Marlowe PLC

Established in 1895, Marlowe PLC (LON: MRL) provides business-critical services and software to ensure safety and regulatory compliance.

Investment Rationale – SPECULATIVE BUY at GBX 803.00

• The acquisition of Barbour EHS will strengthen Marlowe's position in the fast-growing governance, risk, and compliance software market.
• During FY21, MRL reported an underlying cash conversion of 110%, a significantly improved position from 83% in FY20.
• MRL also delivered margin expansion as divisional adjusted EBITDA margin increased from 13.1% in FY20 to 16.2% in FY21.
• On 18 August 2021, Chief Executive of the Group, Alex Dacre acquired 3,100 Ordinary Shares of 50 pence each in the capital of the Company, at a price of 807.2 pence per share.
• MRL’s stock has delivered around 59% return in the past year, showing outperformance against the FTSE AIM 100 index.
• From a technical standpoint, stock price is trading above the 20-day EMA (GBX 801), reflecting a bearish price momentum.

Key Risks

• The resurgence in delta Covid-19 variant can delay its pipeline projects and potential acquisitions.
• The stock price is overstrained amid rising macroeconomic uncertainties pertinent to persistent US Dollar strengthening, reintroduced restrictions, and supply chain disruptions.
• The economic slowdown can impact the consumers’ spending power, while the equity market is already facing significant volatilities.

Recent News

Acquisition of Barbour EHS from Informa PLC: On 29 July 2021, Marlowe acquired Barbour Environment, Health and Safety (EHS) for a net cash consideration of £32 million from Informa PLC.

Financial Highlights (for the year ended 31 March 2021, as on 23 June 2021)

   (Source: Company Website)

• During FY21, MRL’s revenue and adjusted EBITDA jumped 15% and 30% year-on-year, respectively.
• Similarly, adjusted profit before tax and adjusted earnings per share surged 31% and 6%, respectively.
• As of 31 March 2021, the Company reported the net cash position of £43.3 million against the significant net debt of £32.3 million at the end of FY20.
• During the period, MRL also conducted an equity issuance of around £100 million to fund the acquisition-led expansion strategy.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Conclusion

Marlowe completed 15 acquisitions, delivered strong operational and strategic progress in FY21. Moreover, the Company maintained high recurring revenue despite some Covid-19 related operational challenges. The positive structural trends and cross-selling opportunities can also support the growth further. MRL has given a solid start to FY22 with good levels of organic growth, and it has a robust pipeline of earnings enhancing acquisitions to generate significant value for its shareholders. The stock made a 52-week High and Low of GBX 909.75 and GBX 504.50, respectively.

Based on the strong margin expansion, solid cash generation, significant financial, strategic, and operational progress, with support from the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Marlowe PLC at the current price of GBX 803.00 (as on 27 August 2021, at 7:05 AM GMT), with lower double-digit upside potential based on 29.64x Price/NTM Earnings (approx.) on FY22E Earnings Per Share (approx.).

Anglo Asian Mining PLC

Anglo Asian Mining PLC (LON: AAZ) is a FTSE AIM All-Share quoted Company, which is engaged in the production of gold, copper, and silver in Central Asia with a broad portfolio of production and exploration assets in Azerbaijan.

Investment Rationale – SPECULATIVE BUY at GBX 128.60

• AAZ remained on track to achieve its FY21 production guidance of 48,000 ounces to 54,000 ounces of gold and 2,500 tonnes to 2,800 tonnes of copper.
• On 16 August 2021, AAZ reported that Zafar deposit completed 8.5 million tonnes of mineralisation with average grades of 0.60%.
• The Gold prices were hovering around the nine-month high during the previous week. It should continue to boost the free cash flow for the Company.
• From a technical standpoint, 200-day EMA (GBX 99.17) sustaining below the current market price, reflecting a bullish price momentum.  
• On a forward 12-month basis – EV/Sales EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are quite undervalued against the industry median of Basic Materials industry.

Risk Assessments

• The sluggishness in gold prices due to US dollar strengthening and uncertain demand outlook can impact the Company’s financial condition.
• It is exposed to financial risk with fluctuations in gold price and exchange rates.
• Furthermore, the unavailability of adequate working capital can impact regular revenue and cash flow.
• The Global Covid-19 pandemic could result in the suspension of operations and increase labour absenteeism.

Recent News

H1 FY21 Geological Exploration Activities: On 24 August 2021, AAZ unveiled that it is progressing well with the final mineral resource estimation for Zafar, which expects to be completed by the end of FY21. Following the completion of extensive desk study work, the Company commenced planned fieldwork at Gosha.

H1 F21 Production and Operations review (for the six months ended 30 June 2021, as on 14 July 2021)

 (Source: Company Website)

• At the end of H1 FY21, cash position increased to US$36.6 million against US$22.9 million on 31 March 2021.
• During Q2 FY21, the Company produced 16,740 gold equivalent ounces (GEOs) against 14,301 GEOs in Q2 FY20.
• The copper production also increased from 648 tonnes in Q2 FY20 to 695 tonnes in Q2 FY21.
• At 30 June 2021, unsold inventory valued at US$7.8 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group) 

Conclusion

Zafar's maiden Mineral Resource estimates reported promising results, underpinning long-term production growth. The solid production in Q2 FY21 has reiterated the full-year production forecast as well. Moreover, FY20 ended with a peace treaty between Azerbaijan and Armenia with support from international peacekeepers. Despite all headwinds, the Company continued its operation and significantly strengthened its balance sheet while still paying dividends to shareholders. Furthermore, the joint venture with Conroy Gold and Natural Resources PLC shall expand the jurisdiction for the Company's business. The stock made a 52 week High and Low of GBX 181.80 and GBX 102.01, respectively.

Based on the solid production in Q2 FY21, promising gold price environment, sound profitability, industry leading dividend returns, we have given a “SPECULATIVE BUY” recommendation on Anglo Asian Mining PLC at the current market price of GBX 128.60 (as on 27 August 2021, at 7:05 AM GMT).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*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.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.