City Pub Group PLC – Reflecting Strong Business Model with Sustainable Growth

City Pub Group Plc (LON: CPC) is a London, the United Kingdom-based company, which owns and manage an estate of first-rate pubs throughout the southern half of England and Wales.

COVID-19 Update (as on 17th March 2020)
On 17^th March 2020,City Pub Group released an update on the impact of a covid-19 pandemic on business performance. During the first eleven weeks to 15 March 2020, total turnover is up 11 per cent against the same period last year, while LFL sales reduced by 4.5 per cent in the same period.  Recently, the Group’s trading has been wedged by COVID-19 mayhem. Its impact was seen on sport, and on certain sites, where reductions in trade were witnessed. The Group did not mention the exact impact of Coronavirus on its trading performance as well as a financial performance at this time; however, it anticipated a material decrease to its expectations for 2020. CPC's balance sheet is robust with GBP 32 million of current net debt against a portfolio consisting predominantly of freehold assets with a GBP 116 million of net book value as at 29 December 2019.

Share Price Performance

Daily Chart as of May 27^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

City Pub Group Plc shares were trading at GBX 77.45 at the time of writing before the market close (at 10:59 AM GMT+1) on 27^th May 2020 and down by 0.71% versus the previous day closing price. Stock's 52 weeks High is GBX 215.62 and Low is GBX 36.25.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Growth Catalysts
The Restaurant and bar group have recorded decent growth in the past several years. The group has made several strategic acquisitions in the last year, which are imperative for its further growth. The strong balance sheet places the group in a strong financial position to expand its reach in the new markets.

Conclusion
The Company cannot ignore the uncertainty in the market as created due to Brexit and Coronavirus. The Group is exposed to several political, micro, and macro-economic headwinds like the slowdown in shoppers spending and inflationary pressures. As the development sites begin trading in the current year, the company will drive the performance going forward. Their performance has been driven by both organic growth and the new pubs coming on stream, and the group is well placed to take advantage of the softening market for acquisitions.

Based on the above rationale and the valuation done using the above methodology, we have given a “Speculative Buy” recommendation at the current price of GBX 75.10 (as on 27^th May 2020, before the market close at 8:00 AM GMT+1) with lower double-digit upside potential, based on the 11.50x Peers NTM Price/Earnings Multiple (approx.) on the FY20E earnings per share (approx.).

Hostelworld Group Plc – Offering Customised Solutions to Hostel and Hostel Travellers

Hostelworld Group Plc (LON: HSW) is engaged in online hostel-focused booking platform internationally. It was founded in 1999 to provide property management system and global distribution channel for hostels. Today, it connects with 17,700 hostel properties in over 179 countries.

Trading Statement and Actions Taken to Combat Covid-19 Pandemic
On 26th March 2020, Hostelworld Group released an update on the trading performance and impact of covid-19 on business performance. The group expected EUR 5.0 million reduction in EBITDA during Q1 FY20 to due to the financial impact of Covid-19. During the first quarter of 2020, the group had taken several measures to safeguard its employees by giving a flexible working environment. Regarding liquidity, the group held a strong cash position at EUR 20 million as at 24th March 2020, while it had no debt obligations to meet. Due to booking cancellation amid the travel restrictions, the group had been offering credits in place of cash refunds to minimize the effect on cashflows. Further, the group had cancelled its final dividend of FY2019, comprised of EUR 2.0 million cash outflow. Moreover, to preserve the liquidity, the group had reduced marketing expenditures.  

Share Price Performance

Daily Chart as of May 27^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Hostelworld Group Plc shares were trading at GBX 69.10 at the time of writing before the market close (at 11:02 AM GMT+1) on 27^th May 2020 and up by 0.88% versus the previous day closing price. Stock's 52 weeks High is GBX 221.00 and Low is GBX 35.75.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Growth Catalysts
The group has a strong balance sheet with adequate liquidity position. Hostelworld Group has diverse geographic footprints which put them in a position to leverage its scale and experience to tap future opportunities.

Conclusion
During the financial year 2019, the financial performance of the group declined as compared to FY2018. Moreover, the operations are currently impacted by travel restrictions due to Covid-19. The group is also exposed to the foreign currency risk since their primary operating currency is Euro and strengthening of the US dollar can impact the company further. Presently, the group is holding a robust state of the balance sheet with no debt obligation and substantial cash position. Its website operates in 19 different languages, and its mobile app supports 13 languages, which makes them a global operator. As per the company management, it is too early to predict the impact of Covid-19 outbreak over the business. However, the group has taken several measures for strict cost control to weather the volatile market.

Based on the above rationale and the valuation done using the above methodology, we have given a “Speculative Buy” recommendation at the current price of GBX 66.30 (as on 27^th May 2020, before the market close at 8:50 AM GMT+1) with high single-digit upside potential, based on the 6.30x Peers NTM Price/Earnings Multiple (approx.) on the FY20E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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