Fine FY20 sales, as they dropped in line with the consensus, but Q1 FY21 should ultimately be worse than expected and Q2 should show a recovery (but still negative growth). The H1 operating profit should therefore be under pressure. Remy is attractive in the mid-term, but the lack of diversification and high valuation means that we should continue to keep away from the stock at this stage.
Companies: Remy Cointreau
The group reported an even worse than expected set of Q3 results, leading to the decision to hold off on the previous annual and midterm objectives. There was significant weakness in cognac and the situation was no better for Liqueurs & Spirits. China remains the negative hot spot, and we don’t see any improvement in the short-term.
Remy reported H1 EBIT which missed the already-lowered consensus expectations (€138.3m vs. €144.6m expected), mainly due to the higher than expected holding company’s costs. External factors (HK protests and unusual replenishment in the US) have penalised the group, and we are now convinced that it should report less bright FY results than last year. Improvements are expected in H2, and particularly in Q4 as Q3 should remain highly linked to the volatile macro environment.
While Q2 was expected to see acceleration, the group reported -3.6% organic sales growth (-4% in Q2, est. -2.7%) due to technical factors and Group Brands growth below its expectations. The unclear guidance isn’t reassuring.
The Q1 results were hit by technical factors and the phasing of price increases. However, the company has announced an acceleration in Q2, while the medium-term guidance didn’t really give any precise expectations.
Q4 ahead of expectations and a solid FY demonstrating the group’s ability to still take advantage of the buyout Asia-Pacific region. The technical factors negatively weigh and should continue to do so in 2019.
The group reported strong Q3 results, which have pushed up the 9m FY18 figures. Sales grew by +8.7% organically and +9.5% on reported figures in Q3 (+8.1% organically and +6.7% on reported figures in 9m FY18) to €345.3m, leading to €931.5m of total sales during the first nine months of 2018.
The House of Remy Martin division is still the best performer (+15.6% and +13.1% organically in Q3 and 9m FY18 respectively), while the Liqueurs & Spirits division reported a shy 9m FY18 growth, thanks to the Q3 contribution (+2.3% and +5% respectively).
The Partner Brands division continued to decline, consistent with the group’s strategy to refocus gradually on Group Brands (-26.8% and -13.6% respectively in Q3 and 9m FY18).
The FY guidance is maintained: the group expects positive growth in current operating profit.
H1 results: As a reminder, the group reported 7.7% OG in sales at its trading update in October.
The current operating profit was up +10.1% organically (largely in line with consensus) and +2.9% on a reported basis pre-IFRS and +3.1% on a post-IFRS basis. The reported operating margin expanded by 160bp to 26.2% (24.1% on pre-IFRS).
By division and on an organic basis, Remy Martin reported -20bp in the current operating margin, due to significant investments in communication (+12.5%) and distribution. L&S reported -120bp in the operating margin also on the back of communication and distribution investments. For Partner brands, the margin was up +100bp supported by the promotional campaign in the US.
The group’s net profit was down 4.3% due to higher FX hedging costs and one-offs linked to the early repayment of the loan.
FY guidance confirmed: growth in current operating profit at constant FX and scope of consolidation.
The group sees no change in the Chinese dynamics so far (contrary to the luxury sector). Nevertheless, we remain prudent and we see no additional elements which could increase our target price.
The quarterly numbers are broadly in line with expectations, driven by Asia and strong momentum in Greater China. We see no major changes to our target price at this moment.
The group’s operating profit has been entirely driven by RM. L&S seems to be somewhat weak.
The group upgraded guidance in terms of the organic operating profit. We do not, however, expect this to have a material change to our recommendation. We maintain our view that the stock is expensive and the upside is quite limited.
RC posted an excellent underlying performance in Q4 driven by Asian markets, a solid US and Russia.
Nevertheless, strong FX headwinds weighed heavily on the numbers, pulling back the reported figures to below expectations.
Despite a tremendous underlying performance, we see little correction to our target price due to FX headwinds.
