Greggs Plc

Greggs Plc (LON: GRG) is a bakery chain operator, grounded in the United Kingdom. It conducts business operations through retail shops and bakeries.

The Company will release interim results on 3 August 2021.

Investment Highlights - Greggs Plc – Hold at GBX 2,271.00

• Despite the impact of the covid-19 pandemic, the Company witnessed an improvement in sales trend.
• In the last one year, the Company delivered a significant return of ~42.10% and delivered higher returns compared to the benchmark Index (FTSE-250 Index).
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Book Value multiples of Greggs Plc are currently lower as compared to the corresponding multiples of the Hotels & Entertainment Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading above the short-term support level of 21-day (GBX 2,156.00) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• Failure to achieve the anticipated efficiency cost-saving measures or difficulties in implementing supply chain investment could result in a greater impact on margins.
• The Company is also exposed to foreign currency fluctuations. 

Financial Highlights – FY2020 results released on 16 March 2021

(Source: Annual Report, Company Website) 

• For the financial year 2020, driven by lower sales in the company-managed shop by 36.2%, the total sales declined to £811.3 million.
• Due to the lower revenue for the period, the Company reported lower profitability margins. The Company reported a loss for the period of £13 million.
• The Company reported positive cash position at year end and have an additional liquidity of £100 million under RCF (revolving credit facility).

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company has shown a decline in financial performance in the financial year 2020. Both the revenue and profitability margins for the period declined. The shops in Scotland temporarily closed and sales from the Company-managed shops declined by 28.8% till 13 March 2021. Greggs reported a positive sales trend ahead of expectations in FY2021, despite the lockdown extension. The delivery sales remained strong in first ten weeks of FY2021 and represents 9.6% of total sales from company-managed shop. The Company is looking to extend digital capabilities along with further growth in channels, dayparts and new locations. The stock made a 52-week low and high of GBX 1,113.00 and GBX 2,361.77, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for Greggs Plc at the current price of GBX 2,271.00 (as on 30 March 2021 at 10:43 AM GMT) and will recommend fresh buying at the right time.

On The Beach Group Plc

On the Beach Group Plc (LON: OTB) is a UK-based online travel agent, which offers a range of hospitality products.

Investment Highlights - On The Beach Group Plc – Hold at GBX 401.50

• Despite the lower booking volumes, the Company is confident towards its business model and looking to grab an opportunity to increase market share as the demand returns.
• In the last nine months, the Company delivered a substantial return of ~36.33% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• As per valuation metrics, EV/Sales multiple of On The Beach Group Plc is currently lower as compared to the corresponding multiple of the Hotels & Entertainment Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, 14-day RSI is supporting an upside move (around 46 level), which means the stock price could increase in the short term.

Key Risks

• The prolonged closure of airspace due to Covid-19 can lead to a liquidity crisis. Moreover, it could put further pressure on the revenue and profitability in the near term.
• Also, the inability to deal with technological changes and competition can impact the long-term sustainability of the business.

Recent News

On 5 March 2021, On the Beach Group announced the selection of Rt Hon Justine Greening as Director Non-Executive effective immediately.

AGM Trading Update For 4 Months (31 January 2021) (released on 5 February 2021)

• The Company’s demand for forward holidays remained weak for the period.
• The Company significantly declined spending on online marketing by 73%, 83% and 85% respectively.
• The Company continues to make investment in talent and technology, delivering best-in-class customer service and building direct hotelier relationships.
• The cash balance as on 31 January 2021 stood at £39 million along with undrawn revolving credit facility of £75 million.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company has not received any revenue for the period and have a monthly cash burn of around £2 million. The Company has a weak demand for forward holidays and managed to reduce online marketing spending significantly. On the Beach Group has weak bookings due to UK-wide lockdown and has made reductions in winter flying programmes. At present, the Company is not able to provide any meaningful guidance for FY2021. Despite the uncertainty, the Company is confident towards flexibility and resilience of the business model and will continue to evaluate opportunities to increase scale. The stock made a 52-week low and high of GBX 182.00 and GBX 517.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for On the Beach Group Plc at the current price of GBX 401.50 (as on 30 March 2021 at 10:20 AM GMT) and will recommend fresh buying at the right time.

The Vitec Group Plc

The Vitec Group Plc (LON: VTC) is an industrial engineering Company, which is engaged in the business of providing image capture and content creation solutions.

Investment Highlights - The Vitec Group Plc – Hold at GBX 1,143.00

• Despite the lower financial performance in FY2020, the Company has made strong start to FY2021 with higher order book.
• In the last three months, the Company delivered a substantial return of ~26.16% and delivered higher returns compared to the benchmark Index (FTSE-all Share Index).
• As per valuation metrics, EV/Sales multiple of The Vitec Group Plc is currently lower as compared to the corresponding multiples of the Computers, Phones & Household Electronics industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading above the short-term support level of 21-day (GBX 1,098.00) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The increase in the interest cost could have an impact on the liquidity and financial performance.
• The Company operates in multiple geographies, and profits may be impacted negatively due to foreign exchange rate fluctuations.

Financial Highlights – FY2020 (31 December 2020) (released on 25 February 2021)

(Source: Annual Report, Company Website) 

• For the financial year 2020, due to the impact of the covid-19 pandemic, postponement of sporting events, shut down of film and scripted TV productions and closure of retail outlets, the revenue declined to £290.5 million.
• Due to the lower revenue, the profitability for the period declined on reported and adjusted basis. The Company reported a loss before tax of £7.7 million in FY2020.
• The Company has made a strong cash performance and high operating cash conversion, which lead to reduction in net debt.
• The Company has resumed dividend payments and proposed a final dividend on 4.5 pence.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company has shown a decline in financial performance in the financial year 2020 and stood in line with expectations. The Company made strong recovery in the second half of the financial year 2020. The Vitec Group was benefited from the structural market changes and delivered revenue growth in many areas. The Company completed the restructuring in Imaging Solutions business and delivered operating efficiencies in Production Solutions business, which resulted in cost reductions of £22.6 million in FY2020. VTC intends to repay UK furlough proceeds and CCFF to the government early. The Company has made strong start to FY2021, with improved order book. The stock made a 52-week low and high of GBX 546.00 and GBX 1,195.50, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” recommendation for The Vitec Group Plc at the current price of GBX 1,143.00 (as on 30 March 2021 at 10:05 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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