Tesco Plc

Tesco Plc (LON: TSCO) is a United Kingdom-based leading retailer Company. The Company serves millions of clients every week through stores as well as online space.

The Company will release full-year 2021 results on 14 April 2021.

Investment Highlights – Tesco Plc – Hold at GBX 240.20

• The Company witnessed sales growth in the UK across all channels, categories and formats, with further growth during Christmas.
• In the last three months, the Company delivered a decent return of ~12.87% and delivered lower returns compared to the benchmark Index (FTSE-100 Index).
• As per valuation metrics, Price/Earnings & Price/Book Value multiples of the Tesco Plc are currently lower as compared to the corresponding multiples of the Food & Drug Retailing industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (GBX 235.60), which reflects an uptrend in the stock and can move up further.

 Key Risks

• The Covid-19 pandemic can disrupt the supply chain and can increase the operating and payroll costs.
• The banking and money services are likely to remain low in the short-term.

Trading Update (released on 14 January 2021)

(Source: Company Website) 

• The Company has shown 6.7% growth in UK sales on a like-for-like basis, which further improved to 8.1% at Christmas.
• The sales in ROI on like-for-like basis surged by 12.1%, reflecting the strong contribution from large stores.
• Driven by simplification and resizing of businesses, the sales from Central Europe increased by 0.9% on a like-for-like basis.
• Due to the impact of the covid-19, the sales from Tesco Bank declined by 27.7% in the 19-week period to 9 January 2021.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown an increase in the overall sales in the third quarter of the financial year 2021, which further increased during Christmas. The Company has delivered record Christmas sales across all channels and formats. TSCO expects strong business momentum, and increased sales will offset the additional covid-19 related costs. The Company expects its guidance for FY2021 to remain the same, with retail operating profit to be at FY2020 level. Tesco expects to report a loss of in between £175 million to £200 million from Tesco Bank in FY2021. The stock made a 52-week low and high of GBX 202.00 and GBX 260.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for Tesco Plc at the current price of GBX 240.20 (as on 15 January 2021, before the market close at 8:15 AM GMT) and will recommend fresh buying at the right time.

Boohoo Group Plc

Boohoo Group Plc (LON: BOO) is an FTSE AIM 100 listed Online Fashion Retailing Company.

Investment Highlights – Boohoo Group Plc – Hold at GBX 337.20

• The Company has shown strong growth across regions and is expecting higher revenue growth for the financial year 2021.
• In the last six months, the Company delivered a substantial return of ~47.96% and delivered lower returns compared to the benchmark Index (FTSE-AIM Index).
• Over the course of 4 years (Q2 FY17 – Q2 FY21), the Company’s revenue surged from GBP 127.3 million in Q2 FY2017 to GBP 816.50 million in Q2 FY2021, reflecting a growth trajectory of ~59.14%.
• From the technical standpoint, shares were trading well above the support level of 50-day simple moving average prices (GBX 313.20), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Company can face an additional cost-pressure for resolving supply chain malpractice as the majority of their products get manufactured in overseas markets.
• There is also a risk associated with competition, changing demand patterns, change in technology, and negative perception of the brand.

Trading Update (4 months period ending 31 December 2020) (released on 14 January 2021)

(Source: Company Website) 

• During the four months period, the Company has shown strong growth of 40%, reflecting growth across all geographies and brands.
• The Company has successfully integrated and relaunched Warehouse and Oasis brands onto the multi-brand platform.
• The Company has net cash of £386.9 million as on 31 December 2020 (31 August 2020: £344.9 million), offering financial flexibility for future growth.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown strong growth during the four months and ten months period ending 31 December 2020. The total revenue surged significantly by 40% and 42% for 4 months and 10 months period, respectively. Driven by strong trading performance, the Company expects revenue growth between 36% to 38% for FY2021 and ahead of previous guidance. Despite the impact of the covid-19 pandemic, BOO expects to deliver around 10% of adjusted EBITDA margin for FY2021. In the medium-term, the Company expects sales growth of 25% per annum with an adjusted EBITDA margin of 10%. The Company continues to make an investment in the business to improve supply chain and support growth. The stock made a 52-week low and high of GBX 133.10 and GBX 433.50, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for Boohoo Group Plc at the current price of GBX 337.20 (as on 15 January 2021, before the market close at 9:20 AM GMT) and will recommend fresh buying at the right time.

Centrica Plc

Centrica Plc (LON: CNA) is a global energy solutions and services provider, which concentrates on satisfying the changing needs of the clients and enabling the changeover to a lower-carbon future.

The Company will release full-year 2020 results on 25 February 2021.

Investment Highlights – Centrica Plc – Hold at GBX 49.52

• The Company has shown strong performance in H2 FY2020 while maintaining tight control over expenses and focus on cash generation.
• In the last nine months, the Company delivered a substantial return of ~58.83% and delivered lower returns compared to the benchmark Index (FTSE-250 Index).
• As per valuation metrics, EV/Sales, Price/Cash Flow & Price/Book Value multiples of the Centrica Plc are currently lower as compared to the corresponding multiples of the Multiline Utilities industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (GBX 46.97), which reflects an uptrend in the stock and can move up further.

Key Risks

• The deteriorated demand in gas amid the COVID-19 restrictions has led to commodity or gas price slump, which can affect the profitability in FY2020.
• Risks related to environment and climate change could hamper the operations of the Company.

Trading Update (released on 14 January 2021)

• In the second half of the financial year 2020, the Company has shown strong financial performance, reflecting better control over expenses and focus on cash generation.
• The Company remained on track towards restructuring announced, with optimised performance for LNG business.
• The business remained impacted by the impact of the covid-19 and have a negative impact on UK business electricity.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

*Peers: Pennon Group Plc, SSE Plc, Drax Group Plc and National Grid Plc.

Conclusion

The Company has delivered a resilient performance in the second half of the financial year 2020. The residential boiler installations show recovery in the H2, while the demand for UK business electricity remained negatively impacted. The Company’s LNG business was benefited by restructuring announced in June. CNA entered FY2021 with tighter Covid-19 restrictions, which will put pressure on demand and will result in increased bad debts and working capital outflow. The Company expects net debt for FY2020 to be 10% below last year’s data, and adjusted EPS to be ahead of market expectations. The stock made a 52-week low and high of GBX 29.10 and GBX 94.09, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for Centrica Plc at the current price of GBX 49.52 (as on 15 January 2021, before the market close at 8:05 AM GMT) and will recommend fresh buying at the right time.

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

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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