Young & Co’s Brewery Plc

Young & Co’s Brewery Plc (LON: YNGA) is an FTSE AIM All-Share index listed UK based company. It owns and operates retail pub chain and hotels.

On 20 July 2021, the Company would conduct its annual general meeting.

Investment Rationale for Valuation – SELL at GBX 1,581.00

• YNGA experienced a very difficult year in FY2021, with revenues declining ~71% YoY and the Company making a net loss.
• There is speculation that YNGA could sell its tenanted estate.
• On the profitability front, the EBITDA margin in FY2021 has been lower than the industry median of 5.0%.
• On the liquidity front, the current ratio since FY2019 has been consistently lower than the industry median of 0.89x.
• In the last six months, the stock generated a decent return of about 36.96%. Hence, it is a chance for investors to book a decent profit.
• The stock is trading near its 52-week high price of GBX 1,685.00. Hence, there is doubt about its upside potentials.

Key Risks

• There are evolving consumer preferences and changing consumer spending behaviour. Hence, YNGA has to evolve to cater to its consumers’ tastes.
• The property prices in the UK could rise, making the acquisition of new properties costlier for YNGA.
• Disruptions in the supply chain could lead to an increase in operating expenses.

Financial Highlights (for the year ended 29 March 2021 (FY2021), as of 20 May 2021)

(Source: LSE Website)

• Due to lockdowns and disruptions to the business caused by Covid-19, revenue in FY2021 declined YoY significantly by ~71%.
• It resulted in a basic loss per share of GBX 68.23 in FY2021 from basic earnings per share of GBX 39.37 in FY2020.
• Due to the net loss, the management suspended the dividend payment in FY2021.
• However, YNGA issued equity of £84.9 million in FY2021, which improved its cash position to £4.7 million in FY2021 from £1.1 million in FY2020.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

Since the reopening of the economy, YNGA opened many of its pubs and experienced solid pent-up demand. However, the shape and speed of the recovery from the Covid-19 pandemic remain uncertain, and the management could not provide detailed guidance for FY2022.  Hence, it would be prudent to liquidate the position at a profit as the stock is also trading near its 52-week high, indicating overstretched valuation. Overall, we do not have significant catalysts to support an uptick in the stock price and recommend exiting the position currently. The stock made a 52-week low and high of GBX 770.00 and GBX 1,685.00, respectively.

Considering the lack of detailed guidance due to macroeconomic uncertainty, lower profitability and liquidity position of the Company than the industry, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Young & Co’s Brewery at the current market price of GBX 1,581.00 (as of 23 June 2021, at 12:10 PM GMT), while we look forward to reinvesting based on how the sector and Company recovers. 

Novacyt SA

Novacyt SA (LON: NCYT) is a FTSE AIM 100 listed diagnostic business with a portfolio of Vitro and molecular diagnostic tests. Primerdesign and Lab21 Products are its leading business units.

Rationale for Valuation – SELL at GBX 342.54

• Regarding DHSC dispute, the Board unveiled that the replacement cost of the product in dispute is estimated to be a maximum of £19.8 million. However, it is also expected that DHSC might claim a refund under the limited assurance warranty.
• There are unpaid invoices of £73.0 million in total against the products delivered to the DHSC.
• During Q1 FY21, Novacyt experienced a run-rate of over £10 million in sales per month, which has reduced to nearly £7 million per month in April 2021 and May 2021.
• Without the DHSC contract, Novacyt expects to report around £100 million in revenue for FY21 (provided the demand picks up in line with the board's expectations), which is less than half of FY20's revenue.
• From a technical standpoint, 20-day EMA (~GBX 356.32) is sustaining below the current market price, while the MACD line is giving a bearish crossover.

Key Risks

• On 21 May 2021, Novacyt released its second warning that its dispute with the Department of Health and Social Care (DHSC) can materially impact its Q4 FY20 and Q1 FY21 revenues since nearly 50% of Q1 FY21 was contributed by DHSC.
• There is limited visibility over future sales with the ever-changing nature of the COVID-19 pandemic.
• In terms of forward 12-month valuation multiples, EV/Sales and EV/EBITDA metrics are quite overvalued against the Health Care industry.

Recent News

• New Assays: On 3 June 2021, Novayct launched two new polymerase chain reaction (PCR) assays to bolster its NPsig® SARS-CoV-2 variant and genesig® COVID-19 portfolio.
• Product Launch: On 26 May 2021, NCYT announced the expansion of VersaLab™ portfolio by launching VersaLab™ Portable to support near-patient testing environments.

