LSL Property Services PLC

LSL Property Services PLC (LON: LSL) is FTSE All-Share listed provider of financial services to estate agencies. It is a market leader in the mortgage network market.

Investment Rationale – SELL at GBX 446.00

• LSL’s stock has yielded a positive return of over 113% in the past six months, which is giving an incredible opportunity to book profit.
• Following the cancellation of the FY19 dividend, no final dividend was announced even for FY20.
• The available vaccines can fail to deal with virus mutations and expected market recovery might not be achieved.
• From a technical standpoint, 14-period RSI (71.12) is indicating an overbought position, and price correction is expected.

Key Risks

• There is a high level of economic uncertainty and market volatility, which is impacting the investor sentiments.
• Another wave of coronavirus can impact mortgage completions, and delay pipeline projects.
• Being a financial services player, LSL is exposed to investment risk, liquidity risk, credit risk, regulatory risk, and market risk.

Recent News

New Contract: On 27 April 2021, LSL announced a 5-year agreement with the Property Franchise Group to provide digital and face-to-face mortgage and protection advice.

Joint Venture: Announced a formation of a joint venture with Pollen Street Capital, whereby around LSL committed around £33.5 million.

Financial Highlights for the year ended 31 December 2020 (as on 15 April 2021)

 (Source: Company Website)

• LSL reported resilient financial results in FY20 and carried the positive momentum in Q1 FY21 as well.
• Consequently, FY20’s profit before tax soared 31% and the Company reported a historically low level of net bank debt of £1.6 million (2019: £41.9 million). The net bank debt at the end of March 2021 was £8.3 million post adjusting Covid-19 related deferrals.
• The underlying operating profit was supported by the growth in the financial services division and estate agency division. The mortgage completion lending and surveying division also demonstrated encouraging results.
• LSL did not declare any final dividend for FY20, while it has intentions to reinstate the dividend policy in the second half of FY21.

Share Price Chart

(Source: Refinitiv, Thomson Reuters)

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

Conclusion

LSL’s stock has already given a stellar return in the past six months and trading close to a 52-week high, while the technical indicators are suggesting a short-term consolidation in price. Adjacently, macroeconomic uncertainties and challenging operational conditions shall keep the growth in a limit. Therefore, it is prudent to book profit and reinvest the capital plus gains post store reopening and lifting of lockdown restrictions when there is more confidence over the outlook. The stock made a 52-week high and low of GBX 454.00 and GBX 165.00, respectively.

Considering the overstrained price situation, uncertainties pertinent to coronavirus and Brexit, ceased dividend and unfavourable valuation as conducted above, we have given a “SELL” recommendation on LSL Property Services PLC at the current price of GBX 446.00 (as on 21 May 2021, at 9:40 AM GMT), while we look forward to reinvesting when due corrections are done and uncertainties regarding Covid-19 fades away.  

Immunodiagnostic Systems Holdings PLC

Founded in 1977, Immunodiagnostic Systems Holdings PLC (LON: IDH) is a FTSE AIM All-Share listed Medical Equipment Company, which supports clinical laboratory market by developing and selling in-vitro diagnostics tests (IVD are diagnostic tests which are performed based on blood and serum).

Investment Rationale – SELL at GBX 380.00

• IDH is likely to get acquired by PerkinElmer for nearly £110 Million, subject to shareholder approval and sanction by the High Court of Justice in England and Wales.
• At the end of FY21, IDH reported reduced liquidity compared to the prior year, reflecting the impact of the pandemic on EBITDA.
• In the past six months, IDH’s stock price has yielded a positive return of over 90%, which is giving an attractive opportunity to book profit.
• From a technical standpoint, 21-period RSI (83.72) quoting in an overbought zone, and hence, price retracement can be expected.
• Over the past two years (H1 FY19 to H1 FY21), gross margin and EBITDA margin have remained below the industry median. In H1 FY21, net margin and operating were in the negative territory.

Key Risks

• Due to Covid-19, levels of routine diagnostic testing in the market dropped significantly.
• The Group is exposed to the effects of political and economic risks, as the market expects macro-economic uncertainty or downturn in the UK economy.
• Increasing competition can also put pressure on revenue generation and profitability margins. The market share has also declined in H1 FY21.

Recent News

Proposed Acquisition: On 17 May 2021, IDH has reached an agreement with PerkinElmer, Inc for the proposed acquisition at approximately £110 million. The enterprise value of IDH was computed as £88 million. The acquisition price represents 382 pence in cash per IDS Share.

Trading Update for the Financial Year ended 31 March 2021 (as on 16 April 2021)

 (Source: Company Website)

• IDH recovered strongly in H2 FY21 from the adverse impact of Covid-19; however, overall revenue remained below than FY20. FY21 revenue equated to £32.7 million (FY20: £39.3 million).
• The rate of instrument placement held strong as the Automated Business unit were 79 in H2 FY21, taking FY21 placement to 100 (FY20: 93).
• The subdued routine diagnostic testing market materially impacted the FY21 revenue.
• As on 31 March 2021, the Company had £23.3 million in cash and cash equivalents, reflecting a reduced position from H1 FY21 and FY20.

Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

IDH is looking forward to the approval of the proposed acquisition from PerkinElmer to accelerate growth plans. Adjacently, the stock is trading close to a 52-week high and has given an incredible return over the past six months, while the routine diagnostic testing market remained subdued with the restrictions induced by the COVID-19 crisis. Moreover, the Company reported a decreased revenue and cash position in FY21. Therefore, it is rational to liquidate the position and book profit now. The stock made a 52-week high and low of GBX 420.00 and GBX 180.00, respectively.

Considering the proposed acquisition, challenging trading environment, macroeconomic uncertainties, and overstretched price position, we have given a “SELL” recommendation on Immunodiagnostic Systems Holdings PLC at the current price of GBX 380.00 (as on 21 May 2021, at 8:00 AM GMT), while it would be interesting to see how IDH will pursue its growth plans post acquisition. 

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

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

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