AA PLC (LON: AA.)  - Delivered a Strong set of FY19 Results while Improving Pensions Position and Reduction in Debt.

AA PLC is an auto services company, which operates in the roadside assistance and insurance businesses. It has around 2,700 patrols attending an average of approximately 9,400 breakdowns daily.

Financial Highlights – Reflecting Growth in Trading EBITDA, Strong Performance in Insurance Business, with a Double-Digit Increase in Total Motor and Home Policies.


(Source: Annual Report, Company Website)

On 18^th May 2020, the Group published its annual report for the year ended 31 January 2020, with a robust financial and operational performance.The revenue for the financial year 2020 surged by 2 per cent to GBP 995 million against the prior year (2019: GBP 979 million), reflecting robust performance across both Roadside and Insurance. Trading EBITDA was up by 3 per cent to GBP 350 million in FY20, in line with market anticipations. The free cash flow stood at GBP 83 million in FY 2020, which was in line with the guidance. The net debt reduced to GBP 2.6 billionin FY2020 as compared with the previous year (FY19: GBP 2.7 billion).

Share Price Performance  
 
(Source: Refinitiv, Thomson Reuters) - 1-Year Chart as at 19^th May 2020 before the market close

On 19th May 2020, before the market close (at 8:30 AM GMT+1), AA PLC’s shares were trading at GBX 20.48, up by 1.39 per cent against the previous day closing price. Stock 52 weeks High and Low are GBX 74.00/GBX 13.32.

Valuation Methodology

 

Valuation Metrics


(Source: LSE)

As on 30^th April 2020, the Price to Sales multiple of the AA PLC was 0.2x and the same multiple was lower as compared with the General Retailers industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Trajectory Would Result into Good Performance in the Near Term
Paid membership increased by 0.2%, reflecting a return to growth during the second half of the year. The company has continued robust growth in motor book, which was supported by the profitable growth of the in-house insurer and insurer Hosted Pricing (IHP). FY20 delivered strong performance across all financial and operational metrics– Trading EBITDA, Cash, Roadside and Insurance.

Conclusion
In 2020, the Group has executed the strategic and operational plans well and have delivered a strong set of results with improvement across all metrics. The revenue from Roadside business stayed flat with the acquisition of AA Prestige.In the short run, the business operations can be impacted by Covid-19, due to ongoing curfew and lockdown state. However, coronavirus has not impacted the group materially, and the Company has been maintaining solid liquidity to manage any unforeseen financial shock.

The Company is focussing on long-term partnerships by utilising the operational scale, innovative approach to customer solutions, and service excellence in B2B business.Furthermore, the company is delivering robust rates of profitable policy growth in the Insurance business. As a result, the company anticipate existing year performance to be marginally below FY20, due to COVID-19 pandemic.

Over the four years (FY16 – FY20), the company’s revenue surged from £973 million in FY16 to £995 million in FY20. Compounded annual growth rate (CAGR) stood at 0.56 per cent.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 20.20 (as on 18th May 2020) with lower double-digit upside potential based on 2.80x NTM EV/Sales (approx.) on FY21E sales (approx.).

OptiBiotix Health PLC – Increasing Geographically with New Partners.

OptiBiotix Health PLC (LON: OPTI) is an AIM-listed life science company. It is involved in the development and research of microbiome modulators mainly in the United Kingdom.

Trading and Commercial Update (as on 18^th May 2020) – Reflecting Strong Commercial Progress
The Company provided the trading update for the first three months of the financial year. As previously announced on March 23, 2020, the Group had changed its fiscal year-end from 30 November to 31 December. In LPLDL® and SlimBiome® as an ingredient or final product, the total invoiced sales increased by 928 per cent to GBP 407,844 (exclude around £60,000 worth of LPLDL®) as compared with the corresponding period of last year (£39,645). In this period, OPTI also received proceeds of investment income from the disposal of shares of GBP 162.50 thousand in SkinBioTherapeutics PLC. During this period, The Group has signed 9 commercial agreements, with a further 4 deals in the following months. On a Year to date basis, they have made a total count of 13 agreements, which includes four for LPLDL® and nine for SlimBiome®. From these agreements, its foremost objective to extent OPTI geographic reach into 119 countries. 

Share Price Performance
 
(Source: Refinitiv, Thomson Reuters) 1-Year Chart as at 19^th May 2020, before the market close
 
On 19th May 2020, before the market close (at 8:00 AM GMT+1) OPTI’s shares closed at GBX 60.50 and remained the same against the previous day closing price. Stock 52 weeks High and Low are GBX 89.85/GBX 23.20.

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price to Book multiple of the OPTI was 6.8x and the same multiple was lower as compared with the Pharmaceuticals & Biotechnology industry. It is reflecting that the company is trading at a lower multiple against its peers.

Growth Catalysts
The large number of agreements signed with multiple partners, across multiple application areas and geographies. The Group will continue to enter new territories, develop new application opportunities, and importantly support existing partners, which will create a pipeline of new opportunities across all the platforms, generate industry interest, build revenues, and assist the aim of divisions reaching profitability in 2020.

Conclusion
With OptiBiotix extending its brand presence and geographic reach into 119 countries,the Group witnessed robust commercial progress in the first three months of this year.  It has signed several agreements generating revenue and a greater number of deals generating income in the first year of the agreement. The Company also witnessed a massive increase in revenues (up 928 per cent), albeit against a low base. In 2020, OPTI expects further revenue growth. Pharma and Biotechnology stocks are buzzing, showing a sign of outperformance lately.
Based on the decent growth prospects and with significant increase in the revenue, we have given a “Speculative Buy” recommendation at the current market price of GBX 58.20 (as on 19th May 2020, before the market closed, 8:55 AM GMT+1).
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 19^th May 2020).

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