Stagecoach Group Plc (LSE: SGC)
Stagecoach Group Plc, a public transport company, headquartered in the UK with operational presence in England, Scotland and Wales. Its areas of operation are divided into two segments: UK Bus and Rail. Its shares are listed on the main market of the London Stock Exchange and a constituent of the FTSE All-Share and FTSE 350 indices. The outstanding capitalisation of the company stood at £685.18 mn, which ranks it among the small-cap companies listed on the LSE.

Board Restructuring
As on June 26, 2019, the group notified the bourse that its Deputy Chairman, Will Whitehorn is scheduled to step down from the board by June 30, 2020. However, Karen Thomson will continue to serve the board as a non-executive director on account of recent changes in her other business commitments. She was scheduled to step down from the board by August 30, 2019.

Financial Results – (for the year ended April 27, 2019) (£ mn)
During the year under consideration, the group reported unfavourable performance, with adjusted revenue, declined by 33.0% on YoY basis to GBP 1,878.9 mn, primarily because of South West Trains franchise ended in August 2017 and their Virgin Trains East Coast franchise ended in June 2018.

Also, the group has disposed of its North America Division and shifted focus to expand long-term profit growth from their UK bus business. The group’s operating profit before joint ventures contribution and exceptional items stood at £138.0 mn in FY19 against the profit of £132.6 mn in FY18. Its earnings per share before exceptional items and amortisation for the year FY19 stood at 22.1 pence against 22.3 pence in a year-ago period.

However, from the financial position standpoint, consolidated net debt as on April 27, 2019, reduced to £253.3 mnagainst £395.8 mn recorded at the end of FY18 and non-rail debt lowered to £374.9 mn in FY19 from £567.0 mn in FY18 on account of proceeds realised from disposal of North America Division.

Dividend
The board has recommended a final dividend of 3.9 pence per share, and including final dividend, the total dividend for full-year FY19 stood at 7.7 pence per share, which was broadly in line with the dividend of 7.7 pence per share paid in FY18.  

Stock Performance

Daily price chart (as on June 27, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (before the market close, at 12:15 PM GMT), shares of the SGC were quoting at GBX 124.7 and added 3.7 points or 3.05% against the previous day closing price. And, in the past one year, it had registered a 52w high of GBX 184.70 and a 52w low of GBX 113.60 respectively.

Valuation Methodology


Conclusion
The group was adversely impacted by being disqualified for three new rail franchise by Department for Transport. Also, the intensely competitive environment in franchised London Bus market would be challenging for the company. At the end of FY19, a Debt-to-Equity ratio of the group stood at 3.37x whereas industry median was at 0.88, which indicates that the current debt level, despite a decline against the previous year, was still very high as compared to its peer group.  

Therefore, based on the above factors and valuation done using the above methodology, we have given a “Watch” recommendation at CMP GBX124.7 (as on June 27, 2019), based on the 3.6x NTM Industry Median P/CF (approx.) on the FY20E Cash Flow Per Share (approx.), while we look for any upcoming catalysts in the near term.
 

Thomas Cook Group Plc (TCG)

Thomas Cook Group PLC (TCG) is a UK based travel company. The company is amongst the top travel companies worldwide and is having operations in 16 countries. The company owns 105 aircraft, 200 hotels and resorts and is having an employee base of 21,000 professionals cater to the needs of 22 million customers. Its shares are listed on the main market of the London Stock Exchange and a constituent of FTSE Small-Cap index.

Financial Performance – H1 FY19 (£, mn)
In the first half of the financial year 2019 ending 31st March 2019, the company's reported revenue was £3,019 million against £3,227 million in H1 2018. The revenue declined by £208 million due to the impact of currency movements and changes to IFRS 15. The underlying Gross profit stood at £599 million in H1 FY2019 versus £672 million in H1 FY2018 and underlying gross margin for the period was 19.8 per cent. The underlying EBIT loss was up by £76 million (£65 million on Like-for-like basis) to £245 million in H1 FY2019 from a loss of £170 million in H1 FY2018. The loss from operations stood at £1,386 million in H1 FY2019 versus a loss of £215 million in H1 FY2018. Loss before tax for H1 FY2019 increased by £1,153 million to £1,456 million from a loss of £303 million in H1 FY2018. In H1 FY2019, the company paid tax expenses of £18 million against tax rebate of £48 million in H1 FY2018. The loss for the period for H1 FY2019 increased by £1,219 million from a loss of £255 million in H1 FY2018 to a loss of £1,474 million in H1 FY19. The net debt was up by £361 million to £1,247 million in H1 FY2019 from £886 million in H1 FY2018.

Stock Performance
 
Daily price chart (as on June 27, 2019), before the market close. (Source: Thomson Reuters).

At the time of writing (before the market close, at 01:08 PM GMT), shares of the TCG were quoting at GBX 13.45 and plunged around 5.7% against the previous day closing price.  In the year-ago period, its shares have registered a 52w high of GBX 110.60 and a 52w low of GBX 8.3 respectively.

Conclusion
The company’s top-line and bottom-line performance in the first half of FY2019 witnessed a downfall. There had been an increase in the costs which had further broaden the company’s loss as compared to the last year. In the past 5-trading sessions, the stock was down by 3.34%; however, on month-on-month basis shares have delivered a return of 9.15%. Also, the stock is trending towards the lower Bollinger Band®, but 14-day RSI of the stock was hovering in neutral zone. Therefore, based on above-discussed measures, we have given a "Hold" recommendation at the current price of GBX 13.45 (as on June 27, 2019).

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