Franchise Brands has conducted a placing to raise gross proceeds of £14m at 90p per share. The Group is raising additional equity to strengthen its balance sheet, improve liquidity and position itself to take advantage of earnings-enhance growth opportunities as they arise. Franchise Brands has also provided a more detailed CV-19 update. Total staff costs have been reduced -45% through the furloughing of staff and pay cuts (c.66% of pay cut savings from Board salaries). Most of the services provided in the B2B division have been designated by the government as essential and order intake at Metro Rod is running at c.60% of 2019 levels.
Companies: Franchise Brands
Franchise Brands has announced the successful conclusion of an equity placing at 90p raising a gross £14m for the Company. The funds will strengthen the Group’s balance sheet by eliminating net debt and establishing the business in an optimal position to effect a strong recovery post the lockdown while also allowing the Board to exploit any M&A opportunities. In the current environment, we would advise that the forecasts below are under review until an element of clarity is available.
Franchise Brands has provided a trading update addressing the uncertainty posed by COVID-19. The majority of services provided by Metro Rod, Metro Plumb and Willow Pumps have been designated by the Government as essential services to ensure the smooth running of public utilities and other key businesses. The Group has legal flexibility to remain open across these businesses and will reduce overheads in line with any expected revenue reduction. The B2C division has experienced a recent contraction in demand and management are taking cost saving initiatives to keep the division at a cash break-even level during the crisis. The Group's B2C and B2B divisions intend to make use of the Government's Coronavirus Job Retention Scheme. Franchise Brands expects to remain profitable for the year but at lower levels than originally anticipated, we leave our forecasts unchanged but expect a fuller update at the time of FRAN's AGM on 28 April 2020
Franchise Brands has released a trading update stating that Q1 trading was strong and in line with management’s expectations. However, COVID-19 is beginning to have an impact on the business and the Board is taking a number of measures to mitigate its effects including reducing higher paid staff salaries by 20% and the Board’s, collectively, by 50%. The B2B businesses are still operating as normal and are expected to do so through the length of the crisis but at reduced volumes. The B2C franchise businesses have seen a recent severe downturn in activity and action is being taken to enable the division to run at cash breakeven. We are currently maintaining forecasts but will reevaluate following the AGM update on 28 April.
Franchise Brands has reported impressive 2019 results, ahead of our forecasts at all levels. Fee and direct labour income increased +35% led by a strong growth in Metro Rod system sales, impressive recruitment among the B2C brands and a 3-month contribution from Willow Pumps. The Vision 2023 strategy has been well received by Metro Rod franchisees and system sales have grown at a CAGR of +12% in the three years Franchise Brands has owned the business. This impressive sustained growth has resulted in 45% of Metro Rod franchisees achieving annual sales in excess of £1m (2018: 34%) and continued investment in capacity to facilitate further growth. Willow Pumps is highly complementary to Metro Rod and has exceeded expectations in its first three months of ownership. We introduce forecasts, which we view as conservative for 2021 of +20% Adj EBITDA and +21% Adj EPS growth to £8.8m and 7.0p.
Franchise Brands’ results for FY2019 confirm, once again, the strength of its operating model and the robustness of its centralised support systems that have enabled sales within Metro Rod to flourish and which are now supported by the complementary acquisition of Willow Pumps in October 2019. We expect earnings growth to continue and while we are leaving FY2020 forecasts unchanged this still implies significant yearon-year EBITDA and EPS growth of c.44% and c.39% respectively, while forecasts for FY2021 call for the delivery of c.20% growth in EBITDA and EPS from a revenue growth of c.14%, illustrating the operational leverage within the business.
Franchise Brands has released a very encouraging trading update that confirms the Group's revenue and profits for FY2019 to be at least in line with consensus market expectations. This strong performance was driven by excellent growth in System Sales by the Metro Rod franchisees. Willow Pumps, which was acquired in October 2019, is trading in line with the Board's expectations and the integration of the business into the Group is progressing well.
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Franchise Brands’ trading update for the year to December 2019 states that results are expected to be “at least” in line with consensus market expectations which the Board believes to be revenue of £40.55m, underlying EBITDA of £5.15m and underlying EPS of 4.26p implying significant year on year growth. Allenby Capital’s forecasts are marginally above consensus, however, our forecasts remain unchanged for FY2019 and FY2020. With Metro Rod trading well, the Willow Pumps acquisition bedding in nicely and the B2C franchise businesses experiencing strong franchisee recruitment and cash generation, we view the future with confidence and have raised our fair value from 120p to 145p.
