CVS Group (CVSG LN) Sector corporate development | Domino’s Pizza Group (DOM LN) Mixed interims | Pebble Beach Systems Group (PEB LN) FY revenue expected to be slightly below expectations | PROACTIS Holdings (PHD LN) FY EBITDA in line but revenue disappoints, decent acquisition | TClarke (CTO LN) Positive H1 outturn; Margin up 60bps; EPS up 47%
Companies: CVSG DOM PEB PHD CTO
Due to a change in sector focus Cenkos Securities plc has suspended coverage of the following stocks (see table 1). Our previous recommendation and forecasts can no longer be relied upon.
Please contact Cenkos for further information.
Companies: TUI CCL CPG DOM GNK JDW JE/ MARS MERL MAB FLTR PTEC RTN TCG WTB WMH IHG SSPG
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
Finals this morning have come in at upper end of market expectations with PBT +10% to £94.4m and EPS +14% to 15.1p vs our 15.2p. As signalled in the pre-close update, the UK LFL was +4.8% with a strong bounce back in H2 following a weak H1. Commentary around the international operations is positive and management is confident about further progress in this area, albeit the 4 territories only accounted for <1% of FY17 EBIT. Given last years setback re a weak start to FY17 (Pizza Hut competition, ineffective marketing and low consumer sentiment) we are not hugely surprised by a much better start to FY18. UK LFL’s after 8 weeks are reported at +7.1% - this is a good print we feel. We expect sentiment today also to be buoyed by the signalling of a further £50m of share buy-backs of which £18m has to date been completed since Jan. New store opening commentary is reassuring. We are at upper end of consensus so do not envisage much change to our PBT expectations, but see the risk to consensus on the upside. The shares currently trade on a FY18 P/E of 19x which in the context of the historical rating, international peers and ST growth expectations is not overly demanding. We currently have a Hold recommendation but expect investors to welcome today’s finals.
Companies: Domino's Pizza Group Plc
Applied Graphene Materials (AGM LN) Collaboration on W Motors Fenyr SuperSport car | ATTRAQT Group (ATQT LN) Opportunities intact, focus on execution | Domino’s Pizza Group (DOM LN) Good set of finals and strong start to FY18 | Frontier Smart Technologies Group (FST LN) Strong results with more to come | Spirent Communications (SPT LN) Good progress in FY’17 | Summit Therapeutics (SUMM LN) Enrolment opened for an additional group in PhaseOut DMD trial
Companies: AGM ATQT DOM FST SPT SUMM
Strong Q4 trading update from Domino’s this morning. Group system sales grew by 18% with good performances across all territories. UK LFL’s grew by 6.1% ex splits and by 4.8% on a 52 week basis. International commentary and metrics make positive reading also. Net, the company is guiding to the full-year outcome being “slightly ahead of market expectations”. We are 4% ahead of consensus at the PBT level so keep our numbers unchanged. This is a pleasing update and demonstrates the company got back on track in H2 after a mixed H1. Capex spend is less in FY17 vs guidance but relates to phasing of the Warrington supply chain centre. We hope to get more clarity during the day. Going into H1-18 the company will be up against soft comps, especially Q1 and we also see it as a major beneficiary of the World Cup in June. On our forecasts the shares are trading on a FY18 P/E of 21x having been closer to 25x before the H1-17 LFL weakness. We see scope for the rating to move up and expect a positive share price reaction today.
Brooks Macdonald Group (BRK LN) +7% Q2 FuM, reiterating BUY on sustained growth | Domino’s Pizza Group (DOM LN) Strong Q4 resulting in a beat | dotdigital Group (DOTD LN) New CFO appointment | EMIS Group (EMIS LN) Loss of minor contract | Restore (RST LN) Y/E update confirms another year of strong growth | UDG Healthcare (UDG LN) Positive Q1 update
Companies: BRK DOM DOTD EMIS RST UDG
Full Year PBT is now expected to be "at least in line with current market expectations".
Some better trading news from Domino’s this morning. After a difficult first half when UK LFL sales softened to a flat showing, the Q3 update reveals a UK LFL showing of 6%. We were anticipating a 3-4% showing. This pick up was partly supported by a softer 3.9% comp, favourable weather and a more effective marketing campaign. Total UK sales were up 12.1% and group system sales ahead by 20.8%. Commentary on new store additions and the Nordics/Switzerland is reassuring also. Management is signalling a full year outcome “at least in line with market expectations” which should be taken favourably. The shares have been firm coming into today’s update in anticipation of a good update and we expect them to react favourably given the metrics and tenor are better than anticipated. Using consensus forecasts the shares trade on a FY18 P/E of 20x with a c.3% yield. We see scope for the rating to nudge up given the company seems to be overcoming the H1 setback.