The company reported another good quarter driven exclusively by cognac.
The reported figures continue to be impacted by FX headwinds.
Although the company’s perfomance is sustained, in our view the stock is fairly valued, and even verging on expensive in the current circumstances.
H1 results: As a reminder the group reported 7% OG in sales at its trading update in October.
The current operating profit was up +11.8% organically (in line with consensus) and +8.2% on a reported basis. The reported operating margin expanded by 50bp to 24.6% (+110bp organically).
By division and on an organic basis, Remy Martin reported +60bp in the current operating margin (-10bp on reported), being driven by a positive mix and pricing, especially in China, Russia, UK and Travel Retail. L&S reported -280bp in the operating margin (-290bp on a reported basis) on the back of the deconsolidation of Passoa, the reduction in lower-end volumes and the step up in marketing expenses. For Partner brands, the margin was up +30bp (same on a reported basis).
The group’s net profit was up 17.3%.
FY guidance confirmed: growth in current operating profit at constant FX and scope of consolidation.
H1 trading update: Sales are up +7% organically (Q2: 6.2%, slightly better than cons. + 5.8%) and +6.0% on reported figures with FX: -1.3% and scope: +0.3%.
OG sales by division: Remy Martin +15.4% (Q2: 13.2%, cons. +10.5%), Liqueurs & Spirits -4.5% (Q2: -6.4%, cons. -3.4%; should be +4.7% if deconsolidation of Passoa is excluded) and Partner Brands -14.3% (Q2: -9.2%, +12.2% excluding technical factors).
FY guidance is confirmed.
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Following the equity fund-raising via a new share placing on 22 April 2020, Science in Sport has announced a new debt financing facility. The equity placing raised gross proceeds of £4.5m, and the group has now secured a new £8m invoice financing facility from HSBC for an initial one-year term. This latest undrawn facility provides further headroom to the company’s liquidity position during the COVID-19-related uncertainty and gives it the financial flexibility to continue with its strategy of pursuing strong sales growth.
Companies: Science In Sport
In FY19 Britvic delivered a strong performance showing good momentum in its core business. The GB business had both Britvic and PepsiCo brands showing revenue growth, Brazil continues to grow and problems in France are being addressed with a proposed exit from private-label juice. The Business Capability Programme (BCP) is complete, and cost savings delivered ahead of schedule. The outlook is somewhat cautious as the consumer environment remains tough, and changes in France will take a while to fully implement. Notwithstanding this, management expects to make further progress in FY20.
Britvic’s Q1 trading was in line with management expectations, indicating a good start to the year. The company acknowledges that market conditions ‘remain challenging’, but it is confident of achieving market expectations for the year. Q1 revenue was £369.8m, up 4.9% vs the prior year. This includes a benefit from extra trading days. On a comparable days and constant FX basis, revenues were up 2.6%.
There has been much comment on the fact that equity markets in the US and Europe have been shrinking for some years now, certainly in terms of the number of quoted companies, if not in total market capitalisation (MCap). This paper has been written with the assistance of the Quoted Companies Alliance (QCA) and focuses on the evidence for such in the London market and, in particular, that for smaller and midcap companies. It assesses that evidence and considers explanations. Finally, we ask why it matters, and assuming that it does, what practical steps can be taken to reverse the trend. Successful public markets have been a key part of the United Kingdom’s economic success for generations, even centuries, and we should not allow them to wither on the vine.
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UK nuclear represents a huge and complex market offering significant long-term opportunities. New build nuclear is required to help meet rising UK power generation needs and replace generation capacity which is nearing end of life. Decommissioning is essential to clean up the UK’s legacy nuclear sites safely and securely, prioritising areas where deteriorating buildings present an unacceptable risk. The total budget for nuclear is estimated at c.£301bn, with a significant proportion of this spend expected to be with UK companies. The contracting opportunities are not without risks and uncertainties. However many companies are already generating revenues and profits from UK nuclear contracts, including a number from our small and mid cap universe. We expect these contributions to become more material over time, and for the experience gained in the UK market to leave companies well-positioned to pursue nuclear opportunities overseas. Our top picks are Severfield (Buy) and Augean (Corporate), but we are also positive on Redhall (Non-Rated).
