Deliveroo PLC

Deliveroo PLC (LON: ROO) is a UK-based online food Company with a diverse base covering around 115,000 restaurant and grocery partners.

Investment Rationale for Valuation – Avoid at GBX 273.70

• The Company has been consistently reporting losses since FY16.
• ROO expects a slowdown in the rate of growth with the easing of lockdown. Moreover, it also stated that the extent of the deceleration would remain uncertain.
• The stock went down by almost 35.00% from the highest price of GBX 390.39 reached on the day of listing (31 March 2021).
• From a technical standpoint, 14-day RSI is currently hovering near 62.40 level, reflecting overbought scenario and short term correction can’t be ruled out.

Key Risks

• ROO may not achieve desired results from the recent expansion in Hong Kong.
• The outlook for sales is uncertain due to the rapidly evolving nature of Covid-19 disruption.
• Changing consumer eating habits may hamper the growth potential of ROO.

Recent Developments

On 24 June 2021, ROO had updated regarding the collaboration with supermarket chain ParknShop to expand the grocery delivery business in Hong Kong.

On 27 April 2021, the Company had announced a two-year partnership with Waitrose after a successful trial.

Q1 FY21 Trading statement (for three months ended 31 March 2021, as of 15 April 2021)

(Source: Company Result)

• The Company had reported a total GTV (Gross Transaction Value) of around £1.65 billion during Q1 FY21.
• The GTV per order grew by 8% to £23.2 during the period.
• The Company works with over 117,000 restaurants at the end of Q1 FY21.
• The number of orders had jumped to 71 million during Q1 FY21.

Share Price Chart (since 31 March 2021)

(Analysis done by Kalkine Group)

Conclusion

The Company had demonstrated a dismal bottom-line performance as profitability consistently remained in the negative zone since FY16. Moreover, ROO accepted that Covid-19 lockdown restrictions had helped to achieve accelerated growth in total orders during Q1 FY21. The Company had also warned that the rate of growth would decelerate after the relaxation of the Covid-19 restrictions. Meanwhile, the Company anticipates annual GTV growth ranging from 30% to 40% during FY21. The stock made a 52-week low and high of GBX 224.44 and GBX 390.39, respectively.

Based on the elevated levels of uncertainty and unfavourable valuation as done using the above method, we have given an “Avoid” recommendation on Deliveroo PLC at the current market price of GBX 273.70 (as on 24 June 2021 at 2.30 PM GMT), while we will revisit our stance after the complete reopening of the UK economy.

Harbour Energy PLC

Harbour Energy PLC (LON: HBR) is an FTSE All-Share listed London, United Kingdom-based multinational Oil & Gas Exploration and Production Company. The Company was earlier named Premier Oil PLC.

Investment Rationale for Valuation – Avoid at GBX 20.03

• The return on equity and return on assets remained in the negative territory during FY20.
• The Company had witnessed an adverse turnaround from delivering profits during FY19 to reporting losses in FY20.
• The stock price had demonstrated a downside movement of approximately 61% in the last one year.
• HBR warned that FY21 reported production would remain at the lower end of the guidance ranging from 185 kboepd (kilo barrels of oil equivalents per day) to 200 kboepd.
• HBR has a large amount of net debt as it stood at around USD 2.70 billion as of 31 May 2021.
• From a technical standpoint, the 20-days exponential moving average (GBX 20.63) is indicating a correction in the stock price.

Key Risks

• The decline in oil price can impact the cash generation and profitability of the Company.
• The Company can face liquidity risk with insufficient borrowing facilities amid the Covid-19 crisis.
• Moreover, failure to adopt technological changes can reduce the activity levels.

Trading Update (for the five-month period to 31 May 2021, as of 23 June 2021)

• The Company had incurred a total capex of USD 330 million during the period.
• The operating cost was USD 15.7 per boe during the period because of the low production volumes.
• Moreover, the proforma production for the five months period stood at around 197 kboepd, illustrating the adverse impact of the planned shutdowns.
• HBR had available liquidity of USD 1 billion at the end of May 2021..

One Year Share Price Chart

(Analysis done by Kalkine Group)

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

Conclusion

The merger between Chrysaor Holdings Ltd and Premier Oil PLC was successfully completed on 31 March 2021 resulted in a new formed entity Harbour Energy PLC. Moreover, Tolmount final commissioning remained on track as the production would be expected to start by the end of July 2021. Furthermore, the Company had forecasted FY21 operating costs ranging from USD 15/boe to USD 16/boe. HBR expects to incur a total capex of around USD 1.1 billion for FY21. The stock made a 52-week low and high of GBX 10.77 and GBX 55.14, respectively.

Based on the dismal financial performance, weak production guidance for FY21, and unfavourable valuation as done using the above method, we have given an “Avoid” recommendation on Harbour Energy PLC at the current market price of GBX 20.03 (as on 24 June 2021 at 10.49 AM GMT), while we will suggest reinvesting after the identification of further growth catalysts.

Kanabo Group PLC

Kanabo Group PLC (LON: KNB) is an LSE-listed medicinal cannabis Company. The Company is focused on distributing cannabis-derived products to medical patients and non-tetrahydrocannabinol products.

Investment Rationale for Valuation – Avoid at GBX 18.75

• The stock is highly volatile in nature as it almost dropped by 63% from the post-IPO high of GBX 51.00.
• The Company is still in the development phase and aims to scale up product sales to lure investors.
• The Company had not reported any revenue yet.
• The Return on Equity and Return on Assets remained in negative territory during FY20.
• From a technical standpoint, 20-day EMA (GBX 19.70) is indicating a correction in the stock price.

Key Risks

• The Company may face a shortage of fund as it remained in the development stage with no solid revenue source.
• Any change in regulations and government policies could affect the overall business of the Company.

Recent Developments

On 04 June 2021, KNB updated that it recently supported "I am Billy" Campaign and Foundation to promote medical cannabis products.

On 09 March 2021, KNB had signed a production and supply agreement with PharmaCann Polska. Under the agreement, PharmaCann will supply cartridges containing Kanabo's proprietary medicinal cannabis formulations.

Share Price Chart (since 16 February 2021)

 (Analysis done by Kalkine Group)

Conclusion

The Company had completed several fundraising activities and would use gross proceeds towards research & development and sales & marketing during FY21. The Company had begun product sales through a pilot scheme and is looking forward to scaling up the sales. Moreover, KNB will accelerate the progress for the supply of medicinal cannabis products and expand the CBD Wellness business. The stock made a 52-week low and high of GBX 10.00 and GBX 51.00, respectively.

Considering the negligible revenue and volatile nature of the stock, we have given an “Avoid” recommendation on Kanabo Group PLC at the current market price of GBX 18.75 (as of 24 June 2021 at 08:01 AM GMT), while we will suggest reinvesting once we analyse the forthcoming corporate updates released by KNB.

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

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

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