Greencoat UK Wind Group PLC

Greencoat UK Wind PLC (LON: UKW) is a renewable infrastructure entity with the primary objective to invest in operating the UK wind farms and preserve capital on a real basis.

The record date for the Q2 FY21 dividend is 13 August 2021, and the payment date is 27 August 2021.

Rationale for Valuation – HOLD at GBX 129.60

• UKW has acquired 50% of Braes of Doune wind farm, which has increased the net generating capacity to over 1.2 Gigawatt.
• In order to meet the net-zero carbon emission target by 2050, the UK government is likely to double the capacity of renewable energy and increase the subsidy.
• UKW has boosted liquidity with equity issuance to reduce borrowing and pursue acquisitive growth opportunities. The Company has a stable dividend policy, supported by reliable production and cash generative nature of operational wind farm projects.
• Since H1 FY19, UKW has maintained excellent profitability margins as gross margin, operating margin and the net margin remained above 81.2%, 70.5%, and 41.2%, respectively.
• From a technical standpoint, UKW’s stock price is hovering around the lower Bollinger Band, reflecting an oversold scenario. Meanwhile, 14-day RSI (~34.11) is also reiterating the same.

Key Risks

• The Covid-19 pandemic and associated restrictions are likely to keep the power prices volatile in the short term. Therefore, it can impact profitability since nearly 50% of revenues are exposed to the floating power price.
• Any unfavourable change in government renewable energy policy can adversely impact the value of the green benefits earned. Moreover, the Company has no control over the wind resources, which can bring production variability.
• Higher maintenance costs to operate an asset, which does not meet the expected lifespan can materially impact on investment returns.

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

 (Source: Company Website)

• UKW continued strong cash generation and delivered a solid performance in H1 FY21.
• During H1 FY21, UKW's investments generated 1,476 GWh (Gigawatt hours) of zero carbon electricity.
• The Company also issued equity raising of £198 million to strengthen liquidity.
• As on 30 June 2021, the Company reported £940 million of outstanding borrowings, equivalent to 28% of GAV (Gross Asset Value).

One Year Share Price Chart

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

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

Conclusion 

The Company has declared total dividends of 3.59 pence per share in H1 FY21, reflecting continued cash generation and confidence in the outlook. Since FY13, the Company has delivered excellent cash generation which has supported the sustainable dividend policy. The robust cash generation has helped in prudently managing the gearing and provided higher tolerance to downside sensitivities. In the UK, the Wind projects continued to be widely deployed renewable energy technology. The recent COP26 conference has also reiterated the net zero emissions target by 2050. UKW has made strong commitments in accredited wind farms projects and subsidy-free assets, creating substantial growth opportunities. Overall, it has proven operational and financial performance from the existing portfolio and having a healthy pipeline of attractive investment opportunities to emerge stronger in the long term. The stock made a 52-week High and Low of GBX 144.48 and GBX 124.60, respectively.

Based on the strong cash generation, portfolio of high-quality assets, growth opportunities, and favourable valuation conducted above, we have given a “HOLD” stance on Greencoat UK Wind Group PLC at the closing price of GBX 129.60 (as on 25 August 2021), while we look forward to taking fresh position when short-term uncertainty fades away.

Studio Retail Group PLC

Studio Retail Group PLC (LON: STU) is a FTSE All-Share listed Company that is involved in the retailing and distribution of home shopping and education products. It operates through two digital-first value retailers, namely Studio and Findel Education.

Investment Rationale – HOLD at GBX 288.00

• The core net debt was reduced to £27.6 million by the end of FY21, following the disposal of Findel Education for £30 million in April 2021.
• Studio is progressing well to achieve its medium-term goal of £1 billion in revenue. It plans to increase the Studio's VALUE proposition to attract more customers, offers a personalised financial service proposition, and seek flexible payment options. The ongoing data analytics programme and digital transformation shall drive the growth strategy.
• From a technical standpoint, the current market price is sustaining above the 20-day EMA (~GBX 287.00), reflecting a bullish price momentum.
• On a trailing 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash and Price/Book valuation multiples are quite undervalued against the median of Retail sector.

Risk Assessments

• After the Covid-19 pandemic, there is acute pressure on consumer disposable income levels amid inflationary market conditions. Moreover, the supply chain disruption could also increase the operating cost. There is a substantial risk to the customer base growth, which can hamper the expected growth trajectory of the business.
• STU has recently appointed a new CEO, Phil Maudsley was replaced by Paul Kendrick thereafter. It has also disposed of its Findel Education business, which could have an impact over the Group revenue. Therefore, such top-level management change and business restructuring could act as a double-edged sword, and thus, risking the Company’s medium-term goals.

Financial Highlights (for the 52 weeks ended 26 March 2021, as on 30 June 2021)

 (Source: Company Website)

• During FY21, STU reported £578.6 million of revenue from continuing operations, reflecting a 33% year-on-year jump.
• Similarly, adjusted profit before tax from continuing operations surged 79% year-on-year in FY21.
• The active customer base also grew 35% year-on-year to 2.5 million at March 2021.
• In FY21 vs FY20, the product revenue and financials revenue increased by 35% and 8.2%, respectively.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Conclusion

In a nutshell, STU has resiliently managed the operational challenges presented by the Covid-19 pandemic. Moreover, the sale of Findel Education shall emerge the business with a stronger financial position. In FY22, STU's improved focus and strength coupled with a significantly higher customer base are likely to deliver strong trading performance for online value retail and integrated financial services. In addition, STU can also pursue a greater range of growth opportunities with reduced net debt on the balance sheet. The stock made a 52-week high and low of GBX 319.00 and GBX 216.00, respectively.

Based on the revenue growth, reduced core net debt, current trading, and bright outlook, we have given a “HOLD” recommendation on Studio Retail Group PLC at the closing market price of GBX 288.00 (as on 25 August 2021).

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

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

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