Companies: AUG FSJ WYG DRV CARR SFR PRV RHL
Britvic (BVIC) has successfully managed two potential threats – the Soft Drinks Levy (SDIL) and the industry CO2 shortage – to confirm modest earnings growth prospects for FY18. The recent heatwave might otherwise have driven outperformance. But with redirected marketing driving double-digit stills growth, the position was held. Looking forward, as BVIC’s business capability programme completes and benefits start to flow, more meaningful earnings growth may narrow the discount to peers.
Britvic’s Q1 trading was in line with expectations, with organic constant currency revenue growth of 1.5% excluding the soft drinks levies, and reported revenue growth of 4.5%. With five-year EPS CAGR of 9.8%, DPS CAGR of 8.9% (to September 2018) and debt within the target range, this is a textbook consumer staples company. During FY19, the business capability program is due to be completed, bringing higher capacity and increased flexibility to the company. Trading at 9.9x consensus FY19e EV/EBITDA, the shares offer interesting value.
Finsbury has announced its annual results for FY18A, delivering 2.4% YoY growth in revenue from continuing operations to £290.2m. Management has delivered a stellar performance by controlling costs and maintaining margins in a challenging market environment. Investment into innovation and facilities, coupled with strategic acquisitions in a consolidating industry, provides investors with a platform for continued growth. We release our FY20E forecasts, inferring c6% YoY growth in adjusted operating profits, with Finsbury trading on a 12-month blended-forward EV/adj-EBITDA of c6.5x. We reiterate our Buy recommendation.
Companies: Finsbury Food Group
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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A strong H2/19A meant Finsbury reported LFL revenue growth of +4% for the year, outpacing the market. FY19A was largely in line with our expectations, and we leave FY20E forecasts broadly unchanged. A heavy capex period is reaching an end, resulting in rising FCF for investors (c18% FCF yield for FY20E). Buy.
The trade-off in the risk/reward for gold and gold mining equities is improving, as central banks push the current iteration of the post-World War II Bretton Woods financial order towards its limits.
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A brief year-end trading update with not a huge amount of details. The main point is that post the July 2019 profit warning, the PBT performance through a combination of mix and cost savings has come in towards top-end of market expectations, implying c18% y/y decline. So a c3% beat vs our £36.5m. Revenue decline at -9% however was worse than our -7%. This reflects ongoing challenges with the Rubicon and Rockstar barns and lower Irn-Bru volume due to price realignment. Net, the company had a better H2 than H1 and from our understanding, exits Q4 with good momentum. Looking ahead to 2020, the comps are easier and the company is expected to get back into growth mode (albeit 3% at the PBT level). The main cloud on the horizon is the Deposit Return Scheme for Scotland, and we understand the Scottish Parliament will provide an update on plans in the next few weeks. We view this as short-term negative for AG Barr and hence have a y/y profit decline for FY22. Post today’s update we nudge our current year PBT up by 2% and FY21 by 2% also. There will be some investor relief this morning but given the anaemic growth outlook and ongoing headwinds we feel an FY21 P/E looks full. We stay at Hold.
Companies: A.G. Barr
Finsbury has announced a positive H1/20A, boosted by strong LFL revenue growth (+5.2% YoY) in UK Bakery, and the maintenance of group Adj EBITDA margins (at c8.5%) in the face of challenging market conditions. Finsbury's cash generative business profile (c11% FY20E FCF yield) is enabling the company to steadily deleverage, whilst also supporting a growing dividend (3.6% FY20E yield).
Much of the UK’s privatisation programme took place between the early 1980s and the mid-1990s: subsequent sales have been few. Undoubtedly, privatisation attracted many private investors to the market, many for the first time.
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