Schroders PLC

Schroders PLC (LON: SDR) is an international asset manager. It provides advisory and consultancy services to high-net-worth clients, financial institutions, large corporations, and other institutions.

Investment Rationale – SELL at GBX 3,748.00

• SDR’s stock price has yielded around 21.30% return in the past year, giving a decent opportunity to book profit.
• The Company’s growth trajectory could be capped with increasing treasury yield, premature increasing of interest rates, and tapering of quantitative easing.
• The strengthening of US Dollar is escalating speculations for Federal Reserve to begin asset tapering sooner than expected, which can keep the market volatile in the short-term.
• On a forward 12-month basis – EV/Sales, Price/Earnings, Price/Book, and Price/Cash Flow valuation multiples are overvalued against the median of the Financials sector.
• From a technical standpoint, 14-day RSI (~62.43) indicates an overbought signal while the stock has breached the upper standard deviation of the Bollinger Bands.

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 Highlight for six months ended 30 June 2021 (as on 29 July 2021)

 (Source: Company Website)

• SDR delivered solid results in H1 FY21 and reported profit before tax and exceptional items of £407.5 million.
• The Client investment performance also remained solid since 87% of assets outperformed their respective comparator over one year.
• The assets under management surged 6% year-on-year to £700.4 billion, following the £17.9 billion of net new business.
• The Board recommended an interim dividend of 37 pence per share, reflecting 6% increase against last year.

Share Price Chart

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

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

Conclusion 

The hawkish comment from the Federal Reserve regarding tightening of monetary policy can strengthen the US dollar and impact the asset under management. Moreover, market conditions are still challenging due to the Covid-19 pandemic and there is 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 3,774.00 and GBX 2,585.00, respectively. 

Based on the decent notional gains, macroeconomic instabilities, overstretched technical stance, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Schroders PLC at the current price of GBX 3,748.00 (as on 12 August 2021, at 7:55 AM GMT). 

Berkeley Group Holdings PLC

Berkeley Group Holdings PLC (LON: BKG) builds homes, parks, and public places. The Company operates in residential-led, mixed-use property development.

On 3 September 2021, BKG expects to publish its next trading update.

Investment Rationale – SELL at GBX 4,930.00

• Brexit and resurgence in Covid-19 cases are causing a huge impact on the construction supply chain. Such material shortage can delay projects and cap the expected growth prospects.
• The shortage of building materials and contractors has dragged the UK construction purchasing managers’ index (PMI) to the lowest since February 2021.
• From a technical standpoint, 14-day RSI (~61.22) indicates an overbought signal while the stock is hovering around the upper standard deviation of the Bollinger Bands.
• BKG’s stock price has merely generated ~7.50% of return in the past year, showing significant underperformance against the benchmark, FTSE 100 index.
• On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, and Price/Cash Flow valuation multiples are overvalued against the median of the Homebuilding & Construction Supplies industry.

Key Risks

• The Company’s net cash position has reduced compared to the previous year, which can impact its sustainable dividend policy.
• Another phase of lockdown due to the COVID-19 outbreak could result in lower demand, a shortage of labour and a shutdown of operations.
• The performance is also subject to the change in government policy and planning regulations as it can affect the value of land purchasing.

Recent News

Bond Issuance: On 4 August 2021, BKG announced the pricing of £400 million of unsecured green bonds at a coupon of 2.5% due August 2031.

Financial Highlight for the year ended 30 April 2021 (as on 23 June 2021)

 (Source: Company Website)

• BKG ended FY21 with net cash of £1.1 billion, with forward sales of £1.7 billion in the pipeline.
• It delivered a pre-tax profit of £518.1 million in FY21 with the sale of 2,825 homes (FY20: 2,723) at an average selling price of £770,000 (FY20: £677,000).
• The long-term guidance remained unchanged to deliver a 15% cumulative pre-tax ROE for the six years ending 30 April 2025.
• The Help to Buy reservations contributed for a net 403 sales in FY21.