The Group was down 5% with the announcement of a £24m, 75% stake.
Pizza giant saw LFL sales in the UK growh 4% vs. 2015
Domino’s finals have surprised on the upside. There is good news on franchisee profitability, UK expansion outlook, current trading (10.5% LFL’s) and share buy backs are back on the agenda. We anticipate consensus upgrades of at least 3% this morning. The shares are reassuringly expensive on c.26x YR1 P/E (post upgrades), but justified given expectation of 15% EPS growth in FY16 and a brilliant track record. We lift our 12m TP from 1000p to 1150p.S
We were disappointed last December by the lack of ambition to boost German growth independently rather than opting for a ST JV solution. For an increasingly mature UK business we feel a cal’16 P/E of 26x is full. We stay at Hold but push through 6%/7% FY16/FY17 EPS upgrades to reflect the German deal.
Domino’s Pizza is effectively winding down its German venture. It is selling the master franchise to a newly formed JV alongside Domino’s Pizza Enterprises. It will be a 33% shareholder in the JV for 4-6 years. At the same time the JV is acquiring the market leader in the territory, Joey’s with 212 stores for 6.4x EV/EBITDA. We estimate the transaction to be c.6% EBIT accretive for FY16 but feel the move negatively impacts the mid-long term growth thesis which was reliant on a successful 100% owned German business. In this context we question why management did not opt to go it alone and buy the Joey’s business given the low valuation and the national store coverage the deal would have afforded. Overall, whilst we see short-term financial benefits of the deal we feel the move could weigh on the growth premium in the valuation. Accordingly as a pure UK business which is not far off maturity, there is a real risk that the shares over time could de-rate from a growth stock to one valued as a mature cash cow. Our current DCF for the UK business is c.900p. We downgrade from Buy to Hold.
BLUR GROUP PLC (BLUR LN) CFO joins Board | Brewin Dolphin Holdings (BRW LN) Moving to HOLD following performance post-Finals | Domino's Pizza UK & IRL (DOM LN) Germany – short-term fix but mid-long term growth expectations lowered | Ergomed (ERGO LN) Co-development update: clinical data expected in 2016 | Futura Medical (FUM LN) Extended shelf life for CSD500 achieved: regulatory filing imminent | IDOX (IDOX LN) Stable outlook in all markets; £100m sales target | IQE (IQE LN) Full year in line, as expected | Marston's (MARS LN) Solid double-digit TSR proposition |
N Brown Group (BWNG LN) Risk from unseasonably warm weather reflected in downgrade | Skyepharma (SKP LN) Positive development with EXPAREL®
Companies: MAIS BRW ERGO FUM IDOX IQE BWNG SKP MARS DOM
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Angling Direct has achieved scale over the last 5 years and proven its multi-channel credentials. Under new leadership it is now being professionalised, and margin/profit weakness (notably online) is a key focus. Early signs are encouraging. With a fishing renaissance post covid, ANG is very well placed to deliver profitable and sustained growth over the medium to long term in highly fragmented markets. For these traits, valuation is extremely undemanding, and upcoming results are a possible catalyst.
Companies: Angling Direct Plc
The continuing fast-growing online business and well-managed product mix have resulted in better than expected profitability for H1 20 and, with the rapid recovery in recent weeks, the group has upgraded again its guidance for FY 20.
The group is expecting adjusted pre-tax profit to be £300m for FY 20 vs. £195m (previously revised at the end of July).
Companies: Next Plc
In this note and following the SMMT June data released earlier this week, we look at the key dynamics of the sector during H1 2020, and the prospects for the rest of the calendar year. While no direct stimulus for the sector was announced in the recent summer statement, customers who were considering their purchasing options now have the clarity to move ahead with buying decisions that were potentially on hold.
Companies: CAMB LOOK MMH PDG VTU
The leading network airlines group reported a heavy Q2 net loss and its H2 forecast has been revised downward. Nevertheless, IAG maintains its recovery expectations despite a more pessimistic market outlook.
The group will call for a €2.75bn fund raising to cope with the health crisis.
Companies: International Consolidated Airlines Group SA
Although financial guidance and forecasts were withdrawn in March, trading in the 11 months to 31 July was better than anticipated. This reflects strong execution by the Cambria team, and some pent-up market demand post lockdown. Results in June/July were well ahead of the previous year and management’s expectations as a result. Based on market anecdotes from other dealer groups, we suggest August was probably a profitable month too. Alongside cost savings, this suggests a better FY20 profit/cashflow result than we had feared. Given the level of uncertainty and slow order book build for Sept, though, the board is planning cautiously with a cost reduction programme underway. CAMB trades on an historic FY19 pre crisis EV/EBITDA of just 3x, and the discount to its c80p property backing is c35%.
