M&G PLC

FTSE 100 listed M&G PLC (LON: MNG) is engaged into the savings and investments business that manages around 800 institutional clients in 28 markets.

Investment Rationale – BUY at GBX 197.68

• Solid Fundamentals: M&G has robust capital generation and solid dividend policy, reflecting solid balance sheet. It also has a good pipeline of new propositions with sustainable investment offerings.
• Acquisition: On 18 August 2021, M&G announced acquisition of Sandringham Financial Partners, which is an independent financial advice provider. The acquisition will add £2.5 billion of assets under advice to M&G PLC.
• Positive Financial Outlook: It is on track of meeting the target of £2.2 billion of capital generation by the end of FY22. Moreover, it on track to achieve cost-savings of £145 million through business transformation and modernisation by FY22.
• Undervalued Multiples: As per valuation metrics, Price/Earnings, Price/Cash Flow, and Price/Book Value multiples of the M&G PLC are currently lower as compared to the corresponding multiples of the Insurance industry.
• Technical Indicator: From a technical standpoint, 14-day RSI (~39.76) is in the oversold territory, while the stock price is hovering close to the lower Bollinger Band.

Risk Assessments

• Rate Hike: UK inflation slowed unexpectedly in September 2021, and thus, it is unlikely to deter Bank of England from interest rate hike.
• Market Risk: The likelihood of China Evergrande’s debt default risk poses a systematic risk to the financial markets. Moreover, the structural changes imposed by the Covid-19 pandemic has significantly changed the consumers’ behaviour.

Recent News

New Executive Appointment: On 13 September 2021, MNG appointed Clare Bousfield as managing director of Retail & Savings.

Interim Results (for the six months ended 30 June 2021, as on 10 August 2021)

 (Source: Company Website)

• Robust AuM: Following net client inflows of £2.2 billion, the Company’s Institutional assets under management (AuM) reached a record £89.7 billion.
• Dividend: The Company recommended an interim dividend of 6.1 pence per share, following the 6% year-on-year increase in adjusted operating profit before tax.
• Growth Prospects: MNG continued strong total capital generation and has repositioned the business for sustainable growth.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Book Value Approach (FY21) (Illustrative)

Conclusion

M&G has a good pipeline of new propositions, increased traction among clients, robust capital generation and attractive dividend policy, which shall generate a significant value for its shareholders. It also seems optimistic about the recovery in Retail Asset Management on the back of continued action on investment performance and improved value-for-money for its clients. The stock made a 52-week high and low of GBX 254.30 and GBX 143.75, respectively.

Based on the continued strong total capital generation, decent pipeline of new propositions, solid balance sheet, supported by the valuation conducted above, we have given a “BUY” recommendation on M&G PLC at the current market price of GBX 197.68 (as on 21 October 2021, at 8:25 AM GMT+1), with lower double-digit upside potential based on 1.13x Price/NTM Book Value (approx.) on FY21E Book Value Per Share (approx.).

Vesuvius Group PLC

FTSE-250 listed Vesuvius PLC (LON: VSVS) provides molten metal flow engineering and technology services. It serves the steel and foundry industries.

Upcoming Event: Next trading update is expected to be announced on 11 November 2021.

Rationale for Valuation – BUY at GBX 474.80

• Strong Platform for Growth: During H1 FY21 Vesuvius has reinforced its technology leadership, increased penetration of value-creating solutions, captured growth in developing markets, and improved cost margins.
• Economic Recovery: Despite the shortage of micro-chips, the UK’s manufacturing output increased by 1.8% in the Q2 2021, reflecting strong demand scenario economy reopens.
• Promising Prospects: There was a 100% improvement in the interim dividend, reflecting confidence in the optimized manufacturing footprint, new product pipeline, and ongoing R&D investment to generate substantial value for its shareholders.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, Price/Book, and Price/Cash Flow valuation multiples of VSVS are undervalued against the median of the Industrials sector.
• Technical Indicator: From a technical standpoint, the momentum oscillator RSI (~40.61) is in the oversold zone, while the stock price is hovering close to the lower Bollinger Band.

Key Risks

• Macroeconomic Risk: The slowdown in Chinese economy, supply chain snags, acute power shortages, sluggishness in factory activity, and inflationary market conditions can impact the Company's growth prospects.
• Activity Slowdown: British’s final manufacturing Purchasing Managers' Index sank for a fourth month in a row in September 2021 to 58.6 in September from August's 61.4.

Interim Results (for the half year ended 30 June 2021, as on 29 July 2021)

 (Source: Company Website)

• Financial Growth: During H1 FY21, revenue jumped 18% year-on-year on an underlying basis, reflected recovery in Steel and Foundry Divisions. Similarly, trading profit soared 54% year-on-year in H1 FY21 to £73.3 million.
• Strong Financial Position: VSVS continued robust working capital performance and improved Net Debt/EBITDA to 1.1x at the end of H1 FY21 from 1.2x at FY20 end.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion 

During H1 FY21, VSVS optimized manufacturing footprint established a new product pipeline and continued R&D investments to build a platform for further financial improvements. Moreover, the incremental selling price shown structural growth in its end markets of steel and foundry. Therefore, the trading profit in H2 FY21 is expected to be similar to H1 FY21. Beyond FY21, continuing structural growth in end markets shall present attractive organic growth opportunities. The stock made a 52-week High and Low of GBX 595.00 and GBX 387.40, respectively.

Based on the strong commercial performance, end markets recovery, incremental selling prices, market share gains, upcoming growth opportunities, and favourable valuation conducted above, we have given a “BUY” stance on Vesuvius Group PLC at the current market price of GBX 474.80 (as on 21 October 2021, at 8:10 AM GMT+1), with lower double-digit upside potential based on 17.00x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

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