Share Price Chart

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

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

Conclusion

High worker absences and supply-chain bottlenecks have impacted the UK’s Purchasing Managers' Index in July 2021. Moreover, subdued private sector growth can derail the economic recovery and hamper the overstrained position of BKG’s stock price. Adjacently, British government bond yields hit their highest level since April 2020, which can lead to a withdrawal of stimulus and cause volatility in the equity markets. Therefore, it is rational to book profit at the current levels and reinvest capital plus gains when short-term uncertainty fades away. The stock made a 52-week high and low of GBX 4,972.00 and GBX 3,946.00, respectively.

Based on the UK Construction PMI slump, overstretched technical stance, rising input costs, macroeconomic instabilities, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Berkeley Group Holdings PLC at the current price of GBX 4,930.00 (as on 12 August 2021, at 8:00 AM GMT).

Futura Medical PLC

Futura Medical PLC (LON: FUM) is an FTSE AIM All-Share index listed and UK-based Pharmaceutical Company. It develops and pharmaceutical drugs and medical devices.

Investment Rationale – SELL at GBX 39.80

• FUM has yielded a spectacular return of over 127% in the past year, giving opportunity to book profit.
• It is still a lossmaking entity, and thus, growth prospects depend on its ability to raise funds from external sources.
• The continuous apprehensions regarding inflation, rising input costs, resurgence in Covid-19 cases, and regulatory delays can keep the equity market volatility in the short-term.
• FUM’s stock price has been showing a bearish price trend, as it has fallen around 11.82% in the past three months, showing significant underperformance against the positive return generated by the benchmark, FTSE AIM All-Share index.
• From a technical standpoint, stock price is trading below the 50-day EMA (GBX 41.10) reflecting a bearish price momentum,

Key Risks

• FUM’s stock has nearly tripled post receiving thumbs-up from the EU regulators for its erectile dysfunction gel. However, resurgence of Covid-19 cases can make demand jittery while the market sentiments are already dented. Therefore, it can face significant correction in prices from the current levels.
• As the Delta variant of Covid-19 is gradually becoming dominant, it is raising fears of slower economic recovery.
• It is exposed to financial risks related to fluctuations in exchange rates and interest rates besides liquidity and credit risk.

Recent News

Commercial Update: As on 19 July 2021, Futura Medical provided FDA (Food and Drug Administration) regulatory and commercial update for MED3000.  FDA has agreed to design the Human Factors Study and asked for a minimum of 15 subjects to complete the study.

AGM Statement (as on 28 June 2021)

• Futura Medical unveiled that MED3000 has received CE (Conformitè Europëenne) mark for marketing in Europe and UK.
• The commercialization of MED3000 in China and Southeast Asia continued at a pace.
• Meanwhile, the Company remained on track for US FDA regulatory submission as the first patient dosing for the confirmatory study is expected in Q3 FY21.

Financial Highlights (for the year ended 31 December 2020, as of 14 April 2021)

(Source: LSE Website)

• FUM did not generate any revenue in FY20. However, it made significant operational progress in MED3000.
• This lack of top line resulted in a net loss of £2.41 million (FY19: net loss £8.92 million).
• As of 31 December 2020, the Company had cash resources of £1.02 million, post receiving £1.50 million through convertible loan notes issuance and £0.50 million through exercise of warrants during the year.

Share Price Chart

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

Conclusion 

Futura Medical anticipates the approval of US OTC marketing authorisation in Q1 FY23. By that timeline, the Company can face significant cash burn. Moreover, it is still a loss-making entity which has shown a bearish price momentum in the past three months. The market volatility has already hurt the investors’ sentiments, and there is significant sell-off in the market. In such a scenario, any regulatory delay or commercial failure can be destructive for the stock. Therefore, it is prudent to book profit at the current levels.  The stock made a 52-week High and Low of GBX 84.00 and GBX 12.15, respectively.

Based on the downward price momentum, macroeconomic uncertainties, and exception notional gains, we have given a “SELL” recommendation on Futura Medical PLC at the current price of GBX 39.80 (as on 12 August 2021, 7:30 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.