Bakkavor Group Plc

Bakkavor Group Plc (LON: BAKK) is an FTSE All-Share Company, which deals in fresh prepared food in the United Kingdom. The food categories include Salads, Meals, Desserts and Pizza.

Investment Highlights - Bakkavor Group Plc – Speculative Buy at GBX 64.26

• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Cash Flow and Price/Book Value multiples of the Bakkavor Group Plc are currently lower as compared to the corresponding multiple of the Food & Tobacco industry. It reflects, shares are undervalued as compared to the industry.
• In the last one month, the Company delivered a substantial return of ~ 32.64% and delivered higher returns compared to the benchmark Index (FTSE-All Share Index).
• From the technical standpoint, shares were trading above the short-term support level of 20-day (GBX 62.00) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The Company could face supply chain disruption due to covid-19 crisis.
• The UK market remains volatile as consumer shopping pattern continues to adjust and evolve, which will impact the salads and ‘food to go’ category.

Financial & Operational Highlights – H1 FY2020 (27 June 2020)

(Source: Interim Report, Company Website)

• In the first half of the financial year 2020, due to the impact of coronavirus, the revenue declined by 4.6%. The Company showed stable recovery since April 2020.
• The profitability for the period declined. The Company showed solid trading in the UK and encouraging growth in the US business.
• The Company has strong liquidity and managed to refinance core debt facilities successfully in Q1 FY2020.
• BAKK made adaptions to business operations quickly to tackle demand changes for the short-term period.

One Year Share Price Chart

(Source:Refinitiv, chart created by Kalkine Group)

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, with lower profitability margins. Despite the lower financial performance, the Company has experienced recovery in trading environment since April and is expected to maintain recovery in H2 FY2020. The Company has taken multiple actions to preserve cash and lower cost base and is also working in sync with customers to drive growth across categories. BAKK has a robust business and has market-leading positions in categories it operates and is well-placed to achieve long-term growth for convenient, healthy and fresh food. The stock made a 52-week low and high of GBX 48.50 and GBX 160.60, respectively.

Based on the factors discussed above, we have given a “Speculative Buy” recommendation on Bakkavor Group Plc at the current price of GBX 64.26 (as on 5 October 2020, before the market close at 8:25 AM GMT+1) with a lower double-digit upside potential based on 8.90x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.). 

McBride Plc

McBride Plc (LON: MCB) is a Household Goods Company, providing personal care products and private label household. The Company develop, produce and supply products to Europe based retailers. 

Investment Highlights - McBride Plc – Speculative Buy at GBX 59.67

• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Book Value multiples of the McBride Plc are currently lower as compared to the corresponding multiple of the Personal & Household Products & Services industry. It reflects, shares are undervalued as compared to the industry.
• Over the past four years (FY15 – FY19), the Company’s operating profit has surged from GBP 9.70 million in FY15 to GBP 26.60 million in FY19, compounded at an annual growth rate (CAGR) of ~ 28.68 per cent.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 38 level), which means the stock price could increase in the short term.

Key Risks

• The Company’s performance is negatively impacted by changing consumer trends and increased competition.
• The Company’s operational performance was impacted by the disruptions in the supply chain caused by covid-19.

Financial Highlights – FY2020 (30 June 2020)

(Source: Annual Report, Company Website) 

• In the financial year 2020, due to exit of Aerosols from the UK market, the revenue declined by 2.1%. The Company did not experience any material impact on business due to covid-19 pandemic.
• The profitability margins for the period declined, while profit for the last 4 months remained strong, driven by increased demand for aerosol, cleaning and dishwash products.
• The Company managed to reduce net debt to £92.8 million as on 30 June 2020, reflecting a strong generation of operating cash flow.

One Year Share Price Chart

(Source:Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Despite the lower financial performance, the trading conditions starting to normalise, with consumer behaviour returns to pre-Covid-19 patterns. The laundry products volumes have not recovered, while the other cleaning products demand continues to grow on a year-on-year basis. The Company expects modest revenue growth in FY2021, driven by contract gains and increased efficiency. MCB, through focused divisional strategies, is looking to achieve €1 billion of Profitably grow annual revenues in the coming five years. The stock made a 52-week low and high of GBX 54.07 and GBX 88.50, respectively.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation for McBride Plc at the current price of GBX 59.67 (as on 5 October 2020, before the market close at 12:14 PM GMT+1) with lower double-digit upside potential based on 6.80x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

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

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