Financial Highlights for the three months ended 31 December 2020 (22 June 2021)

(Source: Company Website)

• FY20 demonstrated transformational performance on the back of COVID-19 PCR testing portfolio.
• During FY20, revenue soared 20 times, and subsequently, Novacyt reported Profit after tax of £132.4 million against a loss of £5.7 million in FY19.
• At the end of FY20, Novacyt had cash of £91.8 million compared with £1.5 million in FY19.

One Year Share Price Chart

 (Analysis done by Kalkine Group)

Conclusion

Although Novacyt is focused on delivering long-term growth and seeking growth opportunities with M&A strategy, the short-term outlook is quite uncertain with possible outflow with DHSC’s claim and loss of revenue. Post cancellation of DHSC’s supply contract, Novacyt is taking legal advice to SELL strong grounds to assert its contractual rights. Moreover, there is limited sales visibility due to uncertain diagnostic testing demands amid the Covid-19 pandemic. As the stock has breached our previously suggested stop loss level and showing a bearish momentum over the past month, it is advisable to liquidate their position considering the high degree of risk and bearing momentum in the stock. The stock made a 52-week high and low of GBX 1,276.00 and GBX 220.10, respectively.

Based on the anticipated FY21 revenue, potential cost of the ongoing DHSC dispute, dampened interest towards the stock amid legal uncertainty, demand uncertainty regarding private testing, we have given a “SELL” recommendation on Novacyt SA at the current market price of GBX 342.54 (as on 23 June 2021, at 2:10 PM GMT), while we look forward to reviewing how its private testing business responds to the lockdown easing. 

Fintel Plc

Fintel Plc (LON: FNTL) is an FTSE AIM All-Share index listed company, which provides support services, including compliance, technology and business services to financial advisers and financial institutions in the UK.

The Company was previously known as SimplyBiz Group Plc. In March 2021, it took the new name to create a new brand identity. It plans to be associated with a “house of quality brands” rather than a single house brand.

On 20 September 2021, FNTL is expected to announce its H1 FY2021 results.

The last dividend of GBP 2.85 per share was paid on 7-May-2021 (Final dividend).

Investment Rationale for Valuation – SELL at GBX 246.00

• The management could not provide detailed guidance for FY2021 due to uncertainty and lack of visibility.
• On the liquidity front, the current ratio in FY2020 has been lower than the industry median of 1.27x.
• In the last year, the stock generated a good return of about 66.22%, offering investors an opportunity to book a decent profit.
• The stock is trading very near its 52-week high price of GBX 248.64, raising doubts about its upside potential.
• From a technical standpoint, 14-day RSI at about 66.46 is moving towards the overbought zone. Hence, there could be potential short-term downward movement in the stock price.

Key Risks

• FNTL’s extensive event programme could be impacted by restriction, affecting its brand image.
• The change to the new brand may not bring the desired results, increasing costs and affecting margins.
• The economic downturn could adversely impact consumer confidence and spending. Hence, demand for services could be reduced in the near term.

Q1 FY2021 Trading Update (released on 28 April 2021) 

• FNTL reported robust trading in Q1 FY2021, which increased confidence for FY2021.
• FNTL had strong cash conversion in Q1 FY2021. It led to net debt to EBITDA reducing to 1.0x.
• Ken Davy would no longer be the Chairman of the FNTL. He would be succeeded by Gary Hughes. Ken would assume the role of Deputy Chairman.
• Also, Imogen Joss has taken over the role of Senior Independent Non-Executive Director from 28 April 2021, succeeding Gary Hughes.

One Year Share Price Chart

(Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has made strategic progress with digital acceleration. It has also rebranded itself to have a new association in customer’s mind. Meanwhile, the stock is trading very close to the 52-week high of GBX 248.64. The management could not provide detailed guidance for FY2021 due to a lack of visibility. The stock made a 52-week low and high of GBX 128.00 and GBX 248.64, respectively. 

Considering the lack of detailed guidance, lower liquidity position of the Company than the industry, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Fintel Plc at the current market price of GBX 246.00 (as of 23 June 2021, at 11:30 AM GMT), while we will revisit our stance based on the analysis of future corporate announcements released by the Company. 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

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