NCC Group PLC

NCC Group PLC (LON: NCC) is a cybersecurity and risk mitigation company. In the ever-evolving threat landscape, the company works with businesses to safeguard their brand and customer information by helping businesses to identify, assess, mitigate & respond to the risks they face. The company's operations are differentiated in two operating segments, namely Assurance and Escrow.

Financial Highlights (for the six months ended 30 November 2019, £ million)

(Source: Interim Reports, Company Fillings, LSE)

For the first half of 2020, the company’s revenue increased by 5.3% to £132.7 millionas compared with the corresponding period of the last year, driven by an increase in Assurance business but the decline in Escrow segment. The sales orders increased by 28.6% to £149.2 million against the same period last year. On a like-for-like basis, the adjusted operating profit increased by 11.5% to £16.5 million as compared with the corresponding period of the last year, with margin increased by 0.7% pts to 12.4%. Effective cash management in both divisions enhancing the first half of 2020 cash conversion and decreasing net debt to £20.8 million at a like-for-like basis from £45.1 million.  Growth being made towards the company's vision to become the prominent cyber security adviser internationally through the excellent net promoter score. The company maintains to develop people capability, in line with the aspiration to become the international hub for cyber talent. The company has delivered the first phase of system execution, with incremental investment intended to drive improved benefits. The interim dividend per share was 1.5 pence.

Share Price Performance

Daily Chart as at January-24-20, before the market closed (Source: Thomson Reuters)

NCC Group PLC shares were trading at GBX 214 at the time of writing before the market close (at 8:30 AM GMT) on 24th January 2020 and were up by 1.42% versus the previous day closing price. Stock 52 weeks High and Low are GBX 236/GBX 111.48. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.54.

Conclusion
For the full year 2020, the company was in line with the anticipations. Presently, the company is at the mid-point of the 3-year transformational programme. In the current period, the company’s performance was well-positioned, and the company will enter the second half of 2020 with a robust order book and positive momentum across the businesses. The strategic importance and value of cybersecurity in the target markets continue to increase due to regulatory pressure and high-profile breaches. The company was successful in reducing its net debt to GBP 20.8 million, reflecting a strong financial position with effective cash management as cash conversion ratio increased to 80.2 per cent (IFRS 16). For the financial year 2020, the cash conversion expected to normalise and is targeted at 85 per cent over the medium term. The tax will also reduce in FY20.

Based on the above rationale, we have given a "HOLD" recommendation at the closing price of GBX 211 (as on 23rd January 2020).

Macfarlane Group PLC

Macfarlane Group PLC (LON: MACF) runs three leading United Kingdom-based businesses in the packaging and labels sector. The company operates through RDCs (Regional Distribution Centres), providing a United Kingdom-broad network to assist clients on a local, regional and national basis. The group is divided into four manufacturing centres: two in Labels and two in Design and Manufacture. The company operates into three segments, namely Packaging Distribution, Packaging Design and Manufacture, and Macfarlane Labels.

Recent News
On 13^th January 2020, the company released the appointment of Group Regional Director, Roger Lawty, for the North of England, Scotland and Ireland.

On 9^th January 2020, the company announced the acquisition with Armagrip Limited.

Trading Update (as on 20^th November 2019)
The group released a trading statement for the period from 30th June 2019 to 31st October 2019. On the year to date basis, sales revenue increased by 4%. The group’s profit before tax for the period was ahead of the same period last year.  The sales revenue continued to be impacted by the price deflation and weaker demand.  This is being offset by management action to reduce overhead costs and enhance gross margins.  The company had also made two acquisitions in 2019, and they both are performing well.

Share Price Performance

Daily Chart as at January-24-20, before the market closed (Source: Thomson Reuters)

Macfarlane Group PLC shares were trading at GBX 113.50 at the time of writing before the market close (at 8:00 AM GMT) on 24th January 2020 and remained the same versus the previous day closing price. Stock 52 weeks High and Low are GBX 116.50/GBX 86. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.68.

Valuation Methodology

Conclusion
The company’s businesses are impacted by energy prices and raw material costs, with profitability sensitive to supplier price changes, comprising of currency fluctuations. The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it would disturb the supply chain. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations. Being a Containers and Packaging company, the MACF needs to invest heavily in innovation and warehouse maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. The company’s EV/EBITDA and Price/Cash flow multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Based on the headwinds faced by the group and valuation as done above, we have given a "WATCH" recommendation at the closing price of GBX 113.50 (as on 23rd January 2020), while we look for any upcoming catalysts in the near term.
 

Gear4music Holdings PLC

Gear4music (LON: G4M) is the largest United Kingdom-based online retailer company, which provides musical instruments and music equipment. The company is operating 20 websites in 15 languages and nine currencies. The company was launched in 2003 by Andrew Wass (CEO). The group’s premium brands are Yamaha, Fender, and Roland.

Trading Update (as on 23^rd January 2020)
The company announced a trading update for the two months to 31^st December 2019. The total group sales for the two months to 31^st December 2019 increased by 7% to £30.4 millionas compared with the corresponding period of the last year. This increase was driven by the improved sales in the UK and Europe and Rest of the World. In the period, the gross margin surged by 260bps to 26.5% (FY19: 23.9%), and gross profit rose by £1.2 million or 18% to £8 million. During the peak trading period, Logistics and IT infrastructure are performing well.

Share Price Performance
 
Daily Chart as at January-24-20, before the market closed (Source: Thomson Reuters)

Gear4music Holdings PLC shares were trading at GBX 273.50 at the time of writing before the market close (at 8:40 AM GMT) on 24th January 2020 and were up by 0.37% versus the previous day closing price. Stock 52 weeks High and Low are GBX 281.70/GBX 170. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.42.

Conclusion
The Group stays focused on driving cash flow through tighter control of discretionary costs, enhanced working capital management, disposal of surplus property, and additional capital expenditure discipline.The group faced challenging market conditions as driven by continuing weakness in customer confidence in the light of economic and political uncertainty, retail cost inflation, and pressure on musical instruments and music equipment margins. This will also impact the second half of 2020 financial performance. This trading update also reflects that the Board is quite cautious about the outlook for the rest of the year 2020. The overseas markets also provide a challenging opportunity for the company. However, amidst all the favourable micro- and macro factors, the downside risk overweighs the prospects of the company.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the current price of GBX 273.50 (as on 24th January 2020, before the market close), while we look for any upcoming catalysts in the near term. 
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.

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