Restore Plc

Restore Plc (LON: RST) is an FTSE AIM 100 index listed Company, which provides document management and relocation services to offices and workplaces in the private and public sectors. 

Investment Highlights - Restore Plc – Speculative Buy at GBX 295.00

• As per valuation metrics, EV/EBITDA and Price/Book Value multiples of the Restore Plc are currently lower as compared to the corresponding multiples of the Professional & Commercial Services It reflects, shares are undervalued as compared to the industry.
• The Company has a Debt/Equity ratio of 1.09x in H1 FY2020 and reduced net debt for the fourth consecutive reporting period and is below the industry median of 1.19x.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 25 level – oversold zone), which means the stock price could increase in the short term.

Key Risks

• Global political uncertainty regarding trade policy also poses a risk for the Company, including protectionist measures and regulation or legislation in the local markets.
• Furthermore, the Company’s performance is subject to various other risks, including finance and liquidity risk, cyberattack risk, change in market dynamics, and loss of confidential customer records.

Recent News

On 14 August 2020, Restore announced the issue and allotment of 340,536 new shares of 5 pence after exercising share options scheme.

Financial & Business Update – H1 FY2020

 (Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, the Company has shown a decline in revenue and adjusted profit before tax, and the activity level stood encouraging in May and June 2020.
• The Company made progress with maintained strategy during the period, with investment in digital projects, new customers win and cost efficiency plans.
• The Company has shown strong cash generation with a reduction in net debt by £14.6 million. The balance sheet remained well-positioned with strong liquidity.
• The Company did not declare any dividend but is intending to restart dividends in FY2021 with a continuing recovery.
• Restore quickly adapted working practices in accordance with Covid-19 secure guidelines and in supporting critical services to tackle the coronavirus.

One Year Share Price Chart

Daily Chart as of 23 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2020. Both the top-line and the bottom-line performance declined, while profitability remained in the negative zone. Despite lower financial performance, the activity levels started to improve in May and June, and continue to make an investment in digital projects, new customers win and cost efficiency plans. Restore has a strong balance sheet and managed to reduce net debt in the fourth consecutive reporting period.

The Company expects the market to remain uncertain in coming months, based on confidence in project activity and sales pipeline, the performance is H2 FY2020 will improve. The Company experienced a rise in enquiries across business units, driven by recovering activity levels. RST anticipate continuing to generate cash in H2 FY2020, with higher underlying profit as compared to H1 FY2020. The stock made a 52-week low and high of GBX 295.00 and GBX 560.00, respectively.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation for Restore Plc at the current price of GBX 295.00 (as on 23 September 2020, before the market close at 11:54 AM GMT+1), with high single-digit upside potential based on 20.60x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Senior Plc

Senior Plc (LON: SNR) is an FTSE-all share listed engineering and manufacturing solutions provider with 30 operating businesses in 13 countries.

Investment Highlights - Senior Plc – Speculative Buy at GBX 43.96

• As per valuation metrics, EV/Sales and Price/Book Value multiples of the Senior Plc are currently lower as compared to the corresponding multiples of the Aerospace & Defense industry. It reflects, shares are undervalued as compared to the industry.
• Over the course of 4 years (FY15 - FY19), the Company’s revenue surged from £849.5 million in FY15 to £1,110.7 million in FY19. Compounded annual growth rate (CAGR) stood at ~ 6.93%.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 30 level – oversold zone), which means the stock price could increase in the short term.

Key Risks

• SNR faces stiff competition from peers and is exposed to risks related to foreign operations that are required to be addressed from time to time.
• The Company could have insufficient financial resources to fund the growth strategy or meet the financial obligations as they fall due or insufficient liquidity to meet financing covenants.

Financial Highlights – H1 FY2020

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, the Company shown a declined performance due to Covid-19 and the grounding of the Boeing 737 MAX fleet. The revenue decreased by 30% year-on-year to £409 million, with revenue lower in both Flexonics and Aerospace.
• The Profitability margins declined significantly for the period. The Company generated net cash inflow of £3.3 million and free cash inflow of £16 million.
• The Company managed to reduce net debt by £29 million to £238.9 million, while ROCE decreased by 480 basis points to 6.8% and stood below the cost of capital of the Company.

Daily Chart as of 23 September 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

Despite the significant disruption to the end markets due to the pandemic, the Company delivered a robust cash performance and generated £16 million of free cash flow as well as sufficient liquidity under existing committed facilities. While it is expected to take several years for air traffic to return to 2019 levels, the demand for air travel is projected to continue to grow in the medium and long term. All the manufacturing sites are operational with appropriate health and safety measures in place. In the medium to long term scenario, the Company seems to be well-positioned and continues to generate healthy cash flows. Also, it emerges strongly as the recovery starts to take shape. The stock made a 52-week low and high of GBX 42.00 and GBX 205.80, respectively.

Based on the above rationale and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation for Senior Plc at the current price of GBX 43.96 (as on 23 September 2020, before the market close at 8:10 AM GMT+1), with single-digit upside potential based on 9.50x Price/NTM Cash Flow (approx.) on FY20E cash Flow per share (approx.). 

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

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