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

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.