Royal Mail Group Plc

Royal Mail Group Plc (RMG) is an Industrial Transportation company having operations globally. The company presently operates in around 44 countries worldwide. The company is having an employee base of 160,000 people and is delivering over 1.8 billion parcels and 14 billion letters annually. The company operations are divided into 2 businesses being General Logistics Systems (GLS) and UK Operations. In the United Kingdom, the company operates under Parcelforce Worldwide and Royal Mail brands. The company is targeting expansion outside Europe through acquisitions.

Recent News
On 30th May 2019, Royal Mail Plc announced the appointment to Sarah Hogg as Non-Executive Director effective from 1 October 2019. Sarah holds vast experience in public and private sector companies.

Financial Highlights – Financial Year 2019 (£, million)

(Source: Annual Report, Company Website)
 
In the financial year ending 31^st March 2019 (53 weeks), the company’s reported revenue was up by 4.02 per cent to £10,581 million against £10,172 million in FY2018. The increase in revenue was driven by the impact of the 53rd week in UKPIL segment and high revenue from parcels in the UKPIL and GLS segments.

The operating profit before transformation costs stood at £474 million in FY2019 against £236 million in FY2018. The operating profit after transformation costs stood at £341 million in FY2019 against £123 million in FY2018. The reported operating profit for the FY2019 was £160 million against £66 million in FY2018. The company’s earnings before interest and taxation were £175 million for FY2019 versus £137 million in FY2018.

The company’s profit before taxation was £241 million for FY2019 versus £212 million in FY2018. The company paid a tax expense of £66 million in FY2019 against a tax rebate of £46 million in the FY2018. The profit for the year declined by 32.17 per cent to £175 million in FY2019 from £258 million in FY2018. The company’s reported basic earnings per share for FY2019 stood at 17.5 pence versus 25.9 pence in FY2018. The company’s diluted earnings per share for FY2019 stood at 17.5 pence versus 25.7 pence in FY2018.

Share Price Performance

Daily Chart as at June-17-19, before the market closed (Source: Thomson Reuters)
 
On June 17, 2019, at the time of writing (before the market close, at 4:27 PM GMT), Royal Mail Group Plc shares were trading at GBX 204.20, up by 2.13 per cent against the previous day closing. Stock's 52 weeks High and Low is GBX 515.80/GBX 192.00. Total outstanding market capitalisation was around £2 billion, with a dividend yield of 12.50 per cent.

Valuation Methodology


Conclusion
The company haddelivered a decent financial performance in the current financial year. The company had showngood top-line performance. The company’s revenue from itsUKPIL and GLS businesses had shown good growth and offset the decline from its letter business.The company through the integration of its existing acquisitions is focusing more on B2B and selective progress in B2C. The group is improving its UK network which will help them in the growth of e-commerce business. To make its business geographically-diversified, the company is combining the strengths of its Royal Mail and GLS businesses.

Based on the strong growth prospects of the company and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 199.95 (as on 14th June 2019) with high single-digit upside potential based on 2.90x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).

Synthomer Plc

Synthomer Plc (SYNT) is one of the world’s leading suppliers of polymers. The company helps its customers from different industries which include construction, paper, synthetic latex gloves, textiles and coatings to create new products and improve the existing products performance. The company increased its product portfolio and expand in other markets after the acquisition of Hexion’s Performance Adhesives and Coatings (PAC) business in the year 2016. The company has its operations worldwide with the Middle East, Asia, Europe and North America being the major markets.The company’s products are available in over 100 countries because of a wide network of distributors and agents.

Recent Update
Synthomer Plc will announce its half yearly earnings for FY2019 on 6^th August 2019.

Trading Update
For the Q1 ending 31^st March 2019, the Elastomers had shown robust Q1 performance. Nitrile high demand resulted in improved volumes and margins. Styrene Butadiene Rubber market remained challenging with soft demand. The company’s Functional Solutions performance remained decent. The volumes remained low due to a slow start in the European region and the company sold 51 per cent of its Dubai Operations. The company’s expansion projects in Roebuck, USA and Worms, Germany are on track. The company’s Industrial Specialities performance was as per management’s expectations.

Financial Highlights – Financial Year 2018 (£, million)

(Source: Annual Report, Company Website)

In the financial year ending 31^st December 2018, the company’s underlying revenue was £1,618.9 million against £1,480.20 million for the same period of the last year. There was an increase of 9.37 per cent due to an increase in revenue from operations in Western Europe, Eastern Europe, Malaysia and Rest of the world. The company’s underlying operating profit for FY2018 was £142.1 million against £139 million in FY2017. In FY2018, the company’s reported operating profit was £128.7 million.

The company’s underlying PBT (Profit before tax) for FY2018 was £135.1 million against £130 million in FY2017. The company’s reported PBT (Profit before tax) increased by 39.24 per cent to £120.3 million in FY2018 from £86.4 million in FY2017.

The company’s reported profit stood at £103.3 million in FY2018. The company’sreported basic EPS was 29.4 pence in FY2018 versus 21.8 pence in FY2017. The company’sreported diluted EPS was 29.2 pence in FY2018 against 21.6 pence in FY2017.

Share Price Performance

Daily Chart as at June-17-19, before the market closed (Source: Thomson Reuters)
 
On June 17, 2019, at the time of writing (before the market close, at 4:27 PM GMT), Synthomer Plc shares were trading at GBX 365.40, up by 0.11 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 580.50/GBX 346.60. Total outstanding market capitalisation was around £1.24 billion, with a dividend yield of 3.59 per cent.

Valuation Methodology


Conclusion
The company had delivered a decent financial performance in the current financial year. There had been an increase in both top-line and bottom line performance in the current financial year. The company had improved volumes and margins in Asia and Rest of the World (ARW)regions due to high demand in Nitrile. The company is targeting other markets through capital investment and strategic acquisitions.

Based on the strong growth prospects of the company and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 365.00 (as on 14th June 2019) with single-digit upside potential based on 9.10x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.
*The Buy recommendation is valid for the current price as covered in the report (as on 17th June 2019).

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