Atlantia SpA

Atlantia SpA (LON: 0I2R) is operating as an Industrial Transportation Company with operations in 24 countries.

Investment Rationale – Sell at EUR 14.70

• On leverage front, the debt-equity ratio stood at 9.61x in September 2020, which was much higher as compared to the industry median, reflecting that the Company is highly leveraged as compared to the industry.
• The operating landscape remains highly volatile with the continuing uncertainty of the COVID-19 pandemic, UK market might be moving into recession, and categories remaining highly competitive.
• In 9M FY20, the Company made a loss for the period of €963 million.

Key Risks

• The Company is exposed to the risk of a fundamental change to the regulatory framework, which can have an adverse impact on the business and economic model.
• The Company operates in multiple geographies, and the profits can be impacted negatively due to foreign exchange rate fluctuations or COVID-19 mayhem.
• Further, performance is also exposed to technological changes and geopolitical tensions.

Recent News

On 13 November 2020, the Company announced the appointment of Lucia Morselli as a member of the Internal Control, Risk and Corporate Governance Committee.

Financial Highlights (for the nine months ended 30 September 2020 (9M FY20), as on 13 November 2020)

(Source: Company Website)

• Operating revenue for 9M FY20 decreased by 29% year-on-year, with a decrease in motorway traffic and airport traffic. While, on a like-for-like basis, operating revenue was down by 26% year-on-year, essentially due to the impact of the Covid-19 pandemic.
• In 9M FY20, the gross operating profit (EBITDA) decreased by 51% year-on-year (down 45% on a like-for-like basis).
• Also, the operating cash flow decreased by 52% year-on-year, and capital expenditure was down by 20% year-on-year.
• Led by the impact of Abertis’s acquisition of RCO group in Mexico, the net debt increased by €1,761 million to €38,483 million at 30 September 2020.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

Due to the global spread of the Covid-19 pandemic, the Company had an impact on the volumes of traffic. Both the top-line and the bottom-line performance decline in 9M FY20, while the profitability remained in the negative zone. The Company operations are impacted by the outbreak of a covid-19 pandemic. Moreover, it expects the pace of the recovery to be slow in the upcoming months. Overall, the Company is still in the development stage and works in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. The stock made a 52-week low and high of GBX 9.17 and GBX 23.23, respectively.

Based on the risks associated and factors as discussed above, we have given a “Sell” recommendation on Atlantia SpA at the current price of EUR 14.70 (as on 16 November 2020, before the market close at 12:06 PM GMT), while we will look forward to reinvesting at the right time when the market dynamics become favourable.

Tribal Group Plc

Tribal Group Plc (LON: TRB) is a provider of software and services related to training and education learning.

Rationale for Valuation – Sell at GBX 75.00

• On a trailing 12 months, the Company’s Price/Cash Flow, EV/EBITDA, and Price/Earnings multiples are significantly higher as compared to the Professional & Commercial Services industry multiple, reflecting overstretched valuations.
• Presently, the Group is trading near the 52-week high, raising doubts at the upside potential at the current price level.
• The stock has underperformed the index (FTSE AIM All-Share index) during the last two years period and delivered a negative return of around 15%.
• The operating landscape remains highly volatile with the continuing uncertainty of the COVID-19 pandemic, UK market might be moving into recession, and categories remaining highly competitive.
• From the technical standpoint, 14-day RSI stood at ~75.08 (overbought zone), which means the stock price could decline in the short term.

Key Risks

• The Company operates in multiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations.
• Being an IT company, TRB needs to invest heavily in innovation and system maintenance and any failure to do so will impact the brand royalty and may affect the Company’s financial performance.

Trading Update (as on 28 October 2020)

• In the second half of the Year to date (as on 28 October 2020), the Company delivered a decent performance, with two contract wins in the UK and Australia.
• In FY20, the Company was expected total revenue to be in the region of £72 million, adjusted EBITDA to be around £14.8 million and adjusted EBITA to be £11.5 million.
• Led by continued focus on SaaS and Tribal Cloud sales, the annual recurring Revenue has improved to £44.5 million.
• The Company has a strong balance sheet, with a net cash position of £11.2 million at 23 October.
• It has also resolved to pay an interim dividend per share of 1.1 pence, which was at the same level as that paid in 2019.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

In Q3 FY20, the Company delivered positive progress against the strategic objectives, with winning new customers. For FY20, the Company’s performance will continue to be affected by the reduction in central bank interest rates and the continuing disruption to capital markets. Overall business confidence stays low, and clients continue to closely control costs.  The Company’s operations can be affected negatively due to ongoing uncertainties created over the COVID-19. As the Company operates in multiple geographies, the profits can be impacted negatively due to foreign exchange rate fluctuations. From a technical perspective, a RSI is indicating a bearish setup for the stock, and it is not financially viable to take a fresh position currently. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to COVID-19 pandemic. The stock made a 52-week low and high of GBX 40.00 and GBX 76.48, respectively.

Based on the risks associated and factors as discussed above, we have given a “Sell” recommendation on Tribal Group at the current price of GBX 75.00 (as on 16 November 2020, before the market close at 8:36 AM GMT), while we will look forward to reinvesting at the right time when the market dynamics become favourable.

Gem Diamonds Ltd

Gem Diamonds Ltd (LON: GEMD) is a mining Company based out of the UK. The Company owns Ghaghoo mine in Botswana and Letšeng diamond mine in Lesotho.

Rationale for Valuation – Sell at GBX 39.00

• On a trailing 12 months, the Company’s EV/EBITDA, and Price/Earnings multiples are significantly higher as compared to the Metals & Mining industry multiple, reflecting overstretched valuations.
• In H1 FY20, the profitability margin and ROE were lower than the industry median.
• The Company is dependent upon funding through external sources to run its business operations.
• From the technical standpoint, 14-day RSI stood at ~64.60, which means the stock price could decline in the short term.

Key Risks

• The current macroeconomic dynamics may impact the business operations due to diamond price volatility, unexpected costs arising from an inability to refinance.
• The rising COVID-19 cases and U.S.-China tensions may also impact the growth trajectory in the near term.
• Reduced cash flows may negatively affect the Group’s ability to effectively operate, repay debt and fund capital projects.

Q3 FY20 Trading Update (from 1 July 2020 to 30 September 2020, as on 28 October 2020)

• The Company’s net debt position decreased by US$6.6 million, with a net cash position of US$1.1 million.
• It achieved an average price of US$2,215 per carat for Q3 FY20.
• The Company ended the Period with US$24.5 million of cash on hand and unutilised and available facilities of US$52.7 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Despite the challenging global conditions, the Company delivered an average price of US$2,215 per carat, which demonstrate the continued demand for Letšeng's high-quality diamonds. However, the related state-imposed lockdowns, the impact of Covid-19 and subsequent reduction in production may impact the timing of the final delivery by the end of the financial year 2021. Moreover, Covid-19 delays may exacerbate future supply deficit. The Company’s operations are impacted negatively due to the uncertainty created by the Covid-19 crisis.  The Company is facing emerging headwinds and cost pressures. The stock made a 52-week low and high of GBX 23.00 and GBX 70.52, respectively.

Based on the risks associated and factors as discussed above, we have given a “Sell” recommendation on Gem Diamonds at the current price of GBX 39.00 (as on 16 November 2020, before the market close at 10:08 AM GMT), while we will look forward to reinvesting at the right time when the market dynamics become favourable.

 

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv, Thomson Reuters.

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

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