B&M has reported in-disappointing UK B&M sales growth and we expect market consensus PBT of £247m (IAS 17) to reduce by around £10-15m (mid single digit %). There is no update on Germany. We expect the share price to reflect lower forecasts and some de-rating.
Companies: B&M European Value Retail SA
Although we remain sellers of B&M it is hard not to be impressed with its ambition and the pace at which it moves. Two recent acquisitions, management change in Germany and pushing through a major warehouse investment in Bedford, as well as opening midhigh single digit percentage new space in the core B&M chain all attest to this.
B&M has reported 3Q UK B&M stores LFL of -1.6% against our expectation of +2% and total UK sales growth of +4.4% (WH +9.5%). This is worse than expectation in our view and compares with underlying +3.6% in 1Q and -1.6% in 2Q, and comparatives 1-3Q 2017/18 of +6.3%, +7.7% and +3.9% (1Q figures in each year adjusted to exclude Easter timing differences). The company points to the exit rate of UK LFL being better at +1.2% and continuation of this rate into 4Q (where the comparative will weaken over the quarter).
BME has reported 3Q UK LFL sales growth of 3.9% v consensus of around +4% and a tough comparative of +7.2%. Growth has come in lower margin food and FMCG which we believe continues to be vulnerable to price competition for food retailer own brands and in any event dilutes the benefit of sales growth at the bottom line. Germany sales rate declined from +11% 1H to +8% 3Q perhaps indicating negative LFL getting worse in short term. Management is happy with existing EBITDA consensus. The only price affecting consideration today is whether a beat was required instead of an impressive in-line performance given the 19x PER for 4/19E. We remain sellers on over-expansion and food model vulnerability grounds.
Full year consensus forecasts likely to hold as UK B&M sales UK LFL was +7.7% in 2Q – however, this was achieved with a 80bps decline in gross margin. Overall PBT of £86.8m (+17.8%) was slightly below consensus despite a £2.4m EBITDA contribution from newly acquired Heron Foods. The next key test 3Q trading against start of marketing-driven sales acceleration of 2016/17. Germany had a difficult 1H with EBITDA down 22.5% - this casts doubt on B&M’s ability to manage acquisitions. The company is making fairly neutral comments on UK prospects for 2H (“well positioned”, ”last year’s exceptionally strong Christmas performance”) and expects to recover 1H gross margin fall if seasonal more recent trade from company.
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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
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
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
REACT Group plc (REACT), the specialists in deep cleaning services for customers in the public and private sectors, has announced encouraging full year results, marginally ahead of our increased forecasts and a significant turnaround from the losses reported in previous years. Cash balances at the year-end were also substantially higher than forecast at £1.8m. The new management team has delivered on its promises in what has been a challenging year and we continue to remain very positive on the prospects for the Group. We have introduced forecasts for FY2021 but at this stage, with so much uncertainty we have set our expectations prudently. Nevertheless, the year has started strongly and our projections, supported by a high level of recurring revenue and margin improvement, still anticipates a more than doubling of EBITDA and could be raised as REACT progresses through the year.
Companies: REACT Group 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
Following the transformational acquisition of rival Dominium we are formally initiating on DP Poland. The combination has broadened and strengthened the business model, creating a top 3 market player with a proven new CEO at the helm. Significantly, the enlarged entity will be profitable and self-funding, something the market has been long waiting for. The deal creates a platform to accelerate growth and to become the dominant pizza player in Poland. We identify three main drivers – cost synergies, organic growth and a resumption of the rollout strategy. DP Poland has proven that the Domino’s formula works as well in Poland as it does elsewhere in the world; its mature stores are substantially profitable. The share price will be driven by confidence in delivery of EBITDA growth and cost synergies.
Companies: DP Poland PLC
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
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
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
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
Cornish Metals (TSX-V: CUSN) intends to list on AIM. The Company is proposing to raise £5 million by way of private placement of new Common Shares (the "Fundraising") to advance the United Downs copper-tin project. The Company expects that Admission will become effective in February 2021. The Company's Common Shares will continue to be listed and trade on the TSX-V in Canada. Further media reports that Dr Martens, the British Boot brand is planning an IPO on the LSE. It is currently owned by PE group, Permira who is expected to sell down its stake at the IPO. March 2020 YE the group had revenues of £672m and EBITDA of £184m. Deal size TBC. VH Global Sustainable Energy Opportunities plc, a closed-ended investment Company focused on making sustainable energy infrastructure investments, today announces intends to launch an initial public offering of shares on the Official List (Premium) of the Main Market of the London Stock Exchange. Due by Early Feb. Moonpig, the digital greeting card company, is planning an IPO with a potential valuation of £1bln, according to multiple media reports. Further details expected to be announced over the next two weeks.
Companies: ZPHR PANR PRSM SENS CYAN G4M ITX CRCL FEN ZIN
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
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
The Group continues to gain momentum as it delivers its ambitious growth strategy. Testament to strategic acquisitions and strong organic growth, Group revenue increased 14% YoY to £4.0m whilst EBITDA margin expansion (+430bps) drove a c30% YoY increase to £1.4m. Additionally, the strategic decision to incorporate TCAT as a new subsidiary should expediate its commercialisation and expansion. We believe One Media offers value to investors whilst it trades at a discount relative to its peer group, our fair value per share analysis and DCF valuation. Buy
Companies: One Media iP Group 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.