Anglo American PLC 

Anglo American PLC (LON: AAL) is FTSE 100 Mining Company with operations in Australia, Southern Africa, South America, and North America, and is headquartered in London, United Kingdom.

Investment Rationale – SELL at GBX 3,393.00

• AAL’s stock price has already yielded a remarkable return of ~82.82% in the past year, giving a lucrative opportunity to book profit.
• The ongoing Covid-19 hardships, challenging trading environment, and macroeconomic instabilities can impact the Company’s growth trajectory.
• From a technical standpoint, 14-day RSI (68.26) indicates an overbought signal while the stock has breached the upper standard deviation of the Bollinger Bands.
• On a forward 12-month basis - EV/EBITDA, Price/Cash Flow and Price/Earnings multiples reflected an overvalued position against the Metals & Mining sector.

Key Risks

• Business operations are vulnerable to various risks and uncertainties, such as catastrophic risk, prices of products or metals, health pandemic causing a risk to production and labour costs, change in regulatory or political uncertainties, future demand and supply chain trends for diamonds, availability of water supply, and future demand for platinum group metals.
• Furthermore, there is an emerging risk through COVID-19 disruption, delaying the commissioning and approval of certain projects.

Recent News

Distribution: On 29 July 2021, AAL announced its intentions to return an additional $2 billion to its shareholders through a special dividend and share buyback programme.

Financial Highlights (for the year ended 31 March 2021, as on 13 July 2021)

 (Source: Company Website)

• During H1 FY21, AAL reported an underlying EBITDA of US$12.1 billion, driven by operational resilience and robust market demand.
• Therefore, the profit attributable to equity shareholders stood at US$5.2 billion in H1 FY21.
• At the end of H1 FY21, net debt stood at US$2.0 billion, representing 0.1x of annualised underlying EBITDA.

Share Price Chart

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

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

Conclusion

Anglo American is trading close to its 52-week high and it has given a stellar growth in the past year. However, the upside potential from the current levels is dubious given the operational uncertainty arising from the resurgence in Covid-19 case, inflationary concerns, subdued consumer demand, and derailed economic recovery. Therefore, it is rational to book profit and reinvest capital plus gains when short-term uncertainty fades away. The stock made a 52-week high and low of GBX 3,509.00 and GBX 1,755.20, 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 Anglo American PLC at the closing price of GBX 3,393.00 (as on 3 August 2021).

Naked Wines PLC

Naked Wines PLC (LON: WINE) is a FTSE AIM UK 50 index listed Company that connects independent winemakers. It has direct access to 235 winemakers that produce over 1,500 wines.

Investment Rationale – SELL at GBX 848.00

• WINE’s stock price has already yielded a remarkable return of ~96.22% in the past year, giving a lucrative opportunity to book profit.
• The Company reported a loss before tax and adjusted EBIT loss of £10.7 million and £1.5 million, respectively.
• From a technical standpoint, 14-day RSI (56.92) indicates an overbought signal while the stock is hovering around the upper standard deviation of the Bollinger Bands.
• On forward 12-month basis - EV/Sales, EV/EBITDA, Price/Book, and Price/Cash Flow multiples reflected an overvalued position against the Consumer Non-Cyclicals sector.

Key Risks

• The resurgence in Covid-19 cases due to the Delta variant can accentuate the wine industry’s challenges and increase the operational costs.
• The inflationary market conditions and macroeconomic instabilities can impact the consumer’s disposable income and spending habits.

Recent News

Commenced trading: On 19 July 2021, Naked Wines commenced trading on the OTCQX Market in the United States.

Financial Highlights (for the 52 weeks ending 29 March 2021, as on 11 June 2021)

 (Source: Company Website)

• Naked Wines reported strong performance in FY21 and witnessed growth across all geographies.
• There was 68% year-on-year growth in sales with favourable customer retention and frequency trends.
• The Company increased the investment in new customers to £50.0 million in FY21 from £23.5 million last year.
• At the end of FY21, the Company reported cash of £85.1 million.

Share Price Chart

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

Valuation Methodology: EV/Sales Approach (FY22) (Illustrative)

Conclusion

Naked Wines’ stock price has given exceptional notional gains despite the continued losses. Therefore, it is prudent to book profit now since the likelihood of higher operating costs with a widespread labour shortage and operational difficulties can aggravate the losses. Moreover, the shift in consumer behaviour imposing a threat on its subscription model. The stock made a 52-week high and low of GBX 914.00 and GBX 407.53, respectively.

Based on the continued losses, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Naked Wines PLC at the closing price of GBX 848.00 (as on 3 August 2021).

Omega Diagnostics Group PLC

Omega Diagnostics Group PLC (LON: ODX) is medical diagnostics entity focused on infectious diseases and food intolerance.

Investment Rationale – SELL at GBX 50.50

• ODX’s stock price has declined over 10% in the past year, reflecting a significant underperformance against the benchmark, FTSE AIM All-Share index.
• During FY21, ODX reported statutory loss and adjusted loss before tax of £2.10 million and £3.15 million, respectively.
• The Covid-19 pandemic has impacted the Health and Nutrition business of the Company. Moreover, the Company has not been able to serve its international customer base effectively.
• From a technical standpoint, ODX’s price is sustaining below the 20-day EMA (52.00), reflecting a bearish price momentum.
• On forward 12-month basis - EV/Sales, and Price/Earnings multiples reflected an overvalued position against the Health Care sector.

Key Risks

• It is a lossmaking entity that reported a significant decline in revenue and gross margin during FY21.
• The development, marketing and use of products are subject to stringent regulatory policies, which are time-consuming; moreover, failure to meet the quality and comply with regulatory laws leads to increased cost and even cause recall or product suspension.
• Furthermore, the business's growth depends on external funding, which is challenging to get amid the weak internal cash generation.

Recent News

AbC-19TM test: On 27 July 2021, ODX affirmed that AbC-19™ rapid antibody test can monitor vaccine responses to variants of concern.

Directorate Change: On 13 July 2021, ODX has appointed Chris Lea as Chief Financial Officer since Kieron Harbinson decided to step down from his position as Group Finance Director after 19 years of service.

Financial Highlights (for the year ended 31 March 2021, as on 13 July 2021)

 (Source: Company Website)

• During FY21, it received a contract from the Department of Health and Social Care (DHSC); however, it has been delayed as the Company failed to commence supply timely.
• The Group sales for FY21 was £8.73 million (FY20: £9.82 million), representing an 11% decline.
• The adjusted loss per share and statutory loss per share for FY21 stood at 1 penny and 1.2 pence, respectively.
• The year-end cash position was £5.5 million (FY20: £0.6 million overdraft) despite the production capacity scaling up initiatives.

Share Price Chart

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

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

Conclusion

During FY21 reported weak financials and continued to report losses. Moreover, the resurgence in Covid-19 cases with Delta variant can further hamper its Health and Nutrition business. Moreover, macroeconomic uncertainties can impact its ability to serve international customer base. The stock has shown a significant downward trend in the past year. Therefore, it is prudent to liquidate the position at the current levels. The stock made a 52-week high and low of GBX 126.95 and GBX 40.00, respectively.

Based on the continued losses, change in C-level executive, revenue decline, macroeconomic uncertainties, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Omega Diagnostics Group PLC at the closing price of GBX 50.50 (as on 3 August 2021).

*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.

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