Goco Group Plc - Facing Unprecedented Challenges

Goco Group PLC (LON: GOCO) is a United Kingdom-based holding Company. The Group’s principal activity provides an insurance price and product comparison website. The Company’s segment includes Insurance and Strategic Initiatives.

On 30 July 2020, the Company will announce the interim results for FY20

Recent News

On 3 July 2020, the Group appointed Alan Burns as Chief Financial Officer (CFO) with effect on 1 September 2020. Burns replaces Nick Wrighton, who was in the role for four years since 2016.

Q2 Covid-19 Update (as on 3 June 2020)

Autosave is likely to have more than 460 thousand customers by the end of June. In April 2020, the domestic energy service switching decreased by 29% year on year. The marketing expense of GOCO was in line with the guidance provided previously. The Group explored DRTV (direct response television) to expand customer outreach in May 2020. The motorbike insurance search volumes increased in May 2020. The car insurance search volume on Google reduced by approximately 25% post-lock-down in the period from 21 March 2020 to 18 April 2020; however, the search volume enhanced in May 2020. The Group has suspended the travel insurance price comparison business until the UK’s travel guidance is received.

Share Price Performance

 

1-Year Chart as at July-13-2020, after the market close (Source: Refinitiv, Thomson Reuters)

Goco Group Plc’s shares closed at GBX 98.00 on 13 July 2020, down by 0.51% against the last day closing price. Stock 52 week High and Low were GBX 107.60 and GBX 42.80, respectively.

At the current trading level, 14 days relative strength index of the stock was not favourable, and prices could fall further from the current trading level, representing overbought level.

Valuation Methodology



Key Risks

The Group faces potentially increased brand advertising by rivals or an increase in the paid traffic costs. GOCO may have to increase spending on the technology platform in order to match investments by rivals. A negative effect on future financial performance and reputation could arise from an inability to adapt to changes in customer behaviour and expectations quickly.

Conclusion
In the consumer preferences post-lockdown, the Company experienced fundamental changes, but they expect that to return to normal in some time. GOCO wants to change how people save their money and want consumers to come out of loyalty pricing trap. The Group anticipates the purchase of insurance policies to bounce back in some time. Goco Group is fully equipped to meet changing customer preference and thus confident of generating positive cash flow despite challenging conditions. The current trend shows a declining evolution, mainly due to the outbreak of COVID-19. Higher customer acquisition costs drive major key risk for the Group. Customers require significant education before signing up, and GOCO does not have significant energy market-focused traffic. Moreover, the Company’s stock is trading near a 52-week high, raising doubts at the upside potential at the current price level.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing market price of GBX 98.00 (as on 13 July 2020), while we look for any upcoming catalysts in the near term.

DFS Furniture Plc - Decent Performance in Volatile and Uncertain Environment

FTSE All-Share listed DFS Furniture PLC (LON: DFS) is a United Kingdom-based Home Improvement Retailer Company, which manufactures, designs and distributes living room and upholstered furniture products since 1969.

In July 2020, the Group will announce the period ending trading statement.

Recent News

On 23 April 2020, the Group had raised £64 million through the placing and subscription of 42.6 million shares at 150 pence per share.

Trading Update (as on 22 April 2020)

The Company's websites continued to take orders and remained operational during the Covid-19 led restrictions. The Group witnessed strong momentum in the online platform with the online gross sales orders increased by 24% in the period from 25 March 2020 to 19 April 2020. The Group's order bank surged from approximately £185 million on 25 March 2020 to £194 million as on 19 April 2020. The Board has also taken effective steps to surge the resilience of the business by strengthening the DFS's liquidity position and balance sheet with additional financing.

Share Price Performance


 1-Year Chart as at July-13-2020, after the market close (Source: Refinitiv, Thomson Reuters)

DFS Furniture Plc’s shares closed at GBX 155.00 on 13 July 2020, down by 0.64% against the last day closing price. Stock 52 week High and Low were GBX 302.00 and GBX 101.80, respectively.

From the technical standpoint, shares were trading well below the short-term support level of 50-day simple moving average prices, which reflects a downtrend trend in the stock.

Key Risks

There are some principal risks and uncertainties, which could impact the overall business of the Company. The decline in market demand for the Company’s products could affect the revenue of the Company. The Group operates in a competitive market, and excessive competition could affect the Group’s revenue and profitability. Brexit uncertainty could hamper the operations of the Company.

Conclusion

The Company’s cash operating costs are projected to be less than £14 million per month until the DFS’s showrooms, manufacturing, and distribution operations re-open. Going forward, the store closures and lockdown scenario amid Covid-19 contagion would further affect the financials in H2 FY20 and eventually full-year results.

Besides, short term uncertainties, the management is confident about the financial strength and upcoming strategies to tap the long-term future opportunities. In the longer term, when the trading environment normalises, the management is confident that the Company can navigate the unprecedented crisis created by COVID-19 and deliver the strategy over the longer term.

Furthermore, the supply chain issues would keep impacting the Company at least in the short run. In such an environment, financial implications would be coupled with liquidity crunch and fluctuating exchange rates. However, the Group has made as much progress as possible to navigate these challenging times.

Based on the factors highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 155.00 (as on 13 July 2020), with support from new catalysts to be evaluated at a later stage.
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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