3i Group Plc – Delivering Solid Returns Despite Uncertain Environment
3i Group Plc (LON: III) is an investment company, which specialises in core investment markets in northern North America and Europe. It also comprises two complementary businesses, Infrastructure and Private Equity.

Financial Highlights – On Track to Deliver Good Returns to Shareholders in FY2020 (31^st March 2020)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st March 2020, the Company generated a gross investment return of GBP 318 million and operating profit before carried interest of GBP 215 million. The total return for the financial year 2020 stood at GBP 253 million. On 31st March 2020, the diluted NAV (Net Asset Value) per share tumbled 1 per cent to 804 pence versus 815 pence in FY2019. Total dividend per share was 35 pence for FY2020. Since the restructuring in 2012, the company had a conservative balance sheet strategy, with gross cash of GBP 845 million as at 31st March 2020 and generated an operating cash profit of GBP 40 million.

Share Price Performance

Daily Chart as of May 21^st, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

3i Group Plc shares were trading at GBX 803.60 at the time of writing before the market close (at 12:58 PM GMT+1) on 21^st May 2020 and down by 0.22% versus the previous day closing price. Stock's 52 weeks High is GBX 1,189.00 and Low is GBX 529.80.

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
The Company has an exceptional track record of growth and attractive returns. A discount platform primed to deliver outstanding growth for the long-term.

Conclusion
The Company’s investment portfolio is well-positioned for future growth despite a challenging market condition globally. In the past few months, the breakdown is because of the coronavirus (COVID-19). In Action, the Group has strongly delivered liquidity to the Eurofund V investors whilst the group has also sustained to drive sector-leading sales and profit progress. The Board believes that FY2021 outlook is the most uncertain, due to COVID-19. 3i Group is a vigilant investor from several years and has maintained a robust balance sheet. The Group has implemented the conservative approach, which will benefit 3i Group to navigate the challenging months ahead. Therefore, the business is likely to generate attractive returns for investors through the cycle.

Based on the decent prospects, we have given a “HOLD” recommendation at the current price of GBX 779.20 (as on 21st May 2020, before the market close at 8:10 AM GMT+1).

Dixons Carphone Plc - Growing Market Share with a high level of Customer Satisfaction

Dixons Carphone Plc (LON: DC) is an electrical and telecommunications retailer and services company, which provides a full range of services and support across the value chain, ranging from mobile virtual network operator services to consumer electricals and mobile phones.

COVID-19 Business Update With Strong Online Sales performance
The online division has recovered around two-thirds of the lost store sales in UK&I Electricals. As people working remotely, the demand for home office equipment remained strong in April 2020 and sales for Gaming and TV products has also been healthy for the period. Well-positioned growth was observed among various divisions such as kitchen products, refrigeration, and food preparation as well as bread makers. The company closed its 531 standalone stores for the period in the United Kingdom. Dixons Carphone has a debt facilities with RCF of GBP 266 million and total committed facilities are more than GBP 1,350 million. At the year-end, the company will have net debt, excluding IFRS16 lease liabilities, of approximately £300 million, and access to unutilised committed facilities of more than £1 billion. The company will not be paying any dividend until the situation gets normal.

Share Price Performance

Daily Chart as of May 21^st, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Dixons Carphone Plc shares were trading at GBX 70.30 at the time of writing before the market close (at 1:03 PM GMT+1) on 21^st May 2020 and up by 1.15% versus the previous day closing price. Stock's 52 weeks High is GBX 166.45 and Low is GBX 53.50.

From the technical standpoint, 14-day RSI is currently hovering in an oversold zone and stock price can increase further.

Valuation Methodology
 

Growth Prospects
The Company plans to build on its strengths and looks to revitalise its mobile business and give customers a smooth experience. The online market, where the company has a strong foundation, offers a big profitable growth opportunity for the company. The sales from the online channel has been strong for the period.

Conclusion
The company’s brand Currys PC World has released a video link to introduce personal shopping service, after the restrictions imposed to contain the spread of virus. The Group continues to operate its stores in the Nordics region, while maintaining social distancing and hygiene standards. DC has introduced new innovative methods for in-store contactless shopping and launched video shopping for its online clients. The company has a Revolving Credit Facility of approximately GBP 1 billion, with sufficient funding capacity required to meet obligations. DC witnessed its sales from online business continue to increase across all regions in which it operates and offset the sales decline from stores. However, it continued to grow and win market share in all territories.

Based on the decent growth prospects, which are supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 68.18 (as on 21^st May 2020, before the market close at 9:20 AM GMT+1), with lower double-digit upside potential based 7.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Drax Group Plc - Aspire to Become Carbon Negative by 2030 and Reduction in Net Debt

Drax Group Plc (LON: DRX) is an electricity company, which is mainly focused on providing low-cost energy.

Trading Update – Reflecting Strong Trading and Operational Performance
On 22^nd April 2020, Drax Group releasedan update on the trading performance for first three months of the financial year 2020. In the first three months of 2020, the company has delivered robust trading and operational performance. For 2020, the adjusted EBITDA was currently in line with expectations. Drax's generation portfolio and pallet production for the first three months of 2020 performed well. The group delivered a strong balance sheet, with cash of £454 million at 31 March 2020. On 31st March 2020, the net debt declined to £818 million, representing a net debt to EBITDA of around 2x for the full year. The Group has £663 million of available cash and committed facilities including a £315 million of RCF (Revolving Credit Facility).

Share Price Performance

Daily Chart as of May 21^st, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Drax Group Plc shares were trading at GBX 212.40 at the time of writing before the market close (at 1:08 PM GMT+1) on 21^st May 2020 and up by 4.32% versus the previous day closing price. Stock's 52 weeks High is GBX 364.60 and Low is GBX 118.90.

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
The Company is actively looking forward to investment opportunities for growth in its core businesses. DRX is following renewable, low carbon and flexible approach to deliver higher operational growth with high-quality earnings. Drax Group is looking forward to expanding its generation portfolio and system support services provisions for the period.

Conclusion
The company has delivered a strong trading and operational performance and operating with resilient sustainable biomass supply chain, and strong balance sheet. The goal by the United Kingdom to achieve net-zero carbon emissions by 2050 will give a leg-up to the operations of the group as it believes sustainable biomass has a long-term critical role to play. Moreover, it seeks to ensure its biomass power generation remains viable in the long term by supplying more of its own biomass, which will also cut costs and reduce supply chain risks, with greater scope for operational leverage and cost reduction. In the current period, the company has reduced its net debt. The company’s prospects look good, and it could be an attractive opportunity to invest in the long term.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 203.60 (as on 20^th May 2020), with lower double-digit upside potential based 7.20x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peers data have been taken from Refinitiv (Thomson Reuters).
*The “Buy” recommendation is valid for the current price as covered in the report (as on 21^st May 2020).

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