Ferguson Plc

Ferguson Plc (FERG) is a Switzerland-based holding company, specialising in the distribution of plumbing and heating products and is headquartered in Zug, Switzerland. With 2,280 branches spread across three regions with 19 distribution centres, the company aims to bridge the gap between the large supplier base and geographically scattered customers through its 5,900 strong fleet vehicles. The group is a specialist distributor and has served over 1 million customers who are assisted by the company's 35,000 associates.

Recent News
On 13^th June 2019, theTrian Investors 1 Limited announced that Ferguson had an attractive business and acquired an interest of 5.98 per cent shares in the Ferguson plc and which were valued at GBP 736 million (U.S. $935 million) approximately.

Financial Highlights – Q3 FY2019

(Source: Quarterly Report, Company Website)

In the third quarter of the financial year 2019, the company’s reported revenue increased by 6.2 per cent to $5,274 million versus $4,968 million of the last year for the same period. On an organic basis, the revenue surged by 2.7 per cent. The increase in revenue was due to an increase in revenue from the company’s US business by 8.4 per cent. The company’s gross margin increased by 20 basis points to 29.5 per cent. The company’s trading profit increased by 2.3 per cent to $359 million in Q3 FY2019 against $351 million in Q3 FY2018. The company remained highly cash generative with $632 million in the third quarter of the financial year 2019 with 0.9x of net debt to EBITDA. The company announced a Share buyback of $500 million.

Share Price Performance

Daily Chart as at June-20-19, after the market closed (Source: Thomson Reuters)
 
On 20^th June 2019, Ferguson Plc shares closed at GBX 5,682.00 and up by 0.67 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 6,601.91/GBX 4,594.00. Total outstanding market capitalisation was around £13.17 billion, with a dividend yield of 2.67 per cent.
Valuation Methodology


Conclusion
The company had shown decent financial performance in the third quarter of the financial year 2019. The company’s revenue from its US business had increased but its revenue from its UK and Canada businesses have been declined. Themarket environment in which company operate has low growth potential which can impact on company’s profitability.The company operates inmultiple locationsand any change in the economic and political policy can hamper the company’s operating performance.

Based on decent fundamental performance and risk associated, we have given a “HOLD” recommendation at the closing price of GBX 5,682 (as on 20^th June 2019), based on the 14.15x NTM Peers average Price/Cash Flow Value (approx.) on FY19E cash flow per share (approx.).

Saga Plc

Saga Plc (SAGA) is one of the most trusted brands in the UK which provides exceptional products and first-class services to its customers over the age group of 50 from last 65 years. The company has divided its operations into three divisions being Travel, Insurance and Emerging Businesses. The company is awarded for its products and services which includes personal finance, cruises & holidays, the Saga Magazine and insurance.

Trading Update
The company is performing well despite challenging conditions. The company is expecting good progress with the launch of new products for its insurance business and the company’s Tour Operations had been impacted by ongoing political uncertainties. The company’s Insurance business had performed well and launched three-year fixed price policies in home and motor segment. The company had sold more than 60,000 policies out of which over 30,000 are from new business. The company’s Travel business was impacted by the political uncertainties and remained very competitive. The revenue from travel business declined by 4 per cent as on 15^th June. Under the membership business, the company is having 1.1 million active members.

Financial Highlights – Financial Year 2019 (£, million)

(Source: Annual Report, Company Website)

In the financial year ending January 31, 2019, the company’s reported revenue was £841.5 million as against £860.2 million in the same period of last year. There was a decline of 2.2 per cent in revenue due to a decline in the Retail Broking revenue segment. The reported Underlying Profit Before Tax for FY2019 declined by 5.4 per cent to £180.3 million as compared to £190.6 million in FY2018. The decline was primarily due to a decrease in the Retail Broking by £24.9 million, decreased margins and a reduction in the written to earned benefit by £8 million. The Loss before tax (continuing operations) stood at £134.6 million for FY2019 as compared to a profit of £180.9 million for FY2018. There was a decline of 174.4 per cent mainly because of impairment of goodwill relating to the Group’s Insurance operations worth £310 million and a non-cash impairment charge of £5.9 million on two existing cruise ships. The company’s reported Loss for FY 2019 stood at £162 million as against profit of £139.4 million for FY2018. The loss per share for FY2019 stood at 14.5 pence as compared to 12.5 pence recorded in FY2018.

Share Price Performance

Daily Chart as at June-20-19, after the market closed (Source: Thomson Reuters)
 
On 20^th June 2019, Saga Plc shares closed at GBX 35.50 and was up by 7.38 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 141.20/GBX 31.78. Total outstanding market capitalisation was around £398.31 million, with a dividend yield of 12.10 per cent.

Valuation Methodology


Conclusion
Although the company’s Top-line and the bottom-line performance had declined in the current financial year. The company remained highly cash generative and had secured a long-term capital structure which will provide the company with financial strength and flexibility. Despite the challenging environment, the company is growing its operational performance. The recently launched insurance products are getting a good response from the market.

Based on the growth prospects and valuation done by using above method, we have given a “Speculative BUY” recommendation at the closing price of GBX 35.50 (as on June 20, 2019) with single-digit upside potential based on the 0.42x NTM Peers average Price/Book Value (approx.) on FY20E book value per share (approx.).

*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.78617 GBP.

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