James Fisher and Sons PLC – Diversification by Geography and Sector Provides Resilience in Performance.

James Fisher and Sons PLC (LON: FSJ) is a FTSE 250 listed Company, which provides specialized engineering services and marine solutions to the oil & gas, marine and high assurance industries globally.

COVID-19 Update (as on 30^th April 2020)
In this update, the Group affirmed that the first-quarter trading was in line with the expectation and was not materially impacted by the COVID-19. However, the travel restrictions are adversely affecting its projects in the Asia Pacific region, while it is impacting the oil prices due to demand slump. Given the uncertainties, the Group has taken several actions to conserve cash, reduce cost, defer all discretionary capital expenditure and to deduct 20 per cent fees and salaries of the Board members. Further, the Group suspended the final dividend for FY2019. As at 31^st March 2020, the Group had substantial liquidity with the committed facility of £280 million and headroom of £64 million.

Share Price Performance
 
Daily Chart as on 4^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

James Fisher and Sons PLC’s shares were trading at GBX 1,318.00 on 4^th June 2020 (before the market close at 10.06 AM GMT+1), which was down 0.45% against the last day closing price. Stock's 52 weeks High is GBX 2,190.00 and Low is GBX 1,150.00.

From the technical standpoint, its shares were trading above its short-term support level of 20-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Valuation Methodology
 


Growth Catalysts
The Company is well diversified by end market and geographical sector, which gives resilience to cash flow and profitability, particularly in the challenging environment. The Group is prudently managing operations and closely monitoring the business during the pandemic scenario, for generating a long-term shareholders value.

Conclusion
During the financial year 2019, the Group delivered a decent performance. In 2020, considering the rapidly evolving impact of the COVID-19 disruption, the Group had withdrawn full-year guidance for FY20. However, the Group reported that overall trading was in line with expectations during the first quarter of 2020. Moreover, the Group has taken several timely actions to preserve liquidity and cut costs to weather the short-term disruption. Over the past three years (FY16 to FY19), the Group has delivered a compounding annual growth rate of 9.8 per cent in revenue and 9.6 per cent in EBITDA.

Based on the decent growth prospects, which are supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 1,318.00 (as on 4^th June 2020, at 10.06 AM GMT+1) with lower double-digit upside potential based 21.46x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
John Menzies PLC – Resilient Business Model, with Robust Performance in Difficult Markets
John Menzies PLC (LON: MNZS) is a provider of logistics services to the airline industry. The company’s business is differentiated into three geographical segments: Americas, EMEA and Rest of World.

On 11^th August 2020, the Company will release its interim results.

Financial Highlights (For the year ended 31^st December 2019)

(Source: Full Year Results, Company Website)

As on 8^th April 2020, the Company reported its full-year results. The overall results reflected a decisive action taken to right-size the business for growth, reported revenue was GBP 1,325.6 million (up 2% on 2018 in constant currency), and operating profit of GBP 39.6 million was 16% ahead of the continuing business in the prior year. The underlying operating profit from continuing operations decreased by 5% to GBP 52.5 million from the prior year. The underlying earnings per share stood at 24.9 pence in FY19. The reported net borrowings were GBP 391.5 million in FY19. Operating cash flow increased to GBP 134.9 million as compared with the previous year (2018: GBP 94.9 million). The Group has taken balance sheet actions with respect to COVID-19 such as no final dividend, reduction in capital expenditure outlay, and target leverage reduction.

Share Price Performance

1-Year Chart as at June-04-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 4th June 2020, before the market close (at 10:31 AM GMT+1), John Menzies PLC’s shares were trading at GBX 150.70 and were up by 11.30 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 489.50/GBX 66.90.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 30th April 2020, the Price/Earnings, EV/EBITDA and Price/Book multiples of the MNZS were 9.9x, 3.8x and 1.2x, respectively and the same multiples were lower as compared with the Support Services industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The Company is experiencing several headwinds due to the impact of Coronavirus on the activities, but in the medium and long term, the Group would witness opportunities for growth. In light of COVID-19, all directors and senior management have taken 20 per cent fee and salary reductions. MNZS has two goals in 2020 - Firstly, a substantial decrease in the leverage position by the end of 2020. Secondly, to attain continued growth by moving into new higher-yielding markets and by expanding the services to support customer growth. Overall, Menzies believes the Group is on track to manage the short-term crisis that exists and will return to the growth trajectory for this year and beyond. Moreover, the Group is in a strong position to seize opportunities in the structural growth aviation market.

Based on the decent growth prospects and supported by valuation as done using the above method, we have given a "Speculative Buy" recommendation at the closing price of GBX 135.40 (as on 3rd June 2020), with lower double-digit upside potential, based on 6.35x NTM Price/Earnings multiple (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 4^th June 2020).

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