Hotel Chocolat Group Plc – Operating with strong sales growth

Hotel Chocolat Group Plc (LON: HOTC) is a food producer Company, which engaged in the business to manufacture and retail chocolate in the UK and abroad.

On 2 March 2021, the Company will announce the results for the six months ended 27 December 2020.

Rationale for Valuation – Speculative Buy at GBX 350.10

• The Company delivered strong sales growth and launched several new products.
• On the liquidity front, the current ratio was 1.35x in H1 FY20, which was in line with the industry median.
• Also, the liquidity position stays strong, with the confidence to increase the investment for the future.
• From the technical standpoint, 14-day RSI stood at 34.01, which is supporting the upside movement.

Key Risks

• During the Covid-19 period, the Company increased reliance on online platforms, which need to be maintained properly to avoid cyber-attacks or fraud, failing to do so will deteriorate the Company's reputation.
• The Company operates in highly competitive markets, which could adversely affect the Group’s results.

Trading Update (for the 13-week and 26-week periods ended 27 December 2020, as on 19 January 2021)

• For the 13 weeks and 26 weeks, the total Group revenue increased by 19% and 11%, respectively, as compared with the previous year.
• In the UK, the Company witnessed strong demand from its multichannel model.
• In the USA, it delivered revenue growth of 19% in the 13 weeks and 8% in the 26 weeks as compared with the corresponding period of the last year.
• In Japan, HOTC has substantially increased e-commerce database.
• Since December 2020, the trading continues to be in line with Board’s expectations.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

Despite the challenging environment, the Company delivered strong sales growth and launched several new products, with the growth momentum stepped up in the USA and Japan. Further, in the period, it has also made significant progress in building an operational platform for future growth. Through the digital growth initiatives, the Board believes that it will deliver significant further growth in the USA, UK and Japan. HOTC remains on track to deliver against the expectations. The Company is focusing on the growth, customer relevance and a distinctive way of working across the business. HOTC prospects appear to be decent, and it is a good opportunity to invest for the long term. The stock made a 52-week low and high of GBX 190.00 and GBX 490.00, respectively.

Based on decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Hotel Chocolat Group at the current market price of GBX 350.10 (as on 3 February 2021, before the market close at 9:01 AM GMT), with lower double-digit upside potential based on 3.30x EV/NTM Sales (approx.) on FY21E sales (approx.).

Henry Boot Plc - Strong financial position with a robust balance sheet

Henry Boot Plc (LON: BOOT) is a Construction & Materials Company, which is engaged in the business related to property, investment, land development and construction.

On 23 March 2021, the Company will release its 2020 full-year results.

Rationale for Valuation – Speculative Buy at GBX 274.69

• The Company has ended the year significantly ahead of the management’s revised expectations for 2020.
• Henry Boot remains in a strong position, with an agile recovery plan and a robust balance sheet.
• On the liquidity front, the current ratio was 3.63x in H1 FY20, which was higher than the industry median.
• The company's debt/equity ratio in the past three years was considerably below the industry median. In H1 FY20, the debt/equity ratio was 0.05x.
• From the technical standpoint, shares were trading well above the short-term support level of 50-day (around GBX 261.64) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The macro-economic volatility can significantly impact the real estate market and consumer confidence.
• Failure to comply with legislation or secure adequate capital requirements can significantly affect the company's growth prospects.
• Moreover, the delay in project deliveries can impose penalties or fines and can cause reputation damage to the organisation.

Trading Update (for the year ended 31 December 2020, as on 19 January 2021)

• At the end of the year, the Company’s performance was significantly ahead of the management's previous expectations. This increase has shown a resilient performance in the development, construction and house building businesses, with land disposals.
• It saw a strong financial position, with a robust balance sheet and around £27 million of net cash.
• The Company witnessed a steady increase in activity, despite the ongoing challenges of a global pandemic.
• In 2020, HBD (Henry Boot Developments Limited) had completed its developments with a total GDV (Gross Development Value) of £62 million and is committed to projects with a total GDV of £313 million.
• Henry Boot Construction's productivity for the second half of 2020 increased on sites to 95% of planned activity and expects a strong order book for 2021.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Despite the unprecedented challenges, the Company has strong financial position, robust forward sales and a growing store of opportunities. Further, it started the year in good shape. Meanwhile, H1 FY20 performance shows a slight improvement in the revised forecasts. Further, BOOT was encouraged by improved performance from construction division. The Company has declared an interim dividend, which shows confidence in the business's longer-term outlook. Overall, the Company saw a good opportunity to invest, with strong operational momentum. The stock made a 52-week low and high of GBX 180.00 and GBX 340.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Henry Boot at the current market price of GBX 274.69 (as on 3 February 2021, before the market close at 9:00 AM GMT), with lower double-digit upside potential based on 21.37x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

 

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

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

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