ScS Group PLC (LON: SCS) 

ScS Group PLC is engaged in the retailing of upholstered furniture and flooring. Moreover, it focuses on the sale of fabric and leather sofas and sells a range of branded and ScS branded products sold under registered trademarks, including Endurance and SiSi Italia. SCS also offers a diverse range of third-party brands, including La-Z-Boy, G Plan and Parker Knoll.

Recent trend of dividend payments

SCS is following a progressive dividend policy and intend to keep earnings cover ranging from 1.25x to 2.00x. Moreover, it will pay a final dividend of 7.00 pence per share on 10 December 2021 with an ex-dividend date of 11 November 2021. It will take a full-year FY21 dividend to 10.00 pence per share. However, the Company was unable to pay any dividend during FY20 because of the adverse circumstances. 

Growth Prospects

• Strong Current Year Trading: The order intake witnessed a growth of around 11.90% on a two-year like-for-like basis for the nine weeks period ended 02 October 2021. Moreover, the year-to-date trading performance remained in line with the management expectations.
• Launch of New Website: The Company had improved the omnichannel offerings with the launch of a new website. Furthermore, it had helped the online sales to surge by around 146.0% during FY21 when compared with the prior-year levels.
• Repayment of CJRS Grants: The Company had managed to repay £3.0 million Coronavirus Job Retention Scheme (CJRS) grants following the successful reopening of the stores. 

(Analysis done by Kalkine Group)

 Key Risks

• Supply Chain Disruption: The recent shortage of lorry drivers in the UK had created supply chain disruptions and escalated the freight cost.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Rise in Interest Rates: The recent hawkish comments made by several central governments regarding a hike in the interest rates could make fundraising difficult for the Company.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of ScS Group PLC.

M & G Investment Management Ltd.is the most significant shareholder as it holds nearly 4.65 million shares as of 30 September 2021. 

FY21 Financial & Operational Highlights (for 53 weeks ended 31 July 2021, as of 05 October 2021)

(Source: Company result)

• Robust Increase in Revenue: Despite of challenging backdrop of the Covid-19 pandemic, SCS managed to drive revenue higher by around 21.6% from £255.5 million during FY20 to £310.6 million for FY21.
• Favourable Turnaround in Profitability: On the profitability front, the Company had demonstrated a favourable turnaround and reported a profit after tax of £19.10 million during H1 FY21, while it had reported a net loss of negative £2.20 million for H1 FY20.
• Marginal Cash Improvement: With regards to the balance sheet, the Company had improved the cash balance from £82.30 million at the end of FY20 to £87.70 million as of 31 July 2021.
• Strong Online Sales: The Company had managed to boost online sales as it got increased by around 146.0% to £46.9 million, driven by a change in shopping patterns due to the emergence of the Covid-19 pandemic.

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 07 October 2021, at 09:51 AM GMT+1, SCS’s shares were trading at GBX 258.00, up by around 0.39% from the previous day closing price. Stock 52-week High and Low were 340.50 and GBX 170.52, respectively.

From a technical perspective, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~29.88 is also supporting the upside momentum in the stock price.

Over the last one year, SCS’s stock price has delivered a positive return of ~33.33%, and it has outperformed the FTSE All Share Retailers index (benchmark sector) with a return of about 25.40%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

The Company had reported outstanding FY21 results with robust top-line revenue growth and switched back into profitability. Moreover, SCS adapted well after the emergence of the Covid-19 pandemic and launched a website to attract customers shopping online following the store closures. However, the Company witnessed a reduction in online sales after the reopening of physical stores as customers readjusted the habits. Nonetheless, the Company had entered FY22 with a strong order book. SCS had identified several operations headwinds such as driver shortages, raw material increases and shipping costs & delays. In a nutshell, the Company is well-positioned to generate long-term returns for the shareholders with a flexible and resilient business model.

Considering the robust top-line & bottom-line business during FY21, solid liquidity profile, improved cash position, higher dividend paid during FY21, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on ScS Group PLC at the current price of GBX 258.00 (as on 07 October 2021 at 09:51 AM GMT+1), with lower-double digit upside potential based on 11.00x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Disclaimer

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