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Studio Retail’s share price is the same as in mid-Feb, before the market sell-off due to the pandemic. This feels anomalous to 1) its clear online position & value orientation, where there has been a notable shift post covid, 2) capacity withdrawal + scope for share gains in its addressable markets, and 3) rating expansion among its peers. Interims next week are likely to act as a catalyst for re-rating, where there is a lot of headroom vs a c8x P/E currently.
Companies: Studio Retail Group plc
Angling Direct achieved scale in the last 5 years and proved its multi-channel credentials. Today’s update confirms that it can also derive much higher levels of profitability and cash generation, as a range of strategic & operational initiatives gain traction, notably around margin & operating efficiency. We have upgraded PBT by 223%. This should bolster confidence in the model and long term growth opportunity, and support a re-rating.
Companies: Angling Direct 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
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
In keeping with government recommendations, ANG has closed its stores for lock-down. Fishing is still permitted, though, with safety around social distancing outdoors and health benefits being rightly recognised. Consistent with the operating model developed in the 1st lock-down, a call & collect service will continue at its stores. Its web operations remain fully operational too, and the DC is geared up to fulfil increased online demand in the UK and Europe and the upcoming Black Friday and Christmas period. Momentum in H1 continued in H2 and trading was robust in October. Despite the challenges of another lock-down, ANG looks well placed. The board confirms it is trading in line with expectations for the full year.
Sportech (SPO) supplies betting systems to over 400 clients in 38 countries, including the world’s most widely deployed Tote solution. It has an exclusive licence to operate betting in Connecticut (CT) and is well placed to benefit from eventual legalisation of sports betting in the state. It also has a fast-growing charitable raffle business. The business has been interrupted by COVID-19, but has proved resilient, especially through online channels. There are opportunities to improve margins by transitioning from a mechanical model to a digital one. We would expect these benefits to come through over the next few years.
Companies: Sportech 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
Cineworld has responded to press speculation confirming that it is in advanced discussions with Regal Entertainment Group in the USA re a possible cash offer. The proposed price is $23 implying a market cap of c.$4bn - so effectively a reverse takeover. Funding will come via a mixture of debt and a “material equity raise by way of a rights issue”, with management (who own 28% of the equity) committed to invest in the fund raise. The deal would equate to a c.9x FY18 EV/EBITDA which is a c.5% discount to the sector average. We sense the rationale is both strategic and financial as well as opportunistic given the Regal share price has been under pressure in recent months due to weak US cinema attendance newsflow. The deal, if successful would give Cineworld access to the largest cinema market. Regal is the 2nd largest player in the US market with c.560 cinemas. We expect Cineworld management to replicate the success it has had in the UK by upgrading the Regal chain on a selective basis and also driving financial synergies. The deal to our mind is in keeping with the wave of consolidation currently occurring in the cinema industry. We await further information on the deal but see the merits of the move, albeit our expectation was that the next big corporate move by management would be in Europe.
Companies: Cineworld Group plc
Animal Health is a vast market with multiple long-term growth characteristics and opportunities. In this report we have outlined valuations, M&A activity and the key growth drivers in two animal health subsectors: companion animal health and livestock health. Although the commercial positioning of the eight companies covered in this report (Animalcare, Anpario, Benchmark Holdings, CVS Group, Dechra, ECO Animal Health, Genus and Pets at Home) differ significantly, all have exposure to positive market trends.
Companies: GNS ANCR CVSG DPH BMK EAH ANP PETS
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
We highlight the strong Workday numbers overnight which provides cause for enthusiasm for growth equities, the SaaS software sector and most specifically within AIM, could augur well for Kainos, given their close partnership on consulting and implementation. Beyond the beat, most noteworthy comment was that management saw no impact from Brexit as yet nor the trade tensions in the US and China. With enviable growth rates of 32% in the quarter, we highlight few names in AIM such as CloudCall* offer such compelling opportunity.
Companies: 7DIG CALL TRAK ESYS FST KNOS PHD QTX SAG SEE TRCS
EasyJet’s FY results met market expectations and guidance. The company is aiming to be a net-zero carbon airline and will build up the package holiday business from the UK to the rest of Europe.
Companies: easyJet plc
The group has released a better Q3 19/20 trading performance in the UK in both the food and clothing businesses, which confirms that the appetite of UK consumers remained solid during the festival period.
However, the limited sales progression in the clothing business (-1.7% lfl vs. -5.5% lfl in H1 19/20) has disappointed the market.
Also, management’s more cautious stance on the gross margin’s guidance was clearly not reassuring.
Despite the challenging market environment, Arena has delivered interim results that were broadly in line with our expectations (Adj EBITDA of £16.6m vs £17.0m forecasted). Cost saving initiatives are being implemented, which should support margins going forwards, whilst the company is expected to benefit from some significant contracts due for delivery in FY21E.
Companies: Arena Events Group Plc
Arena's planned £9.5m share placing will substantially strengthen its balance sheet and, together with various cost saving measures being undertaken, should help to see the company through the coronavirus crisis for the foreseeable future. Given the uncertainty around how long it will take before normal event scheduling resumes, we withdraw our forecasts and place our rating Under Review, which we will revisit once visibility improves.