Churchill China has had another strong trading period and this is articulated in today’s H1 trading update. The business continued to sustain good export momentum, led by Europe, whilst UK Hospitality also moved forward despite Brexit uncertainty. We are lifting our 3 year EPS forecasts by 3.5%-4.0% this morning and see the risk on the upside as the year progresses. The shares currently trade on a 2019 P/E of 20x falling to 18x. On a 12m view we see fair value >1850p (22.5x FY20 P/E). Overall, today’s news further reinforces Churchill’s ongoing value creation and growth attributes. Non holders should take a close look at this high quality small-cap stock operating in an attractive global market with secular growth features.
Companies: Churchill China
ReAssure Group plc - The Group is a leading closed book life insurance consolidator in the United Kingdom with 4.3m policies, £68.7 billion of assets under administration on a Post-L&G Illustrative Basis. It is considering a premium listing segment of the main market.
Voyager AIR The Company will focus on the acquisition, leasing and management of primarily widebody aircraft, with asset management services to be provided by Amedeo Limited he IPO will comprise a Placing and Offer for Subscription of Shares to raise up to approximately US$200m·
IMC Exploration Group (NEX: IMCP), focused on acquiring and exploring prospecting licence areas which have high potential for natural resource, is looking to admit its shares to the standard list and will withdraw for the NEX Exchange. TBC
Uniphar, a diversified healthcare services business with a workforce of over 2,000, is looking to join AIM. Raise TBC, expected mid-July 2019
Companies: SRT CHH VELA CREO ASH ECO AQX ARCM DRV MIRA
The company has today released a positive AGM update, signalling a good start to the year and further progress against strategic objectives. There is also favourable commentary around the recent Dudson transaction. In short, the general reassurance offered this morning reinforces the fact that Churchill has a different market and strategic positioning vs peer Portmeirion, which recently warned. Given it is difficult to second guess to what extent the strong start to the year reflects an element of stockpiling ahead of Brexit and the fact that c.2/3rd of profits are generated in H2, we hold off adjusting our forecasts at this stage. To reflect the Group’s growth and balance sheet attractions, the shares have re-rated by a significant 8 P/E points since the start of the year to an FY19 P/E of 21.6x falling to 19.6x for FY20. Short-term they look up with events on quality and growth considerations but on a 12m view we see upside towards 1800p (22.5x FY20 P/E). Fundamentally we see Churchill China as a highly attractive growth story in a sector with positive secular drivers. We expect the focus on hospitality tableware with an added value and international dimension to continue serving the Group well.
Essensys plc—a provider of mission-critical SaaS platforms and on-demand cloud services to the high growth flexible workspace industry, plans to join AIM. Offer TBC, expected 29 May 2019. Induction Healthcare Group plc—a healthcare technology company focused on streamlining the delivery of care by Healthcare Professionals looking to join AIM. Expected raise of £14.58m at 115p, market cap of £34.07m. Expected 22 May 2019. SDX Energy plc—a North Africa focused oil and gas company, announces its intention to complete a Canadian plan of arrangement under section 192 of the Canada Business Corporations Act and will have shares de-listed from the TSX-V and admitted to trading on AIM. Expected 28 May 2019, anticipated market cap of £76m Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019. Alumasc Group plc, the premium building products, systems and solutions group, has announced its intention to move from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
Companies: SHED ACT SCHO POW FFI PPIX AGM OSI CHH HUNT
Churchill has delivered an excellent outcome for 2018 of 24% PBT growth on 7% top-line progress. This implies a 4% beat at the PBT level vs our forecast. Strategically, last year once again demonstrated that management continue to deliver on the twin objectives of export sales growth and augmenting the mix towards added-value products. Momentum going into 2019 is strong and the company is on the front foot re Brexit planning. We push through EPS upgrades of 3-4% and see fair value at 1450p. We remain positive.
