Forterra PLC

Forterra PLC (LON: FORT) is the United Kingdom-based producer of masonry products. It operates through two segments, namely Bricks & Blocks and Bespoke products. It was formerly Hanson’s UK building products division.

Recent News
On 28^th April 2020, the Company provided an update on the recommencement of business operations.

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

(Source: Presentation, Company Website)

Overall results reflected a robust balance sheet and construction of new Desford brick factory progressing well. During the financial year 2019, the company’s revenue increased to GBP 380 million from GBP 367.5 million in FY2018, driven by growth in Bespoke Products for the period. The earnings per share stood at 23.8 pence in the financial year 2019 against earnings per share of 26.5 pence in the financial year 2018.

As on 24th March 2020, the group released an update stating that the company ended 2019 with GBP 43.2 million of net debt (pre-IFRS 16). Moreover, the group had GBP 150 million of revolving credit facility along with approximately GBP 70 million of cash reserves and GBP million 10m of undrawn overdraft facility.

Share Price Performance Analysis

1-Year Chart as at June-01-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 1st June 2020, before the market close (at 8:50 AM GMT+1), Forterra PLC’s shares were trading at GBX 196.20 and were up by 0.62 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 376.00/GBX 157.40.

Momentum oscillator RSI 14 days on the chart is reflecting an oversold position for the stock and upside bump can be triggered in the near term.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price to Earnings and EV to EBITDA multiples of FORT were 10.3x and 6.6x respectively, and the same multiples were lower as compared with the Construction & Materials industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
The Company is well-equipped to deliver long-term growth through helping to meet the house building needs of the UK. The Group will continue the progress towards the target of 300 thousand homes a year by the mid-2020s. Some key strength that drives growth in the future: impressive track record of demonstrating sustainable growth, good cash generation, and attractive margins; multiple levers for future profitable growth through capacity expansion, product and service innovation and enhancement, and high return investment projects; long-standing client relationships across all channels.

Conclusion
The Board of FORT confirmed that the final dividend for FY2019 had been cancelled. The Group’s Board believes that the long-term fundamentals that drive demand for the products stay robust. The UK housing shortage is well documented, employment stays high, and UK brick manufacturing capacity is insufficient to meet current demand. Therefore, as stated in January 2020, the Board continues to anticipate the challenging market conditions experienced in H2 FY19 to gradually improve but expects that the Group’s performance in H1 FY20 will be below that achieved in the corresponding period of the last year (H1 FY19).

During the financial year 2019, the group revenue surged 3.4% against FY2018, albeit the group showed a decline in bottom-line items. The company witnessed a strong demand in the first half of the financial year, which declined in the second half due to low consumer confidence and an uncertain economic environment. Moreover, the group has entered 2020 with a strong balance sheet and the group confident about its sustainable position in the medium-long term prospects.

Over the past four years (FY15 - FY19), the company’s revenue surged from GBP 290.20 million in FY15 to GBP 380 million in FY19. Compounded annual growth rate (CAGR) stood at 6.97 per cent.

Based on the decent prospects, and supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current market price of GBX 194.22 (as on 1^st June 2020, before the market close at 10:00 AM GMT+1) with a lower double-digit upside potential based on 11.20 Peers NTM Average Price/Earnings (approx.) on FY20 Earnings Per Share (approx.).

De La Rue PLC – Confident Outlook Through Contract Wins

De La Rue PLC (LON: DLAR) is a FTSE All-Share Company which provides software solutions and services to government, central banks, and businesses. It operates through three segments – Currency, Identity Solutions and Product Authentication & Traceability.

The Group will release its FY20 results (for the full year ended 28 March 2020) on 17^th June 2020.

Recent News
Trading and COVID- 19 Update (for the financial year ended 28 March 2020)
As on 1^st June 2020, the Group announced a business update and stated that the expectations for FY20 remain unchanged as the performance was in line with the management guidance. The Group is set to start the FY21 with several new contract wins in Authentication and Currency divisions both. The COVID-19 had a minimal impact over the Company as the current division has been witnessing a strong demand. Further, the Group did not face any material issue regarding the raw material supply.

Share Price Performance

Daily Chart as on 1^st June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

De La Rue PLC’s shares were trading at GBX 103.20 on 1^st June 2020 (before the market close at 1.48 PM GMT+1), up by 153.25% against the last day closing price. Stock's 52 weeks High is GBX 316.98 and Low is GBX 40.30. In the past 1 week and 1 month, the stock has generated a positive return of 123.58 per cent and 61.78 per cent, respectively.

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 upward trend in the stock and carrying the potential to move up further. Moreover, 3 days, 9 days and 14 days relative strength index of the stock was favourable, and price could rise further from the current trading level.

Valuation Metrics
 
(Source: LSE)

As on 30^th April 2020, EV/EBITDA multiple of the De La Rue PLC was 2.2x which was lower as compared with the Support Services industry. Hence, it is indicating that the Company is trading at a lower multiple against its peers.

Growth Catalysts
The new contract wins in Authentication, and Currency divisions shall deliver growth in future.

Conclusion
During the financial year 2019, the Group reported a significant improvement in both top-line and bottom-line financial items of the income statement. The Group has continued the momentum and set to report the performance for the financial year 2020, as per the management guidance despite the challenging market backdrop. Furthermore, the Company is becoming more competitive in Currency domain with new contract wins and the realignment of its cost base. The Group didn’t face any material impact due to COVID-19 disruption, which reflects resilience in the business model.

 
In the past three years (FY16 to FY19), EBITDA has increased by 25.2 per cent while the operating EPS grew by 39.7 per cent.

Based on the decent prospects as stated above, we have given a “Speculative Buy” recommendation at the Current Market Price of GBX 60.90 (as on 1^st June 2020, before the market close at 9.12 AM GMT+1).
 
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.

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