The Vitec Group Plc

The Vitec Group Plc (LON: VTC) is an industrial engineering Company, which is engaged in the business of providing image capture and content creation solutions.

On 6 May 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Hold at GBX 1,170.00

• For FY21, the Company is confident that the recovery in trading will continue and expects to deliver strong cash generation.
• The acquisitions with Lightstream and Quasar are an excellent strategic and technological fit and are expected to surge the underlying revenue.
• As per valuation metrics, EV/EBITDA and Price/Earnings multiples are currently lower than the Computers, Phones & Household Electronics industry.
• In the last year, the Company has delivered a sparkling return of ~59.34%, which was higher than the FTSE All-Share Index.
• From a technical standpoint, 200-day SMA (GBX 843) and 200-day EMA (GBX 922), supports an upside potential.

Key Risks

• The acquisition with Lightstream & Quasar could impact the liquidity and financial performance due to increased expenses.
• The Company operates in multiple geographies, and profits may be impacted negatively due to foreign exchange rate fluctuations and the shortages in electronic components.
• The next phase of lockdown could result in lower demand, shortage of labour, and operations shutdown.

Trading Update (as on 12 April 2021)

• The Company had agreed on the acquisition of Lightstream and Quasar, for an expected total cost of £30.4 million in cash and shares (Lightstream: £26.0 million in cash and shares; Quasar: £4.4 million in cash).
• In Q1 FY21, the Company witnessed a continued good trading performance.
• Moreover, the revenue and order intake for Q1 FY21 was broadly in line with the same period in 2019.
• It saw a high cash conversion in Q1 FY21.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

In FY21, the Company is confident that they will be delivering a good cash performance as they expect a strong recovery. Further, it also expects a strong margin recovery and believes the markets will grow faster longer-term than previously expected. Recently, it made two acquisition, which will enhance the position as a leading player in the growing LED lighting market and enables Vitec to enter the substantial and fast-growing adjacent gaming market. Also, it will be significantly expanding the customer reach. Moreover, these acquisitions are expected to increase the underlying revenue CAGR. In the future, the Company expands the total addressable market and continue to improve the higher technology capabilities. The stock made a 52-week low and high of GBX 610.00 and GBX 1,230.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on The Vitec Group at the current price of GBX 1,170.00 (as on 13 April 2021 at 8:00 AM GMT) and will recommend fresh buying at the right time.

Zotefoams Plc

Zotefoams Plc (LON: ZTF) is a FTSE All-Share listed cellular material technology Company, which focuses on the optimal material solution.

On 26 May 2021, the Company will hold its 2021 Annual General Meeting.

Rationale for Valuation – Hold at GBX 431.00

• Strong start to 2021 across the business, led by Footwear and Polyolefin Foams.
• This year, significant growth will increase, but the cost base will grow, reflecting a return to more normalised spending levels.
• It has reinstated the dividend and increased 3% in the final dividend from the previously paid 2018 dividend.
• The company's debt/equity ratio in the past three years was considerably below the industry median. In FY20, the debt/equity ratio was 0.47x.
• In the last year, the Company has delivered a decent return of ~90.63%, which was higher as compared to the FTSE All-Share Index.
• From a technical standpoint, 200-day SMA (GBX 411) and 200-day EMA (GBX 409), supports an upside potential.

Key Risks

• Brexit-related changes and global trade imbalances currently impacted the operational environment.
• Fluctuations in exchange rates could impact the profitability and balance sheet position.
• The Company’s long-term growth prospect could be impacted negatively if the Board fails to implement strategies effectively or develop a wrong strategy.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 23 March 2021)

(Source: Company Website)

• Despite COVID-19 disruption in most markets, the Company delivered year-on-year revenue growth due to HPP (High Performance Products) sales increased by 13% YoY. Polyolefin Foams sales were at similar levels to the previous year. Moreover, it has record six-month sales in H2 FY20.
• It has shown a solid operating profit in FY20, which was also in line with 2019.
• ZTF witnessed a strong cash performance, with a liquidity headroom of £19.2 million and a year-end leverage ratio of 2.1x.
• In October 2020, the Company reinstated its dividends, proposing a final dividend per share of 4.27 pence.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company saw a strong start to 2021 across the business. It is trading very strongly in the Polyolefin Foams business unit, and HPP demand for footwear products continues at similar levels seen in the second half of 2020. Zotefoams expects to recover inflationary pressure, mainly in raw material pricing, through price increases in Q2. ZTF expects to deliver significant growth in 2021, with the selective investment to support the best growth projects and new Poland facility coming on stream. However, the Company is cautious on the short-term outlook due to the ongoing COVID-19 and logistics challenges. For the long-term, the Board remains confident about the good prospects for the business. The stock made a 52-week low and high of GBX 211.00 and GBX 530.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Hold” stance on Zotefoams Plc at the current market price of GBX 431.00 (as on 13 April 2021 at 8:00 AM GMT).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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

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