that increase the functionality of technical, medical and consumer textiles. The company's core products are at the leading edge of innovating the c$25bn textile chemicals market, while the recently launched antimicrobial technology, HeiQ Viroblock, enables the forward integration into the c$10bn antimicrobial textile market and OTC textile medical devices. The company is grounded on three strategic success factors, materials innovation, mass manufacturing and ingredient brand marketing, which will support the company's ambition to grow its revenues from $30m to $300m in the medium term. HeiQ has listed on London's Main Market via a reverse takeover, raising £20m in new equity. We initiate coverage with a BUY.
Companies: HeiQ PLC
Taking into account the adverse impact of the pandemic, the Air Europa acquisition price has been halved to €500m with payment deferred until the sixth anniversary of the acquisition’s completion, which is now scheduled for H2 21.
Companies: International Consolidated Airlines Group SA
We were bullish about the ongoing effects of strategic/operational initiatives at G4M, seeing forecast upside risk. It has not disappointed. Q3 sales and margin outperformance drive a 30% upgrade, and a shift into net cash. Extensive planning and systems/delivery changes have helped it after Brexit too, with trading stronger than expected so far in Jan. Valuation looks undemanding given upgrade momentum and the discount to lower margin peers.
Companies: Gear4music (Holdings) PLC
Escape Hunt (ESC) has conditionally agreed to acquire its French master franchise partner, BGP Escape (BGP). Together with UK sites currently in build, ESC expects BGP to add enough scale for the group to reach positive EBITDA when conditions normalise and new sites have matured. The acquisition is attractively priced at only 1x EBITDA before earnout payments.
Companies: Escape Hunt Plc
Entain reported strong Q4/FY 20 sales with 7%/1% cc growth respectively (ahead of estimates). The performance was driven by the strong broad-based momentum in online (Q4 20: +41%, FY 20: +28%), which more than offset the decline in retail. The US stood out with 131% growth, pushing FY 20 revenue expectations higher to $175-180m. We will be upgrading our estimates to factor in the stronger than expected performance. In other developments, Jette Nygaard-Andersen was appointed CEO with immediate effect.
Companies: Entain PLC
…..drive further forecast upgrade
Air Partner has reported a record H1 performance, with PBT increasing by 250% to £10.5m. This was driven by COVID-19 related work, in particular repatriation flights and transportation of PPE, which offset more challenging trading conditions elsewhere. Air Partner’s diversity has insulated it from the significant COVID-19 impact felt elsewhere in the sector. As expected, COVID related work has slowed down in H2, though there have been some early signs of improvement in Private Jets (number of JetCards sold +50% YoY) and Safety & Security (multiple contract wins in Redline). Given continued subdued demand, gross profit has reduced YoY in Q3 to date, though this was offset by cost initiatives. We reintroduce forecasts for FY21, assuming PBT of £10.5m, which implies break even in H2. The balance sheet remains strong, with net cash of £18m and the Board has proposed an interim dividend of 0.80p.
Companies: Air Partner plc
In conjunction with the government’s new tier 4 restrictions, ANG has closed 12 stores. These stores remain operational for ‘call & collect’ though. The remaining estate, websites and DC continue to trade normally, and are geared up to fulfil demand. Positive sales momentum has continued since the update at the start of December, and angling continues to be permitted. The Board therefore reiterates full year guidance of no less than £3.8m EBITDA.
Companies: Angling Direct Plc
M&B’s poor trading performance in Q1 FY20/21 was not a surprise. Lfl revenue in the current quarter is also likely to remain deep in the red. Management is exploring an equity issuance to remain afloat / meet the fixed cost and debt service obligations. After all, the cash coffers are fast depleting and the choice on the table is limited.
Companies: Mitchells & Butlers plc
Dixons’ trading performance in the 10 weeks ended 9 January 2021 was a mixed bag. The strong lfl growth in the first six weeks is in contrast to the subsequent period. Management has expressed it is comfortable with the consensus of the current financial year and reaffirmed its mid-term guidance. Overall, the business remains in good shape despite the adverse impact of frequent lockdowns and the dilutive impact of the growth in e-com. We maintain a positive stance on the stock recommendation.
Companies: Dixons Carphone 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
IAG may have reached an agreement to acquire Air Europa at a lower price (edited as per IAG’s request). The deal should be approved by the Spanish government.
Today's news & views, plus announcements from FERG, AHT, KAZ, LMP GLO, ERM, MCS, STU, SEIT, SOLG, INCE, AEXG, BEG
Companies: AEX GLO SEIT SOLG STU INCE
Kingfisher continued to register strong sales growth in Q4 FY20/21, buoyed by the higher DIY spend by consumers since the onset of the pandemic. Management continues to refrain from providing full-year revenue guidance, citing the pandemic-related uncertainties and the impact of lockdown restrictions. We maintain a positive outlook on the stock.
Companies: Kingfisher Plc
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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