A short and sweet but positive YE trading update from Churchill China this morning. The strong double-digit export sales momentum of H1 continued into H2 and UK performed in line with expectation of positive sales growth in H2. Net, management is guiding to a full year outcome ahead of market expectations. We upgrade our FY18 PBT by a meaningful 7% and outer years by 3%. Going into FY19 the business is geographically well diversified and investing appropriately to support further progress. An FY19 P/E of only 13.5x (11.3x ex-cash) is wholly inappropriate for a quality stock like Churchill China in our view. We argue for fair value towards 1135p and remain positive.
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Churchill has reported an excellent set of interims, delivering 22% PBT growth vs a stiff 31% comp. Key tenets of this growth were geographical diversity and continued sales momentum of value-added products. Looking forward, the business is trading well, investing appropriately, strengthening the international platform and, in our view, European growth should continue to prosper under either Brexit scenario. We further nudge up our 3 year EPS forecasts by 1-4% and argue for fair value towards 1250p.
Churchill China (CHH LN) Continuing to dish out premium growth | IFG Group (IFP LN) Operational progress, but still no clarity on HMRC investigation | Xaar (XAR LN) Trading below expectations; reviewing partnering options for printheads
Companies: CHH IFP XAR
Churchill China (CHH LN) Positive H1 update supports upgrades | Gresham Technologies (GHT LN) H1 trading update + earnings-enhancing acquisition
Companies: Churchill China Gresham Technologies
We have refreshed our quality style screen for the second time and report on style performance since the last refresh in October. Performance has been very strong, outperforming the small-cap index by c.1600bps (weighted basis) and c.1000bps (unweighted). There has been volatility with the market and this style has yet to be tested in a concerted down market, but in a flat or rising market quality appears to be a successful investment style in small-caps. We have highlighted 11 focus stocks in the new screen and will report back again on performance when we next refresh the screen in about 5-6 months’ time.
Companies: LIO GHT AMO CHH ZYT DOTD GTLY RIV FCRM TAM PMI
Actual Experience (ACT LN) Strong progress both operationally and strategically | Churchill China (CHH LN) Revisiting the investment case | First Derivatives (FDP LN) New database technology release increases market potential | Future (FUTR LN) Revenues, profits and cash ahead (again) | Grainger (GRI LN) In line, pipeline continues to develop toward £850m 2020 target | Hill & Smith Holdings (HILS LN) Slow start in UK; full year expectations unchanged | IndigoVision Group (IND LN) Trading in line; encouraging signs of stability | Listed Law Conference Many models, more IPOs, probably | ReNeuron Group (RENE LN) Capital Markets Event on Exosomes
Companies: ACT CHH FDP FUTR GRI HILS IND RENE
We see Churchill as a highly attractive long-term growth story. Its international dimension, NPD credentials and multi-channel customer strategy should continue to give it greater avenues for growth and investment. In this note we lay out the case for investing in this reliable small-cap stock. The company has today released a positive AGM update, highlighting a good start to the year and further progress against strategic objectives. It is too early in the year to be adjusting numbers but we feel the risk remains on the upside. We see short-term intrinsic value towards 1200p.
With a busy reporting season behind us we use this note to take stock. Stepping back we pull out the key themes which emerged across the sub-sectors we actively follow in the consumer space. On balance there was more cause for optimism. This is supportive of our top-down view that there is scope for a better H2 for consumer related stocks as cost headwinds ease and pressure on disposable income moderates. We also take a close look at 7 stocks we actively research and which reported over March and April. For each we use charts to depict the key takeaways from an investment case perspective.
Companies: DOM BAG NICL CHH GOAL RTN GYM MARS CVSG
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Codemasters has announced that it has signed a licence agreement for the exclusive rights to develop and publish the FIA World Rally Championship videogames and Esports tournaments. The initial 5 year annual series will be out from 2023, with the agreement ensuring a step-up in the release cycle of Codemasters’ off-road games to three games over two years rather than the current one per year. The major success of F1 highlights the potential of combining another global racing license with the company’s gaming expertise. This news, following the F1 contract extension with Liberty Media, the deal with NetEase in mobile, and the acquisition of SMS, adds to the visible growth profile of the business and increasingly underlines Codemasters’ position as the leading car racing platform in the gaming sector.
