IG Design Group PLC – Encouraged by the strong momentum of Q1 FY21 Trading.

IG Design Group PLC (LON: IGR) is a FTSE AIM 100 listed Company, which designs, innovates, and manufactures products related to Gift Packaging, Craft & Creative Play, Celebrations, Stationery, and Gifting.

Investment Rationale – Speculative Buy at GBX 421.00

• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Earnings and Price/Book Value multiples of the IG Design Group PLC are currently lower as compared to the corresponding multiples of the Containers & Packaging Industry. It reflects, shares are undervalued as compared to the industry.
• From a technical standpoint, 90-Day RSI (40.56) is supporting the upside potential.
• Over the past month, IGR’s stock has outperformed the benchmark index by delivering a positive ~7.00% return against the negative return of ~0.14% given by FTSE AIM 100 index.

Risk Assessments

• The normal level of activities post lockdown easing might take time to return.
• The failure to attain the expected synergies from acquisition integration projects can lead to a massive restructuring cost.
• The Company is also exposed to market risks such as interest rates, equity prices, foreign exchange rates as these could affect income or the value of holdings of financial instruments.

Recent News

21 September 2020: The Board approved the final dividend per share of 5.75 pence in the annual general meeting. The dividend is expected to be paid on 10 November 2020.

Results for the year ended 31 March 2020 and Q1 Trading Update (as on 28 July 2020)

 (Source: Company Website)

• The Company started FY21 with strong momentum across all regions against Covid-19 forecasts. Driven by the benefits of CSS, acquired in March 2020, the revenues stood higher on a reported basis versus last year data.
• As of 30 June 2020, the net cash position stood significantly ahead of expectations of management and $63 million better than last year data, reflecting a focus on cash management in Q1.
• Moreover, the Company has a strong order of pipeline with over $500 million, which is ahead of the level seen in the last year.
• In FY20, revenue grew by 10% year-on-year, operating profit increased by 2.4% against FY19, and adjusted interest cover was 12.0x in FY20 against 14.1x in FY19.

One Year Share Price Chart

 1-Year Chart as of 28 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

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

Conclusion

IGR started the FY21 strongly across all regions as reported revenue in Q1 FY21 was significantly higher than Q1 FY20, which was also benefitted from the acquisition of CSS in March 2020. The Company also demonstrated effective cost management which improved sales margin mix and benefitted Adjusted profit before tax. Moreover, it has delivered a better liquidity position as compared Q1 FY19, which was supported by equity raise in January 2020. Furthermore, the Board has recommended a final dividend for 5.75 pence, which reflect the strong financial position and shows commitment towards progressive dividend policy. Stock 52 week High and Low were GBX 798.00 and GBX 300.00, respectively.

Based on the factors discussed above, we have given a “Speculative Buy” recommendation on IG Design Group PLC at the current market price of GBX 421.00 (as on 28 September 2020, before the market close at 10.52 AM GMT+1) with lower double-digit upside potential based 32.14x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Vitcoria PLC – Resiliently trading with demand recovery.

Victoria Plc (LON: VCP) is a Worcestershire, United Kingdom-headquartered Company, which designs, manufactures, and distributes innovative flooring products, including carpets, ceramic and porcelain tiles, flooring accessories, artificial grass and LVT (luxury vinyl tile).

On 30 November 2020, it is expecting to release its H1 FY20 results.

Investment Rationale – Speculative Buy at GBX 301.50

• The key trading multiples (EV/Sales, EBITDA, Price/Earnings, and Price/Cash Flow) multiples are currently undervalued compared to corresponding multiples of the Household Goods industry.
• From a technical standpoint, 14-Day RSI (44.76) is supporting the upside potential.
• Over the past three months, VCP’s stock has outperformed the benchmark index by delivering a positive ~35.48% return against the return of ~7.81% given by FTSE AIM 100 index.

Risk Assessments

• Any material fluctuation in foreign exchange rates can cause financial risk to the Company due to its exposure to multiple geographies.
• It faces constant pricing and margin pressure as it operates in a highly competitive and matured industry.
• Due to uncertain market conditions, there is risk of raw-material price volatility, which can impact the profitability further.

Trading Update (as on 10 September 2020)

• The Company affirmed that the trading has been resilient since the last update in July 2020, and the demand has recovered in all its principal markets.
• Given the uncertain economic conditions, VCP has been carefully managing expenses and maintaining cash flows to keep the balance sheet strong.
• Following the lockdown easing, the board expects customers will increase spending on refreshing and improving homes.

One Year Share Price Chart

 1-Year Chart as of 28 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

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

Conclusion

VCP has proven its business resilience in the past few months while the financial liquidity remained strong as the operational management responded to the challenges swiftly. Moreover, it is encouraged by the recovery in revenue and earnings post lockdown easing, which has placed the Company to pursue the increasing number of opportunities. Moreover, it has a low fixed cost base while manufacturing facilities are well-invested to vary production levels as appropriate and maintain a low level of operational gearing. Stock 52 week High and Low were GBX 492.00 and GBX 136.16, respectively.

Based on the factors discussed above, we have given a “Speculative Buy” recommendation on Victoria PLC at the current market price of GBX 301.50 (as on 28 September 2020, before the market close at 12.13 PM GMT+1) with lower double-digit upside potential based 32.14x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

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

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

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