City Pub Group PLC – Management Looks Excited with Reopening Prospects After Raising GBP 15 million To Offset COVId-19 Impact

The United Kingdom-based, City Pub Group PLC (LON: CPC) is FTSE AIM All-Share listed Company, which owns and manage an estate of pubs throughout the southern half of England and Wales.

Recent News
19^th June 2020: Under the Long-Term Incentive Plan, the Company has granted 2,100,000 nil cost options.

16^th April 2020: The Company raised GBP 15 million in gross proceeds by placing 30,000,000 New Ordinary Shares.

Financial Highlights (for the 52 weeks ended 29^th December 2019)
On 12^th June 2020, the Company released its FY19 results and following were the highlights – revenue surged by 31 per cent to GBP 60 million (FY18: GBP 45.7 million); adjusted EBITDA increase by 15.4 per cent to GBP 9.1 million (FY18: GBP 7.9 million), despite the reduction in the margin; adjusted profit rose 4 per cent to GBP 5.3 million (FY18: GBP 5.1 million); year-end net debt was stood at GBP 31 million.

Share Price Performance

Daily Chart as of June 19th, 2020, before the market close (Source: Refinitiv, Thomson Reuters)

City Pub Group PLC’s shares were trading at GBX 96.55 at the time of writing before the market close (at 9.17 AM GMT+1) on 19^th June 2020 and down by 1.98% 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 and Risk Assessments
The decisive actions have secured substantial liquidity for the long-term future of the Company. The business is more streamlined with centralization systems in place. It has a strong balance sheet to take advantage of upcoming opportunities. However, 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. Further, the Group is exposed to several political, micro, and macro-economic headwinds like the slowdown in shoppers spending and inflationary pressures.

Conclusion
The Company is encouraged with strong FY19 results and revenue growth in Q1 FY20. However, the Company cannot ignore the uncertainty in the market as created due to Brexit and Coronavirus. 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 96.55 (as on 19^th June 2020, before the market close on 10.22 AM GMT+1) with lower double-digit upside potential, based on the 32.44x Peers NTM Price/Cash Flow Multiple (approx.) on the FY20E Cash Flow Per Share (approx.).
 
Hostelworld Group PLC – Cautious Optimism with No Debt Obligation and Substantial Liquidity

Hostelworld Group PLC (LON: HSW) is a FTSE All-Share Company, which 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.

AGM Statement (as on 27^th April 2020)
In this update, the Company stated that COVID-19 led restrictions are having a material impact over the travel industry. Consequently, the Company has been implementing a cash conservation and cost reductions initiatives to mitigate the financial impact. The EBITDA for Q1 FY20 reduced to EUR 4.8 million, as against the same period last year. The trading environment remains challenging and minimal booking volumes. As at 31^st March 2020, the Company had a strong liquidity position of EUR 20 million and had no debt obligation to meet.

Trading Statement and Actions Taken to Combat Covid-19 Pandemic
On 26^th 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. 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 on 19^th June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Hostelworld Group PLC’s shares were trading at GBX 79.90 on 19^th June 2020 (before the market close at 8.10 GMT+1), which was up 1.78% against the last day closing price. Stock's 52 weeks High is GBX 195.40 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 and Risk Assessments
The Company has no debt obligations to meet and have a strong balance sheet position to withstand the lower booking scenario during COVID-19 led restriction. The Company has implemented several cash preservatives to stay resilient and their reported EBITDA was better than estimated previously on 26^th March 2020. Hostelworld Group has diverse geographic footprints which put them in a position to leverage its scale and experience to tap future opportunities. However, the trading might remain bleak until the second-quarter due to the enormous impact on the travel industry, and thus, demand for hostelling. 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.

Conclusion
Given the uncertainties, Company is not able to quantify the financial impact yet or give financial guidance for FY20. During the FY19, the financial performance of the Group declined as compared to FY2018. Moreover, the operations are currently impacted by travel restrictions due to Covid-19. 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 78.60 (as on 19th June 2020, before the market close on 8.09 AM GMT+1) with lower double-digit upside potential, based on the 4.72x Peers NTM Price/Cash Flow Multiple (approx.) on the FY20E Cash Flow Per Share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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