ConvaTec Group Plc

ConvaTec Group Plc (LON: CTEC) is an FTSE 250 index listed technology and medical products company that specializes in wound treatment, critical care, infusion devices and ostomy care.

On 30 July 2021, CTEC would announce its H1 FY2021 results.

The last dividend of GBX 2.845 per share was paid on 13-May-2021 (final dividend).

Investment Rationale for Valuation – SELL at GBX 245.80

• The management could not provide detailed guidance for FY2021 due to macroeconomic uncertainties.
• On the profitability front, the net margin since FY2019 has been lower than the industry median of 11.9%.
• In the last year, the stock generated a decent return of about 26.64%, offering investors an opportunity to book a decent profit.
• The stock is trading very near its 52-week high price of GBX 250.40, raising doubts about its upside potential.
• From a technical standpoint, 14-day RSI at about 64.61 is moving towards the overbought zone. Hence, there could be potential short-term downward movement in the stock price.

Key Risks

• The acquisition of Cure Medical may not provide the desired synergies, leading to CTEC incurring additional costs.
• Failure to launch new products could lead to more pressure from competitors and affect CTEC’s margins.
• There could be additional costs to CTEC in case of any regulatory changes.

Recent News

Director Declaration: On 28 June 2021, CTEC announced that a Non-Executive Director of CTEC, Dr Regina Benjamin, had become the Director of Doximity, Inc.

Q1 FY2021Trading Update (released on 29 April 2021)

(Source: LSE Website)

• Driven by strong growth in the global emerging markets, revenue across advanced wound care surged by 8.8% YoY in Q1 FY2021.
• Due to solid demand from diabetes customers, revenue in the infusion care division rose YoY by 13.9%.
• Driven by strong organic growth in advanced wound care and infusion care, overall revenue in Q1 FY2021 increased by 8.7% YoY.
• There were modest growths of 6.7% and 7.4% in ostomy care and continence & critical care divisions, respectively.

One Year Share Price Chart

(Analysis done by Kalkine Group)

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

Conclusion

There are continuing macro uncertainties in FY2021 and tougher challenges in H2 FY2021. The delta plus Covid-19 variant could pose further restrictions. The management could not provide detailed guidance for FY2021.  Meanwhile, the stock is trading very close to the 52-week high of GBX 250.40. The stock made a 52-week low and high of GBX 173.20 and GBX 250.40, respectively. 

Considering the macroeconomic uncertainty, lower profitability of the Company than the industry, and lack of guidance from the management, we have given a “SELL” recommendation on ConvaTec Group Plc at the closing market price of GBX 245.80 (as of 1 July 2021), while we will revisit our stance based on the analysis of future corporate announcements released by the Company. 

Anexo Group Plc

Anexo Group Plc (LON: ANX) is an FTSE AIM All-Share index listed company that provides specialist integrated legal and credit hire services.

The next dividend of GBX 1.00 per share would be paid on 20-July-2021 (final dividend).

Investment Rationale – SELL at GBX 145.00

• ANX recently received a cash offer from DBAY Advisors Limited for the entire issued and to be issued ordinary shares of ANX. Given that, there is a lot of uncertainty regarding ANX’s future.
• Due to uncertainty, the management could not provide any guidance for FY2021.
• In the last six months, the stock generated a decent return of about 10.27%. Hence, it is an opportunity for investors to book a decent profit.
• The stock is trading near its 52-week high price of GBX 150.00. Hence, there is doubt about its upside potentials.
• From a technical standpoint, 14-day RSI at about 64.96 is sustaining below the overbought zone, indicating a potential short-term downward movement in the stock price.

Key Risks

• Due to the delta plus Covid-19 variant spreading in Europe, there is potential for further lockdowns. Hence, activity level and cash collections could be hampered.
• ANX is exposed to credit risks such as allowances for credit losses.
• There is a risk associated with individual claims and the expected future value of fees, affecting ANX’s margins.

AGM Trading Update (released on 9 June 2021)

• In FY2021, so far, the trading performance of ANX has met the management’s expectations.
• In ANX’s Legal Services division, cash collections from January 2021 to April 2021 met the management’s forecasts and were up YoY by 11.8% from the similar period in FY2020.
• Driven by relaxation of restrictions, average vehicle hire numbers rose 8.5% YoY in the first four months of 2021 in the Credit Hire division.
• ANX plans to expand its headcount to fuel further case settlements and cash collection.
  

One Year Share Price Chart

(Analysis done by Kalkine Group)

Conclusion

There has been a cash offer for ANX’s shares recently. Hence, the future of ANX remains uncertain, and the management could not provide detailed guidance for FY2021.  Hence, it would be prudent to liquidate the position at a profit as the stock is also trading near its 52-week high, indicating overstretched valuation. Overall, we do not have significant catalysts to support an uptick in the stock price and recommend exiting the position currently. The stock made a 52-week low and high of GBX 113.00 and GBX 150.00, respectively.

Considering the lack of detailed guidance and future uncertainty about the Company’s prospects, we have given a “SELL” recommendation on Anexo Group Plc at the closing market price of GBX 145.00 (as of 1 July 2021), while we look forward to reinvesting based on how the outcome of the cash offer turns out.

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

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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