Companies: Cambria Automobiles Plc
Listed in April 2017 with a reorganized corporate structure, and led by a high-calibre operating team, Ten Entertainment Group (TEG) has developed a highly cash-generative business model that signals further growth prospects. By combining its operating formula with an integrated technology platform, TEG has set itself apart from competitors. With effective inward capital investment and its ‘Tenpinisation’ model, growth looks set to continue, and forecasts indicate a substantial increase in profit in FY17 and FY18.
Companies: Ten Entertainment Group Plc
The Pendragon share price has demonstrated resilience in the context of the wider liquidity squeeze in UK small and mid cap stocks that has recently driven a rotation in sentiment from growth to value. Whilst the group cannot be immune to wider industry pressures highlighted in the Q318 IMS, we believe the clear strategy to build its used car business and software platform will provide for a return to growth in FY19. This will be funded through strategic disposals and lower capital commitments to the new car market. This includes the potential sale of the group’s US Motor Group which would contribute to a planned £200m swing from a net debt position to a cash rich group over coming years. Whilst our Neutral stance acknowledges the negative sector sentiment that is unlikely to unwind short term, we remain alert to buying opportunities into any weakness.
Companies: Pendragon 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: N Brown Group Plc
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
Companies: BCA CLIN CLG CBP DNLM EAH STU FCRM FUTR GTLY INS GLE NICL SDL SPR TRI
Vertu has delivered a respectable set of FY2019A results, which are 7.3% ahead of our forecasts at the adjusted PBT level. We tweak our headline forecasts at this juncture, to reflect higher levels of revenue, with growth in gross profits despite margin pressure coming through in new and used and continued cost pressure across the business, albeit we expect these are beginning to stabilise. We also note the significant cash beat in 2019A and our net debt forecasts for 2020E and 2021E are lower as a result, with a cash pile building in 2021E. We believe the asset backing in this Group remains compelling (NAV per share 44.9p) and it remains well positioned to deliver strong levels of shareholder value across a number of different fronts.
Companies: Vertu Motors Plc
Government bans on new fossil fueled vehicles in many major economies are likely to drive significant growth in electric vehicles (“EVs”) over the next twenty years. This will create growth in electricity demand from EV charging. The volume of energy to be supplied creates opportunities for both supply companies and generators and the provision of charge points is already creating a new industry. However, the timing of this demand puts pressure on local distribution infrastructure. While smart charging and vehicle to grid technology offer solutions, we believe these will only be partial given likely charging behaviour and as a result there will be demand for additional grid capacity and for other solutions. These other solutions include charger located storage and distributed generation.
Companies: CNA NG/ YU/ DRX GOOD RED SMS IKA AFC
Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.
Companies: ABBY AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CDM CSRT TIDE CYAN JET2 DEMG ELM EMR FPO FDEV GTLY GENL GHH GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KAPE KEYS KWS KCT KGH LAM LIT LOK MACF MANO MOD OXIG PCA PANR APP SRE PHC PMO RBW RMM RBGP REDD RSW RNO ROR SUS SCPA SEN SHG SOLG SOM SUMO TM17 INCE TWD TRAK TRI VNET VTC ZOO ZTF
The Fulham Shore Plc (“FUL”) released interim results for the 6m period ended 29 September 2019 in-line with expectations as strength in the Franco Manca portfolio more than offset weather-related contraction at The Real Greek. We make minimal changes to our underlying forecasts and introduce a forecast for 2021. Nine restaurants have been opened so far in this financial year (year end March 2020) and the Company is now guiding a further eight to ten in the next financial year. We note that the financials now incorporate IFRS 16 for Leases which came into effect on January 1 2019. IFRS 16 does not impact cash balances but does lead to some material changes to the presentation of the financial statements.
Companies: The Fulham Shore Plc
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.
Companies: Gear4music (Holdings) Plc
Unsurprisingly, the limited business progression in H1 19/20 and the pandemic outbreak towards the end of the year have resulted in a significant FY profit contraction.
However, the unprecedented pandemic crisis seems to be dragging all the industry to the same starting line, in terms of market transformation. In particular, after the group showed a better than expected cash position after additional RCF and CCFF and substantial cost-savings, this gives new hope to the market.
Companies: Marks & Spencer Group Plc