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Inchcape has delivered H1 results, which are heavily impacted by COVID-19, but are ahead of our initial modelling expectations published in our last note. The Group appears to have outperformed in some of its key markets, whilst maintaining a robust balance sheet, with liquidity benefitting from strict working capital discipline driven by effective inventory management, with a cost reduction strategy now well underway. Overall, we continue to believe Inchcape is better equipped than most to get through this crisis and believe it should benefit from geographical diversification and its focus on Distribution.
The catering industry leader reported a mediocre Q3 trading performance but, fortunately, there was an improvement in the drop-through.
Companies: Compass Group
New management has put in place a strategy which the February interim results revealed was returning the group to growth with very encouraging LFL statistics and attractive returns on refurbished outlets. In March, however, in response to COVID-19 and following UK Government guidelines, all venues had to be closed.
Management initiatives have materially reduced the cash burn while the group is unable to trade, and the group’s lender has been very supportive in significantly increasing the borrowing facility.
Management is now proposing an equity issue, the rationale for which is to strengthen the leverage ratio to create a more appropriate capital structure moving forward, to allow an immediate return to the estate refurbishment programme and to be able to potentially take advantage of strategic opportunities as they arise as the sector emerges from the COVID-19 crisis.
Companies: Revolution Bars Group Plc
Following interim results reported last week, with H1 profitability and cash generation ahead of our previously published scenario analysis, we reinstate forecasts for FY20E and beyond today. Inchcape has delivered a resilient performance despite widespread market disruption. Its balance sheet strength creates the potential for further accretive M&A as well as returns to shareholders in the form of buybacks and possible return to the dividend list.
Companies: Inchcape Plc
bet-at-home reported headline figures for H120 ahead of consensus expectations. The results are encouraging given revenue growth in Q220 was better than might have been expected with the regulatory changes (Poland and Switzerland) and the impact of COVID-19 on sports betting. Management has reiterated its guidance for FY20, and the strong financial position makes the prospective dividend yield of 7.0% look attractive.
Companies: bet-at-home.com AG
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
Bowling, alongside low-cost gyms, is the strongest sub-sector of Leisure at present. Its fortunes have been revived over the last 5 years through product diversification, investment and a more family focused offering which is resonating with consumers seeking value and experiential treats. The sector is well established accounting for 3% of the family leisure market. We are attracted by its positive growth dynamics and minimal exposure to rising costs. We explore 6 themes in this note and initiate coverage on Hollywood Bowl (Buy; 250p 12m TP) and Ten Entertainment (Buy; 315p 12m TP), albeit with current year EPS forecasts 4% below consensus, reflecting recent prolonged hot weather concerns. On a 1-3 year view both have plenty of scope to further enhance shareholder value through self-help and site expansion.
Companies: Hollywood Bowl Group Plc Ten Entertainment Group Plc
The global online gaming market generated c £40bn of gross gaming revenues (GGR) in 2018 and newly regulating markets (the US) are expected to contribute to 7% CAGR to 2023 (according to H2 Gambling Capital (H2GC)). However, while regulated markets have provided significant opportunities for operators to date, government intervention remains a constant threat and legislation is tightening. Some mature markets (notably the UK) have been raising taxes and implementing regulatory burdens, which increases the cost of business. In our view, success will depend on a combination of scale, diversification, proprietary technology and a strong balance sheet. Many of the 12 operators in this report should benefit from these dynamics and sector valuations remain attractive, at 12.6x P/E, 8.2x EV/EBITDA and 6.0% dividend yield for FY19.
Companies: 888 ACX BETSB ORPH GVC GYS OPAP PTEC RNK WMH
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
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
The trade-off in the risk/reward for gold and gold mining equities is improving, as central banks push the current iteration of the post-World War II Bretton Woods financial order towards its limits.
Companies: AVO AJB AGY ARBB BUR CLIG DNL DPP FLTA GTLY GDR MCL MUR NSF PCA PIN SRE PHP RE/ RECI RMDL STX SCE TON SHED VTA W7L
JDW’s Q2 performance was slightly ahead of our estimates. The publican benefited as Britons continued to go out to eat and drink over Christmas and the New Year. Management’s disclosure of a further increase in FY19/20 net debt is a concern (although it is attributable to higher than expected capital expenditure). No significant changes to our financial estimates.
Companies: JD Wetherspoon Plc
Inchcape has announced it has suspended its share buyback programme in light of the current COVID-19 crisis. We believe this is the right stance to take in the current environment, with capital expenditure and dividends potentially saving a further £175m if required. Guidance for 2020E has been suspended for now, which is understandable given the complex supply/demand dynamics across multiple markets. The next update is Q1 IMS on 21 May, where we might get some further colour, but for now we will watch developments in each of its key markets closely.
IAG’s expectation of a faster-than-peers recovery in the activity might be affected by the UK government’s mandatary quarantine measures for all air passengers arriving in the country. Despite the industry-leading profitability and comfortable amount of cash in hand, the market environment remains challenging for the group.
Cenkos Securities plc has terminated coverage of Angling Direct Plc. Our previous recommendation (BUY) and forecasts can no longer be relied upon.
For further information please contact Cenkos.
Companies: Angling Direct Plc