New franchise win: World Rally Championship
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
Companies: AGY ARBB ARIX DNL GDR NSF PCA PIN PHNX PHP RE/ RECI STX SCE SIXH TRX SHED VTA
The phased reopening of Walker Greenbank’s two manufacturing facilities (both in the UK) is underway with Standfast & Barracks already operational and Anstey restarting this week. The company’s business model is such that near-term activity levels can be rebuilt gradually. It may also support new business development in the UK in due course compared to overseas supply sources. No new financial information was provided ahead of the company’s scheduled FY20 results announcement on 30 June, at which point activity levels during FY21 to date should also be disclosed. Our estimates remain suspended at this time.
Companies: Walker Greenbank
Warpaint has announced another exciting new contract win with a large national retailer. The new agreement is with Wilko which, from mid-September, will stock about 100 exclusive Body Collection branded products which will be stocked in 355 UK stores, and over 115 Technic branded products which will be stocked in 189 UK stores. Warpaint’s brands will be merchandised on bespoke display stands in prime locations in the stores, and will also be sold online through Wilko’s website. In addition, it is envisaged that a range of Technic and Body Collection gift sets will also be stocked in stores for the Christmas shopping period. This is excellent news and should be well received by the market.
Companies: Warpaint London
Delivery on the transformation plan has been swift and the £78.75m sale and leaseback of TED's head office represents further decisive action. Combined with cost savings and cash conservation measures, we estimate it could improve the group's cash position by over £100m.
Companies: Ted Baker
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Companies: AVAP SHI GFRD
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.
Companies: AVO AGY ARBB ARIX BUR CLIG DNL FLTA GDR NSF PCA PIN PXC PHP RE/ RECI RMDL STX SCE SIXH TRX SHED VTA
FY19 Results: In line with January trading update
Character Group has issued a trading update stating that while its supply side operations in the Far East have now been broadly restored following temporary disruption from COVID-19 issues, the demand side of the business is being deeply impacted by the closure of stores, shops and warehousing & distribution centres. The board is now anticipating a significant drop in H2 FY2020 revenues compared to expectations. However, given the lack of visibility on both trading activity and the eventual impact of COVID-19 on the business, which is second half weighted, we are temporarily suspending forecasts until further clarity is given – probably with the interim results scheduled for end May 2020.
Companies: Character Group
Performance in FY20 is substantially ahead of expectations; EBITDA is expected to be no less than £7.0m, equating to at least £5.6m pre-IFRS16, a beat of >36% versus our forecast (>52% in H2). While trading has strengthened as a result of Covid-19 lock-down and the channel shift, this has principally been a feature post period end. The determining factor in FY20 was successful execution of the strategic, commercial and operational initiatives outlined a year ago in response to growth pains in late 2018/early 2019. Despite several levers yet to contribute in full, gross margin improved 50bps more than forecast (+310bps) and cost ratios were 80bps better than expected. As a result, it has almost delivered FY21 forecasts in FY20. We are not upgrading FY21 at this stage, pending guidance in June, but the higher base, enhanced P&L KPIs and recent sales boost all bode well for forecast momentum - which the valuation discounts.
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.
Companies: AVO AGY ARBB ARIX ASAI DNL GDR HAYD NSF PCA PIN PXC PHP RE/ RECI RMDL STX SCE TRX TON SHED VTA
Following this week’s updated guidance from the Government, Gleeson Homes will now implement its plan to restart build and sales activity across its 67 sites. This will be carefully managed with the emphasis on the safety of staff, subcontractors and customers. Gleeson has also launched its Key Worker Priority Programme to prioritise sales to key workers, who already represent 2/3 of customers. It is too early for the company to provide forward guidance but we remain of the view that Gleeson will emerge strongly, given the strength of its proposition with a focus on highly affordable good quality homes across the Midlands and North of England.
Companies: MJ Gleeson
Disappointing H1 driven by NGP. Reducing investments in this category was the company’s choice, but we believe it is a bad mid-term strategy. The dividend cut has finally shown increasing weaknesses vs. peers during the crisis.
Companies: Imperial Brands
Guidance beaten for FY20; upping our target price
Companies: Frontier Developments