Restore Plc – Expects a strong cash generation

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.

Rationale for Valuation – Speculative Buy at GBX 365.50

• It has good activity levels across all business units and expects a strong cash generation for the year.
• The Company has decent fundamental metrics as it has maintained a Gross and EBITDA margin above the industry median.
• The debt/equity ratio was 1.09x in H1 FY20, lower than the industry median. Hence, the Company is less leveraged as compared to the industry.
• In the last month, the Company has delivered a decent return of ~13%, which was higher as compared to the FTSE AIM 100 Index.
• From the technical standpoint, shares were trading well above the short-term support level of 20-day (around GBX 341.28) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The Company’s operations will remain impacted due to uncertain political and economic climate for short to medium term.
• COVID-19 is having a profound impact on all countries in which the Company operates.
• Brexit can increase the import cost and affect the operating margin.

Recent News

On 16 November 2020, the Company announced that the Datashred business unit has won 'Paper Recycling Business of the Year' award, which is for Excellence in Recycling and Waste Management 2020.

Trading Update (for the ten-month period ended 31 October 2020, as on 12 November 2020)

• In October 2020, the activity levels were in line with the anticipated improvement in trajectory.
• The Company witnessed a strong cash collection and expects to reduce the net debt of £65-£69 million (pre acquisitions).
• The Company has built the growth in a net box in Q3 and continued to be positive in October 2020.
• It has acquired E Recycling Ltd to enhance the Company's strong position in the IT recycling market.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has had a good position in the market, with highly predictable recurring revenues and good customer retention. It has seen good activity levels across all business units and expects similar activity levels in the upcoming months. RST also expects to report strong cash generation for the year, with an increase in H2 profits (from H1 profits). The recent acquisition will increase the opportunity in IT recycling market and accelerate the strategic delivery. In 2021, the Company is well-positioned to bounce back strongly. The stock made a 52-week low and high of GBX 280.00 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” stance on Restore at the current market price of GBX 365.50 (as on 26 November 2020, before the market close at 11:30 AM GMT), with lower double-digit upside potential based on 30.74x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

Vianet Group Plc - Shown an improvement in operating profit and cash

Vianet Group Plc (LON: VNET) is a FTSE AIM All-Share-listed technology service provider that offers business insights through the internet of things (IoT) capabilities.

On 8 December 2020, the Company will release the results for the half-year ended 30 September 2020.

Rationale for Valuation – Speculative Buy at GBX 85.00

• On a trailing 12 months, EV/Sales, EV/EBITDA and Price/Cash Flow multiple is currently lower than the Software & IT Services industry.
• The debt/equity ratio was 0.10x in FY20, lower than the industry median. Hence, the Company is less leveraged as compared to the industry.
• In the last month, the Company has delivered a decent return of ~22%, which was higher as compared to the FTSE AIM All-Share Index.
• The Company has decent fundamental metrics as it has maintained a Net margin and ROE above 12% and 8%, respectively, for the last three years.
• From the technical standpoint, shares were trading well above the short-term support level of 20-day (around GBX 79.30) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The United Kingdom is facing the most significant slowdown in productivity presently.
• Moreover, the Company operates in multiple geographies, and the profits can be impacted negatively due to foreign exchange rate fluctuations.
• Current market dynamics are volatile and challenging, which may have a negative impact on business operations in the near term.

Trading Update (as on 23 October 2020)

• The Company reported that trading for H1 FY21 had been ahead of revised management expectations.
• On a month-on-month basis, VNET has shown an improvement in cash and operating profit.
• It has a strong operating and financial position to navigate the financial year 2021, while the Covid-19 situation remains difficult to predict.
• Further, the Company continue the solid momentum and will deliver exciting growth opportunities.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

VNET is closely monitoring the Covid-19 situation and managing measures imposed by the government proactively. The Company has shown improvement in cash and operating profit from the beginning of the financial year 2021, with solid momentum to deliver on growth opportunities. In FY20, the Company witnessed a robust balance sheet and operational cash generation capabilities, with decent earnings growth. Further, it expects the strong trend to continue post lockdown period and will provide exciting growth opportunities. Moreover, the Company is making sales investment to accelerate growth, with extra focus on developing the capability and contactless payment device connectivity. Overall, VNET remained in good shape to tackle the impact of Covid-19 pandemic and will emerge even stronger once the current crisis is passed. The stock made a 52-week low and high of GBX 280.00 and GBX 560.00, respectively.

Based on the decent growth prospects, we have given a “Speculative Buy” stance on Vianet Group at the current market price of GBX 85.00 (as on 26 November 2020, before the market close at 11:33 AM GMT).

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

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

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