Arrow Global Group PLC

Arrow Global Group PLC (LON: ARW) is a FTSE All-Share listed asset and investment manager company. As of 31 March 2021, the Company had €4.3 billion of total funds under management.

On 2 June 2021, ARW has scheduled its annual general meeting.

Investment Rationale – SELL at GBX 304.50

• The Covid-19 pandemic can impact the collections, while the Company has high leverage, which can create a liquidity crunch.
• Over the past six months, ARW’s stock has yielded a return of over 64%, which is giving an attractive opportunity to book profit.
• From a technical standpoint, 14-day RSI (63.02) is hovering around an overbought situation and share price correction can be anticipated.
• Over the past four years (FY16 to FY20), the debt/equity ratio has remained above 4.66x, which is significantly higher than the industry median.

Recent News

19 April 2021: ARW appointed Davide Stecchi as Managing Director to its Arrow Capital Management underwriting team.

Key Risks

• There are operational challenges with continued lockdown in European markets.
• The economic dislocation can further increase operational expenses and impact the margins.

Financial Highlights for the three months ended 31 March 2021 (as on 11 May 2021)

  (Source: Company Website)

• ARW affirmed strong performance in Q1 FY21 with capital light strategy.
• Despite European lockdowns, there was robust revenue performance with disciplined cost control.
• New portfolio purchases also increased slightly to £28.4 million (Q1 FY20: £28.1 million).
• In Q1 FY21, the liquidity position was also strengthened with a successful €75 million bond tap, which increased the cash headroom to £219.7 million.

Share Price Performance

 (Source: Refinitiv, Thomson Reuters)

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

Conclusion

Arrow Global is expecting to report high leverage of 4x even by the end of FY21. Moreover, there are operational uncertainties with the Covid-19 pandemic. The stock is trading nearly at a 52-week high, and some retracement is expected in the stock. As the stock has yielded a decent return over the past six months, it is rational to book profit now. The stock made a 52-week high and low of GBX 309.50 and GBX 63.28, respectively.

Considering the economic dislocation, pandemic induced operational challenges, and valuation conducted above, we have given a “SELL” recommendation on Arrow Global Group PLC at the current price of GBX 304.50 (as on 19 May 2021, at 8:35 AM GMT), while we look forward to reinvesting when due corrections are done and there is clarity regarding the guidance.

Argo Blockchain PLC

UK-headquartered, Argo Blockchain PLC (LON: ARB) is a Cryptocurrency Mining Company, which is listed on the Main Market of the London Stock Exchange.

Investment Rationale – SELL at GBX 125.00

• ARB mined lesser Bitcoin or Bitcoin Equivalent (BTC) in April 2021, as compared to March 2021.
• Arguments pertinent to wasteful carbon emission and its drastic cost to the environment can keep BTC prices volatile and uncertain in the short-term.
• From a technical standpoint, 21-period EMA (GBX 162.48) is sustaining well above the current market price and indicating a bearish price trend.
• Over the past two years (FY18 to FY20), profitability margins (gross margin, operating margin, and net margin) of ARB have remained below the industry median.

Key Risks

• The price volatility in BTC can impact cash flows and profitability.
• The Covid-19 has also created macro-economic uncertainties.
• Increased administrative expenses can further impact profitability.

Recent News

14 May 2021: ARB signed the Crypto Climate Accord in partnership with DMG Blockchain Solutions to promote the decarbonisation of the cryptocurrency industry.

4 May 2021: As per April 2021’s operational update, mining revenue in April was £6.70 million (March 2021: £6.57 million) with an average monthly mining margin of nearly 85%. At the end of April 2021, ARB held 936 BTC or Bitcoin Equivalent.