Franchise Brands has announced the acquisition of Willow Pumps, a leading water pump supply, installation and servicing business. Willow Pumps is a strong strategic fit and offers an optimal way for Franchise Brands to enter a specialist market to support its long-term objective to provide a 'water in, waste out' solution to commercial customers nationally. We view the acquisition as highly complementary and significantly earnings enhancing. The Group has provided a trading update for Q3 and continues to trade well.
Franchise Brands has announced the acquisition of Willow Pumps (Willow), a leading water pump supply, installation and servicing business, for an initial consideration of £5m (net of £0.7m non-trading cash) payable in cash and shares with a performancebased deferred consideration of up to £7.5m. Willow is not a franchise business but is highly complementary to the activities of Metro Rod and Metro Plumb, significantly extending the services that these businesses can offer. The acquisition will be consolidated into the Group’s accounts for three months of FY2019 and we have raised EPS forecasts for that year by 5% to 4.3p. For FY2020 EPS forecasts are raised by 20% to 6.0p. To reflect the complementary nature of the acquisition and earnings upgrades, we have raised fair value from 100p to 120p.
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Whilst Arena delivered FY20E results in line with our expectations, this has inevitably been overshadowed by the challenges posed by COVID-19 to the industry. Arena acted swiftly to cut costs and preserve cash, such that it currently has a c£23.5m cash balance. This is enough to see the company through into 2021, even if the global event market remains heavily disrupted for the rest of the year.
Companies: Arena Events
Air Partner has issued a further shareholder update, confirming PBT of at least £10m in the first five months of the year to June, an increase of £2.5m since the last update to May. The Group continues to deliver impressive results despite a challenging market backdrop. As has been the case throughout the COVID-19 crisis, performance has been driven by strong activity in the Freight and Group Charter divisions. Crisis driven activity is expected to reduce in H2, with an anticipated recovery in the Group’s core activities, where the update reports positive early indications across the Group’s divisions. The balance sheet is very well supported, with net cash at 30th June standing at £13m post the recent £7.5m fund raise. The Group continues to have access to total debt facilities of £14.5m. Whilst visibility for H2 remains limited, we believe the Group is well placed to deliver a strongly profitable FY21 result.
Companies: Air Partner
Gaming Realms is a creator and licensor of innovative games for mobile, with operations in the UK, U.S. and Canada. Through its unique IP and brands, Gaming Realms brings together media, entertainment and gaming assets in new game formats.
Companies: Gaming Realms
The group has today announced the conclusion of a structured development and succession plan implemented by the Board over the past 2 years. CEO Phil Maudsley will be succeeded by Paul Kendrick at the end of the current financial year (March 2021). Phil leaves the group in excellent shape, having completed a major transformation of the group over the last 10 years, from a heavily indebted mini conglomerate to a digital-first value business with bright growth prospects. Studio Retail’s transformation from a small Christmas catalogue retailer to an agile online value retailer back by a strong integrated credit operation was clearly evidenced by the June update, highlighting the best growth rate in the listed retail space (+55% YTD). Phil will be involved over the remainder of the current year to ensure a smooth transition and handover to Paul who has made a significant contribution to recent strategic and operational enhancements, and who leads the business forward with a clear and exciting 5 year growth plan.
Companies: Studio Retail Group
Halfords 3Q IMS is in our view positive with PBT forecasts for FY 2020 held at £50-55m and good LFL in Retail cycles +5.9% and Autocentres +4.6% where most of new management development work has been focused. Retail Motoring products LFL -2.7% continues to show impacts of discretionary spend softness in our view. Management retains its caution about near term demand prospects overall and its development programme in Autocentres and key aspects of the business overall (notably new integrated website) moves up a notch in calendar 2020. This said PBT guidance for 2019/20 has been maintained and this trading shows promise in our view.
Companies: Halfords Group
AFC Energy is a global leader in the fuel cell sector. It has a proven fuel cell technology which it is commercialising through its H-Power™ product, an off-grid electric vehicle charging system which is run on hydrogen and produces no emissions. The company's core fuel cell technology is a liquid alkaline fuel cell called HydroX-Cell(L)™. The company is also developing a solid alkaline fuel cell called HydroX-Cell(S)™ , the critical component of which is a is a solid electrolyte which upon validation will be marketed under the AlkaMem™ trademark. We expect the AlkaMem™ product to have multiple electro-chemical applications outside of fuel cells. The purpose of this note is to compare AFC Energy's products, markets and business strategy against its listed peers Ceres Power and ITM Power. The note also assesses the state and outlook of the hydrogen market in addition to the proton exchange membrane market, which is relevant for AFC Energy's AlkaMem™ product. As a reminder, we believe AFC Energy has a fair value of 27p/sh.
