3i Group PLC 

3i Group PLC (LON: III) is a FTSE 100 listed Investment Company. It is engaged in two primary businesses – Private Equity and Infrastructure, which is specialised in core investment markets in North America and Northern Europe.

Investment Rationale – SELL at GBX 1,322.00

• III’s stock price has already yielded a remarkable return of ~44.68% in the past year, giving a lucrative opportunity to book profit.
• Britain’s economic recovery can be stalled with the Covid-19 variant strain. Moreover, significant market volatility and inflationary pressure can dampen investor sentiments.
• From a technical standpoint, 14-day RSI (68.36) indicates an overbought signal while the stock has is hovering close to the upper standard deviation of the Bollinger Bands.
• On a forward 12-month basis - EV/Sales and Price/Book multiples reflected an overvalued position against the Financials sector.

Key Risks

• The ongoing uncertainties arising from the Covid-19 pandemic and widen macro-economic factors could impact the M&A activity, investment rates, quality of new investments, earnings growth and exit plans.
• Moreover, the dampened investor sentiment amid market volatility can reduce investors’ appetite for their assets. In such a scenario, even debt markets are less supportive of leveraged buyouts.

Financial Highlights (three-month period ended 30 June 2021, as on 22 July 2021)

• During Q1 FY22, NAV (net asset value) per share rose to 1,063 pence (31 March 2021: 947 pence), and the Company generated a total return of 12.2%.
• Q1 FY22 sales from the Action division surged 52% year-on-year, while the Private Equity portfolio also remained strong.
• The Group also completed a bolt-on acquisition for Luqom and received £84 million of refinancing proceeds from Royal Sanders.
• As of 30 June 2021, the Company reported cash of £286 million (31 March 2021: £225 million) and net debt of £689 million with a gearing of 6.7%.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Book Approach (FY22) (Illustrative)

Conclusion

The hawkish comment from the Federal Reserve regarding tightening of monetary policy can strengthen the US dollar and impact the NAV per share generated by the 3i Group. 3i has given a decent return in the past year; however, market conditions are still challenging due to the Covid-19 pandemic. Moreover, there is a high investment risk with market volatility. In addition, weakness of the Chinese market, inflationary pressure, derailed economic growth, slow vaccination progress, and limited profitability can restrict the Company's growth prospects. Therefore, it is prudent to liquidate the position and reinvest when short-term uncertainties fade away. The stock made a 52-week high and low of GBX 1,324.00 and GBX 865.40, respectively.

Based on the exceptional notional gains, rising Covid-19 uncertainties, tough operating environment, overstrained technical stance, and unfavourable valuation conducted above, we have given a “SELL” recommendation on 3i Group PLC at the current price of GBX 1,322.00 (5 August 2021, 7:55 AM GMT).

Ibstock PLC

Ibstock PLC (LON: IBST) is a Leicestershire, United Kingdom-headquartered leading manufacturer of clay and concrete building products in the country.

The interim dividend will be payable on 17 September 2021 to shareholders on the register on 13 August 2021.

Investment Rationale – SELL at GBX 228.40

• Britain's construction Purchasing Managers' Index fell from 66.3 in June 2021 to 58.7 in July 2021. In addition, lack of transport availability post Brexit trade frictions could create Supply imbalances.
• IBST’s stock price has already yielded a remarkable return of ~35.16% in the past year, giving a lucrative opportunity to book profit.
• From a technical standpoint, 14-day RSI (64.25) indicates an overbought signal while the stock has breached the upper standard deviation of the Bollinger Bands.
• On trailing 12-month basis - EV/Sales, EV/EBITDA, Price/Earnings, Price/Book, and Price/Cash Flow multiples reflected an overvalued position against the Construction Materials sector.

Key Risks

• The withdrawal of the stamp duty holiday has impacted the house prices in July 2021, it can also impact the overall construction market.
• The ongoing disruption to the global supply chain and health emergencies has caused significant labor shortage and cost inflation, which can exacerbate the cost of construction.

Financial Highlights (for the six months ended 30 June 2021, as on 4 August 2021)

 (Source: Company Website)

• The operating performance remained solid as market fundamentals were favourable.
• The Group revenue surged 54% year-on-year in H1 FY21, and revenues are 94% of H1 FY19 level now.
• The statutory profit before tax stood at £39 million (H1 FY20: loss of £52 million), reflecting strong recovery from the Covid-19 impact.
• The Company also recommended an interim dividend of 2.5 pence per share, reflecting confidence in the long-term outlook.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

The shortage of building materials and contractors has dropped the UK’s construction Purchasing Managers' Index in July 2021. In addition, rising raw-material costs and labor shortage could impact the results in H2 FY21. The supply chain, particularly related to freight availability, remained challenging. As the stock has yielded substantial returns in the past year, it is prudent to liquidate position in profit since the constraints on the supply chain and labour shortage can derail the trading recovery. Moreover, inflationary pressure can impact the expected cost savings. The stock made a 52-week high and low of GBX 246.80 and GBX 139.80, respectively.

Based on the weak macroeconomic data, exceptional notional gains, overstrained technical stance, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Ibstock PLC at the current price of GBX 228.40 (5 August 2021, at 9:45 AM GMT).

Porvair PLC

Porvair PLC (LON: PRV) deals in specialist filtration and environmental technologies businesses. It provides products that cater to filtration and separation markets. It operates through three divisions, namely Laboratory, Aerospace & Industrial, and Metal Melt Quality.

Investment Rationale – SELL at GBX 660.00

• The lockdown easing can affect the inflated demand in Laboratory division.
• Lower demand in the aerospace division following the travel restriction induced by the Covid-19 pandemic can impact order intake and affect the FY21 performance.
• PRV’s stock price has declined over 26% in the past year, reflecting a significant underperformance against the benchmark, the FTSE All-Share index.
• From a technical standpoint, 14-day RSI (71.63) indicates an overbought signal while the stock has breached the upper standard deviation of the Bollinger Bands.
• On a forward 12-month basis - EV/Sales, EV/EBITDA, Price/Cash Flow, Price/Book, and Price/Earnings multiples reflected an overvalued position against the Industrials sector.

Key Risks

• Tightened emission standards and trade relations between the US/UK & the US/China can impact its manufacturing operations and end-market demand.
• There are several risks that business confronts pertinent to new product uncertainties, fierce competition, cyber-attack, raw-material availability, renewal of large contracts, acquisition failure, financing, and liquidity risk.
• The Company has withheld its earnings guidance given the unpredictable market conditions and changing demand levels.

Financial Highlights (for the six months, as on 5 July 2021)

 (Source: Company Website)

• During H1 FY21, revenue declined by 5% year-on-year, reflecting continued weakness in Aerospace & Industrial.
• In H1 FY21, the operating profit and profit before tax were £9.3 million and £8.9 million, respectively.
• The demand in aerospace remained significantly lower than pre-pandemic levels.
• The order book for H2 FY21 seems healthy as activity levels in aerospace are starting to rebound.

Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

The resurged in Covid-19 cases due to Delta variant can impact the demand outlook from aluminium and automotive customers. Moreover, Laboratory division can also subside with the pandemic easing. Adjacently, transport and shipping dislocation continued to supply chain and labour market challenges. In such an uncertain scenario, it is rational to book profit at the current levels and reinvest profit plus gains when short-term uncertainties fade away. The stock made a 52-week high and low of GBX 660.00 and GBX 422.00, respectively.

Based on the subdued demand outlook, supply chain disruption, overtrained technical stance, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Porvair PLC at the current price of GBX 660.00 (5 August 2021, at 10:10 AM GMT).

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

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

Disclaimer 

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.