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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
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.
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
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
G4M’s H1 trading update confirms the continued strength of the top line sales growth already disclosed in its Q1 sales update. H1 sales have risen by an impressive 42% to £70.2m, complemented by gross margin expansion of 330bps to 28.5%, reflecting G4M’s focus on profitable sales growth. This translates to gross profit growth of £7.5m (+60%) compared with last year and will deliver interim financial results materially higher than last year. While sales momentum has continued into October, management remains mindful of the ongoing uncertainties around Covid-19 and Brexit heading into the peak trading period. With market estimates already raised on the Q1 update, this prudent caution tempers our full year PBT upgrade to 13%.
Photo-Me was trading in line with expectations until COVID-19 hit in the final months of FY 2020. FY 2020 sales declined by -5.6% to £215.4m including £22.7m sales lost due to COVID-19 as consumer activity was impacted significantly. The Board believes that activity levels could take a long time to return to pre-COVID-19 levels; a thorough review of the business is underway and restructuring programmes are being implemented to better align operations to the current trading conditions. Net cash at April 2020 was £7.9m, comprising gross cash of £66.5m and drawn debt facilities of £58.5m. A €30m additional credit facility was received in May and June.
Companies: Photo-Me International plc
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
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
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
We have completed another periodic refresh of our value screen, first established in our inaugural quant/screening note of 26 May 2015. As usual the screen selected the 25 stocks exhibiting the most extreme value characteristics (based on 2016 consensus P/E and latest price to tangible book ratio) from our universe, and we have chosen 10 stocks to focus on. Since inception last year the screen has outperformed the main small-cap and micro-cap indices (by about 8pp and 3pp respectively) and has proved to be pleasingly defensive.
Companies: ABBY AUG BILN CARR CGS GOAL BOOT LVD RAV VTU
According to the LSE stats there was no Oil & Gas fundraising activity on the main market during 2015 and just £1.2m raised on AIM. The chart below clearly demonstrates the pain that oil producers are feeling with global prices having been in almost constant decline since mid-2014. Both Brent and West Texas Intermediate are now hovering between $30 and $40 per barrel having rebounded from their lows over recent weeks.
Companies: RDSA PANR ITM AVAP FCRM CCL G3E SEPL DELT
In our detailed research note (dated 14 Feb) we outlined scope for 1) better gross margin guidance, 2) personalisation to eliminate the drag from poor migration of former Fifty Plus customers, 3) a refi to fund Financial Services expansion and reduce RCF debt, and 4) guidance to settle nerves about IFRS9 (bad debt accounting). With these factors having played out, and net bank debt gearing reduced to 0.2x EBITDA, there is more clarity on the valuation anomaly on <9x P/E (7.2% yield), with FCF recovery in FY20 yielding 11%. We re-iterate a Buy stance.
Companies: N Brown Group plc
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.
Companies: AVO AJB AGY ARBB BUR CLIG DNL DPP FLTA GTLY GDR MCL MUR NSF PCA PIN SRE PHP RE/ RECI RMDL STX SCE TON SHED VTA W7L
PET has reported good progress at Underlying PBT level driven by 7.6% Group LFL growth. 1H PBT growth of 18.9% will moderate in 2H as the full effect of changes in billing Joint Venture Vets impacts the business. But this, like the resetting of food prices over the last two years, is by way of a one-time adjustment. Full year PBT guidance has been raised by 3-4% on the back of the better than expected Retail performance. Overall we believe the shares already discount successful implementation of the company’s stated plans and that this will limit upside performance arising form the forecast upgrade.
Companies: Pets At Home Group Plc