Financial Highlights for the year ended 31 December 2020 (as on 29 April 2021)

 (Source: Company Website)

• During FY20, revenue surged 120% year-on-year and EBITDA grew five times against the previous year.
• The total number of Bitcoins mined soared to 2,465 in FY20 from 1,330 in FY19, representing 85% growth in annual production.
• Despite challenging market conditions, the mining margin stood at 41% (FY19: 60%).
• The Company delivered a net profit of £1.7 million (net loss FY19: £0.7 million).

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Please note, at 10:45 AM GMT today, ARB’s stock price made a high of GBX 125.00 on LSE.

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

ARB demonstrated solid results in FY20 and continued strong trading in Q1 FY21 as well. However, the emergence of Covid-19 has created a challenging trading environment. Adjacently, escalating environmental concern related to Bitcoin mining and weak sentiments post Elon Musk’s tweet regarding high electricity consumption has kept the BTC prices subdued. Moreover, the pumping in altcoins can put pressure over BTC as well. Therefore, it is prudent to book profit in ARB now and look for reinvesting opportunities when due consolidations are done. The stock made a 52-week high and low of GBX 340.53 and GBX 3.40, respectively.

Considering the challenging trading environment, concerns of power consumption in Bitcoin mining, panic selling scenario by new entrants in Bitcoin, and valuation conducted above, we have given a “SELL” recommendation on Argo Blockchain PLC at the current price of GBX 125.00 (as on 19 May 2021, at 10:45 AM GMT), while we look forward to reinvesting when due corrections are done and there is clarity regarding the guidance.

Card Factory PLC

Card Factory PLC (LON: CARD) is a FTSE All-Share listed retailing Company, which deals in gift dressings, gifts and greeting cards.

On 8 June 2021, Card Factory has scheduled to announce its preliminary results for year to 31 January 2021.

Investment Rationale – SELL at GBX 85.10

• Over the past six months, CARD’s stock has yielded a return of over 92%, which is giving an attractive opportunity to book profit.
• In the last trading statement (for the eleven months ended 31 December 2020), CARD reported a 38% year-on-year decline in revenue due to mandatory store closures.
• From the technical standpoint, 14-day RSI (51.54), is hovering around the oversold position and not supporting the upside potential.
• Over the past two years (H1 FY19 to H1 FY21), gross margin has remained below 39%, which is lower than the industry median. Similarly, other profitability ratios (including operating margin and net margin) have shown a weaker position than the industry.

Risk Assessments

• Another wave of Covid-19 pandemic could result in the shutdown of the stores and might hamper the supply chain.
• The Company is facing a significant financial impact due to stores closure with coronavirus led restriction.
• During H1 FY21, the Company turned into losses, which can impact the liquidity position.

Recent News

21 December 2020: Card Factory has appointed Darcy Willson-Rymer as Chief Executive Officer (CEO). He will join the organisation on 8 March 2021.

Trading and Liquidity Update (as on 30 April 2021)

• CARD affirmed that its expectations have been exceeded following the reopening of stores in England and Wales from 12 April 2021.
• As the Company has reopened its stores in Northern Ireland, it is also expecting customers to be back in Scotland as well.
• In respect of expected covenant breaches to 31 May 2021, the extended waiver has been secured from the banking syndicate.
• The Company expects to release a further refinancing update soon.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company’s financial and operational recovery is dependent upon the easing of national lockdown. It is facing difficulty in managing covenants and having liquidity pressure, which can refrain them from pursuing growth opportunities. The stock has already yielded a stellar return over the past six months, and thus, it is prudent to book profit amid ceased guidance for FY22. Even after store reopening, the Company can struggle to trade with dampened consumer sentiments and reduced spending power. The stock made a 52-week high and low of GBX 97.83 and GBX 24.35, respectively.

Considering the store closures, liquidity crunch, subdued demand for greeting cards, uncertain macroeconomic picture, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Card Factory PLC at the current market price of GBX 85.10 (as on 19 May 2021, at 9:00 AM GMT), while we look forward to reinvesting when the stores are fully operational and there is clarity over FY22 guidance.   

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

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

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