Redrow Plc

Redrow Plc (LON: RDW) is  the UK based Household Goods Company and is acknowledged as one of the famous residential housing developers in Wales and England.

The Company will have AGM on 6 November 2020.

Investment Highlights – Redrow Plc – Speculative Buy at GBX 442.00

• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Book Value and Price/Cash Flow multiples of the Redrow Plc are currently lower as compared to the corresponding multiples of the Homebuilding & Construction Supplies industry. It reflects, shares are undervalued as compared to the industry.
• In the last six months, the Company delivered a substantial return of 28.28%, respectively, and delivered significantly higher returns compared to the benchmark Index (FTSE-250 Index).
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 48 level), which means the stock price could increase in the short term.

Key Risks

• The recessionary economic conditions can impact consumer confidence and demand in the short-term.
• The Company faces a significant risk of availability of raw materials and supplies due to Covid-19 Crisis.
• The projects completions could be delayed due to the complex regulatory environment.

Financial & Operational Highlights – FY2020 (28 June 2020)

(Source: Annual Report, Company Website)

• For the financial year 2020, the Company’s performance was significantly impacted by covid-19, the legal completions and revenue declined by 37% for the period.
• On Profitability metrics, the PBT (profit before tax) declined significantly by 66%, due to impairments charges and costs incurred for scaling-back the business in London and covid-19 crisis, while EPS was down by 64%.
• The Company to protect cash flow for the period, managed debt with tight control and has a strong WIP (work in progress) position based on a robust order book.
• RDW entered FY2021 with strong momentum with a 12% increase in reservations in the first 11 weeks period of FY2021.

One Year Share Price Chart

Daily Chart as of 16 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 financial year 2020. Both the top-line and the bottom-line performance have declined, with lower profitability. Despite the lower financial performance, the trading for FY2021 has been encouraging with a strong order book and high levels of WIP (work in progress). The Company is well-positioned to deliver solid performance and has completed substantially more homes in the first few weeks of FY2021 with increased order book by 39%. The Company expects to deliver strong operating cash flow in the coming months to support regional growth plans and resume dividend payments. The board believes market uncertainty will remain in future; however, RDW is well-placed to navigate the challenging conditions. The stock made a 52-week low and high of GBX 293.00 and GBX 850.76, respectively.

Based on the above rationale and the valuation done using the above method, we have given a “Speculative Buy” recommendation for Redrow Plc at the current price of GBX 442.00 (as on 16 September 2020, before the market close at 8:50 AM GMT+1) with single-digit upside potential based on 8.15x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

OptiBiotix Health Plc

OptiBiotix Health Plc (LON: OPTI) is an AIM-listed life science company. It is involved in the development and research of microbiome modulators mainly in the United Kingdom. 

Investment Highlights – OptiBiotix Health Plc – Speculative Buy at GBX 48.40

• The Company has shown a significant increase in the revenue for H1 FY2020 and expects a further increase in revenue for FY2020, which will improve profitability margins in the near future.
• In the last six months, the Company delivered a significant return of 105.23%, respectively, and delivered significantly higher returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 34 level), which means the stock price could increase in the short term.

Key Risks

• The company’s revenue is impacted by increased competition in the healthcare sector.
• Due to covid-19 crisis, the Company may face a shortage of supply of raw materials or product might not be able to reach customers.

Recent News

On 15 September 2020, OptiBiotix Health announced the signing of an agreement with US Company. As per the agreement, the US Company will manufacture and commercialize SweetBiotix® products.

Trading and Commercial Update (released on 20 July 2020)

• In the first half of FY2020, total invoiced sales increased by 398% to £741,504 (H1 FY2019: £148,818).
• The revenue for the period also surged by 398%, driven by an increase in the signing of agreements resulted in sales growth from product launches.
• The Company confirmed preliminary sales and revenue figures shown progress made by each division and will become profitable in FY2020.
• OPTI also received investment income of £747,500 from SkinBioTherapeutics Plc’s shares disposal.
• At present, the Company is in no position to provide any guidance for FY2020.
• The Company signed 15 commercial agreements for the H1 FY2020 out of which 4 for LPLDL® and 11 for SlimBiome®.

One Year Share Price Chart

Daily Chart as of 16 September 2020, before the market close (Source: Refinitiv, Thomson Reuters).

Conclusion

Based on the invoiced sales for H1 FY2020, the Company has shown a significant increase in revenue of 398%. During the period, the Company signed 15 new agreements and expects each division to be profitable in FY2020. The Company experienced a growth trend for revenue on a year-on-year basis, with more revenue-generating agreements, sales growth from existing partners and more product launches with retail partners. With the growth in products related to wellbeing and health, the Company expects further revenue growth in FY2020. The Company believes the global economic environment to remain uncertain and will create challenges; however, OPTI is confident in its strategy and is working with multiple partners to tackle the uncertain times. The stock made a 52-week low and high of GBX 23.20 and GBX 72.70, respectively.

Based on the above rationale and the valuation done using the above method, we have given a “Speculative Buy” recommendation for OptiBiotix Health Plc at the current price of GBX 48.40 (as on 16 September 2020, before the market close at 8:30 AM GMT+1).

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

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

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