XPS Pensions Group PLC

XPS Pensions Group PLC (LON: XPS) is an FTSE All-Share index listed holding Company founded in 2012 and headquartered in Reading, the United Kingdom. The Company is involved in pensions actuarial, consulting and administration business.

On 24 June 2021, XPS is expected to announce its full year results for FY2021.

Investment Rationale for Valuation – Speculative Buy at GBX 130.00

• The UK has a rising aged population which would support a massive demand for retirement solutions. Hence, XPS could leverage this demographic dividend.
• XPS anticipates demand for additional services to continue as pension trustees continually seeking support and guidance throughout the pandemic. It also had a resilient business performance despite the pandemic.
• XPS expects to gain further market share in pensions, consulting and actuarial highlighting its fast growing business.
• In the last one month, the Company delivered a return that is higher than its benchmark FTSE All-Share index return, i.e. the stock outperformed the index. It could be a positive signal to the shareholders that this trend would continue in future.

Key Risks

• The Company could face aggressive competitor pricing, major technological innovation and change in consumer demand.
• Due to macro-economic downturn, there could be market volatility, interest rate risks and foreign exchange fluctuations.
• The asset management industry in the UK is likely to face continued market volatility.

Recent News

Waiver of Fees by XPS: On 10 May 2021, the Company announced that it is waiving its commercial property purchase fees for new clients until the end of September 2021.

FY2021 Pre-Close Trading Update (released on 23 April 2021)

• Driven by a resilient business model and strong client base, the Company delivered a solid financial performance in FY2021 with top line being up ~7% YoY.
• This growth in overall revenue was fuelled by growth in revenue in Pensions Advisory by ~6% YoY and growth in National Pensions Trust business revenue by 35% YoY.
• Each component of Pensions Advisory contributed to its growth. Pensions Actuarial & Consulting was up by 3%, Pensions Investment Consulting rose by 21% and Pensions Administration business grew by 9%.
• Growth in National Pensions Trust business was driven by assets prices bouncing back at a faster pace as well as additional asset transfers. This also resulted in a healthy assets under management of over £1 billion. 

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

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

Conclusion

XPS has been performing resiliently despite the Covid- 19 pandemic with a high degree of visibility on revenues as it expects demand for additional services to continue as pension trustees have been seeking advice and support throughout the pandemic. Also, the Company expects to leverage new opportunities lying in Pensions Actuarial and Consulting domain to acquire further market share. The rising aged population in the UK is providing a massive opportunity for Companies offering retirement solutions and XPS is likely to gain substantially from that. The stock made a 52-week low and high of GBX 104.00 and GBX 145.00, respectively.

We have valued the stock using the P/B based relative valuation methodology and arrived at a target price of GBX 154.07. On the technical chart, the next important support level is at GBX 113.40.

Based on the significant future growth opportunities, resilient financial performance, operational excellence of the Company, long term prospects and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on XPS Pensions Group PLC at the current market price of GBX 130.00 (as on 11 May 2021 at 10.00 AM GMT), with a lower double-digit upside potential based on 1.99x Price/NTM Book (approx.) on FY22E book value per share (approx.).

OptiBiotix Health PLC

OptiBiotix Health PLC (LON: OPTI) is an FTSE AIM All-Share index listed life sciences Company founded in 2012 and headquartered in York, the United Kingdom. The Company develops a range of products to modify the human microbiome.

Investment Rationale for Valuation – Speculative Buy at GBX 48.40

• The biotechnology industry in the UK is expected to grow as the government focuses on science and research with increasing investment in R&D.
• The UK has an aging population. It would drive the demand for medical treatments providing the growth opportunity for the Company.
• The Company is expanding globally with new product launches in Asia, agreements to distribute final products in Africa and product launch in the USA.
• On the leverage front, OPTI consistently had less than a 0.15x Debt/Equity ratio since FY2012. This ratio is below the industry median of 0.17x. It indicates the significant financial flexibility of the Company.

Key Risks

• The Company is exposed to a highly competitive market. Increased competition could lead to market share decline.
• The demand-supply gap of skilled professionals could impact the financials as salary could substantially go up.
• Foreign exchange rate fluctuations could affect the financials as the Company has international operations.
• If products are not approved, it creates uncertainty among investors. 

Commercial Strategy Update (released on 17 March 2021)

• The strategy would drive a sustainable business and profitability for the probiotic and functional fibre divisions driven by the further brand presence and early sales of the Company’s first-generation functional ingredients.
• In the next phase of the strategy, the Company is focused on scaling the first-generation product sales for commercial use along with an expansion of products and territories.
• To achieve this, OPTI would take several measures such as extending product range with Holland and Barrett, the launch of products in Asia, signing an agreement to distribute products in Africa, launch of Dietworks Appetite control gummies in the USA, etc.
• The Company would also undergo stability studies, as these are prerequisites for regulatory approval in many countries as well as from large corporate partners.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

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

Conclusion

Driven by extensive support from the UK government, the Biotechnology industry has great opportunities for growth. The Company expects strong growth in FY2021 with a strong brand presence and sales of functional ingredients followed by an extension of product lines and territories. OPTI is also undertaking stability studies to undertake deals with multiple partners across geographies so that it could increase margins by placing large orders. The stock made a 52-week low and high of GBX 45.30 and GBX 72.00, respectively.

We have valued the stock using the P/B based relative valuation methodology and arrived at a target price of GBX 58.16. On the technical chart, the next important support level is at GBX 41.90.

Based on the strong prospect of the business, further product launches across geographies, strong brand building, expected higher margins, financial flexibility arising from low debt/equity ratio and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on OptiBiotix Health PLC at the current market price of GBX 48.40 (as on 11 May 2021 at 09.32 AM GMT), with a lower double-digit upside potential based on 4.46x Price/NTM Book (approx.) on FY21E book value 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).

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

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