Companies: AFC AFC AFC
Directorate change: DWF has announced that Andrew Leaitherland will step down as Group CEO and a managing partner of DWF Law LLP and DWF LLP with immediate effect and will be replaced by the Group’s Chairman Sir Nigel Knowles. Sir Nigel has over 40 years of experience in the legal sector and was previously. Global Co-Chairman and Senior Partner of DLA Piper. We believe he has the experience and leadership qualities required to lead the Group through the near-term challenges it faces. Chris Sullivan, Senior Independent Non-Executive Director, has been appointed as interim Chairman.
Companies: DWF Group
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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Lookers has announced a trading and operational update, which shows it has done a lot behind the scenes to improve its digital buying process, with some evidence of activity at lower than normal capacity levels. Further restructuring measures have been taken with a further 12 sites set for closure, while headcount is likely to be 25% down YOY if planned redundancies take place. The 2019A results are expected at the end of the month, albeit subject to audit and banking discussions taking place to amend covenants. Overall, we believe management are taking the right steps to ensure Lookers is a sustainable business in a post COVID-19 environment.
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.
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DP Poland has issued a scheduled AGM trading update covering the first 5 months of the year. Trading for the period is reported to be broadly in line with management’s expectations. The update adds a bit more colour around the Covid19 impact. Briefly, LFL’s declined to -14% in the last two weeks of March but significantly as Polish consumers adapted to the lockdown restrictions and gravitated to online channels, LFL’s quickly recovered to a robust +3% over April and May, with total system sales +6% - highlighting virtues of having a strong online and delivery proposition. We note this is not too dissimilar to the +5.1% LFL Domino’s Pizza recently reported for its UK business for Q2 but significantly, better than -9.2% for Republic of Ireland. The update reinforces comments made at the 22nd May finals around favourable labour and food input cost trends due to Covid-19. There is also reference to positive interaction with food aggregators, Pyszene.pl (takeaway.com) and Glovo. We see these relationships as accretive in raising brand awareness and volumes outside Warsaw where the company at present has a smaller footprint. New CEO, Iwona Olbrys, continues to focus on enhancing the customer proposition to further differentiate DP Poland from the competition through a stronger online platform, quality and speed of delivery whilst simultaneously targeting cost savings. With little FY20 visibility management recently removed financial guidance. N+1 Singer currently has no formal forecasts in the market and will initiate coverage in due course Overall, looking through the current uncertainty, we feel that with a proven new CEO at the helm and an online focused business model, DP Poland should ultimately reward investors with a move into profitability and value creation.
Companies: DP Poland
We called the stock wrong ahead of these prelims. Instead of market forecasts being upgraded, fresh guidance has led to downgrades. While frustrating for expectant shareholders, this is not a profit warning but a ‘delay’ in the recovery of lost margin (FX mitigation), and an ‘acceleration’ of investment into services and customer capability which should generate a return in outer years. Pending the new CEO’s strategic update in Sept, though, Halfords growth plans in FY20/FY21 are unclear. Including nil growth in FY1, our new forecasts suggest a 6% 3-yr EPS CAGR. Until there is clarity the market will sit on its hands, and collect a 5.3% yield (or 3.5% on the final) in the meantime. To reflect this flat near term growth dynamic, our reduced 12-month target price of 350p is based on a 25% sector discount (6.0x EV/EBITDA). Hold.
The proposed acquisition of easyGym stacks up strategically and financially. It further reinforces the Groups roll-out and consolidation led growth model and strengthens its position in the value segment. Current trading is strong with positive commentary around the premium pricing initiative. We will publish formal forecasts in due course but our preliminary analysis suggest 9%/8% EPS accretion in FY19/FY20. Premium pricing success should add at least a further 5% to these estimates, implying a look through FY19 P/E of 18.5x vs a 3 year EPS CAGR >30%. We lift our 12m TP to 335p – Buy.
Companies: Gym Group
Quiz’s warning came as a shock, particularly so soon after a positive AGM update. Our post mortem reveals the revenue shortfall is almost entirely due to the erratic demand dynamics of its 3rd party online web partners. Each key partner appears to have experienced unrelated drops in growth beyond the unseasonal transition from summer to autumn. Rather than being Quiz led, whose own performance online and in-store has remained strong, these were factors outside its control. Downgrades of c35% now strip out all growth from these partners but we would not be surprised to see growth reappear if/when partners address the issues. Buy on this set-back.
Companies: Quiz 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