Restore Plc

Restore Plc (LON: RST) is an FTSE AIM 100 index listed Company, which provides document management and relocation services to offices and workplaces in the private and public sectors. 

Investment Highlights - Restore Plc – Speculative Buy at GBX 300.00

• In the Q3 FY2020, the Company witnessed good momentum across businesses and is expecting higher results in H2 FY2020.
• As per valuation metrics, EV/EBITDA, Price/Cash Flow and Price/Book Value multiples of the Restore Plc are currently lower as compared to the corresponding multiples of the Professional & Commercial Services industry. It reflects, shares are undervalued as compared to the industry.
• Over the course of 4 years (FY15 – FY19), the Company’s net profit surged from GBP 6 million in FY2015 to GBP 16.70 million in FY2019. Compounded annual growth rate (CAGR) stood at ~ 29.16%.
• From the technical standpoint, 14-day RSI is supporting an upside move (around 39 level), which means the stock price could increase in the short term.

Key Risks

• Global political uncertainty regarding trade policy also poses a risk for the Company, including protectionist measures and regulation or legislation in the local markets.
• Furthermore, the Company’s performance is subject to various other risks, including finance and liquidity risk, cyberattack risk, change in market dynamics, and loss of confidential customer records.

Trading Update for nine months period ending 30 September 2020 (released on 1 October 2020)

• The Company witnessed an increase in activity levels, and new business wins in Q3 FY2020 across all businesses.
• The revenue in Q3 improved by around 16% and profit increased by approximately 50% versus Q2 FY2020.
• The Company has a strong cash generation, and managed to reduce net debt, while property rationalisation remained on track as planned.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown good momentum in the third quarter of the financial year 2020. Both the revenue and profit have increased compared to Q2 data, driven by cost actions taken in Q2. Restore has a strong balance sheet and strong cash conversion and expects a reduction in net debt in between £5 million to £10 million in H2 FY2020. The Records Management business is rapidly approaching pre-COVID levels of profitability. By November, the Company expect 10% spare capacity in staff, which will help in a further increase in customer activity in December and the first quarter of FY2021. The Company expects the market to remain uncertain in coming months, based on confidence in project activity and sales pipeline, the performance is H2 FY2020 will improve. The stock made a 52-week low and high of GBX 295.00 and GBX 560.00, respectively.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation for Restore Plc at the current price of GBX 300.00 (as on 28 October 2020, before the market close at 12:05 PM GMT), with lower double-digit upside potential based on 22.79x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Filta Group Holdings Plc

Filta Group Holdings Plc (LON: FLTA) is an AIM-listed commercial company, which is a provider of a variety of services to commercial kitchen operators and owners.

Investment Highlights - Filta Group Holdings Plc – Speculative Buy at GBX 80.70

• The Company made encouraging progress in Europe and North America, along with a healthy pipeline.
• In the last six months, the Company delivered a substantial return of ~ 30.16% and delivered higher returns compared to the benchmark Index (FTSE-AIM Index).
• Over the course of 3 years (FY16 – FY19), the Company’s revenue surged from GBP 10.08 million in FY2016 to GBP 24.92 million in FY2019. Compounded annual growth rate (CAGR) stood at ~ 35.22%.
• From the technical standpoint, 14-day RSI is in oversold zone and supporting an upside move (around 31 level), which means the stock price could increase in the short term.

Key Risks

• Government policies of social distancing and lock-down are having a pronounced effect on the Group’s trading.
• The failure of a major franchisee may lead to a loss of revenue and a bad debt.

Financial & Operational Highlights – H1 FY2020 (30 June 2020) (released on 15 September 2020)

• In the first half of the financial year 2020, due to the impact of a covid-19 pandemic, the revenue declined, while the Company managed to reduce overhead costs by 23% in Q2.
• The operating cash flow increased for the period, and the Company managed to increased cash balance by 11% with reduced net debt.
• The Company in May launched FiltaShield and secured licensing agreement with NTH Solutions, support services group owned by NHS Trust.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

Due to the impact of lock-down restrictions and social distancing protocol, the Company business was impacted significantly and resulted in a loss in the first half of the financial year 2020. Despite the lower financial performance, the Company witnessed improvement in sales trend with 40% growth in June and July. FLTA expects the market to remain uncertain in H2 FY2020 and is focused on supporting customers to meet increased demand. The Company holds a strong financial position and is a market leader in its operating territories. Filta Group Holdings is confident of emerging stronger once COVID-19 passes. The stock made a 52-week low and high of GBX 42.00 and GBX 195.00, respectively.

Based on the above rationale, we have given a “Speculative Buy” recommendation for Filta Group Holdings Plc at the current price of GBX 80.70 (as on 28 October 2020, before the market close at 8:21 AM GMT).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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