St. James's Place PLC (STJ)

St. James's Place Plc offers wealth management and investment Funds management services. Wealth management includes mortgages, investment planning, wills, philanthropy, estate planning, and retirement planning. Investment Funds include pension funds, life funds, Spanish international funds, unit trust group funds, Asia international funds, and international funds. It offers products and services through branch offices, wealth advisors, and online portals to high net worth individuals, wealthy families, and corporates in the UK.

Financial Highlights (FY2018, £ million)

(Source: Annual Report, Company Website)

In FY18, EEV new business profits surged by 9 per cent to £852.7 million against £779.8 million reported last year due to the increase in new business together with operational economies of scale achieved. Reported EEV operating profit rose by 9 per cent to £1,002.0 million over the previous year from £918.5 million, due to strong growth in EEV new business contribution. IFRS profit before shareholder tax rose to £211.9 million, up by 14 per cent as compared to the last year reported data. Underlying cash result (post-tax) grew by 10 per cent to £309 million, up from £281.2 million a year ago, due to the strong new business performance reflected in the financial performance. Underlying cash basic EPS increased by 10 per cent at 58.7p, from 53.6p a year ago. The full-year dividend was announced of 48.22p, up by 12.5 per cent from 42.86p a year ago, due to the strong balance sheet and growing income from the existing business. The net inflow of funds grew by 8.4 per cent year-on-year to £10.3 billion.

Share Price Performance

Daily price chart as on April-01-2019, before the market close. (Source: Thomson Reuters)

At the time of writing (as on April 01, 2019, at 12:05 PM GMT), shares of STJ were quoting at GBX 1,033.75 and increased by 5.75 points or 0.56% against its previous day close. During the last one-year shares have reached to a 52w high of GBX 1,246.00 and a 52w low of GBX 905.60 and at the current price level (as indicated in the price chart) shares were trading 17.03% lower than its 52w high level and 14.15% higher against its 52w low level.

Recent News
On 28^th February 2019, St. James’s Place PLC of the UK agreed to acquire Harvest Financial Services Ltd, a Dublin-based provider of financial advisory services. On 14^th January 2019, Orchard Street Investment Management LLP, a unit of St. James’s Place PLC, acquired Trade City Reading, a Reading-based provider of warehousing and storage services, jointly owned by Investec Wealth & Investment Ltd and Kier Property, for a total consideration of GBP 15.7 million.

Valuation Methodology


Conclusion
The company is improving its fund management business, and proprietary distribution model is the main key strength, even though declining cost efficiency remains an area of concern and needs further improvement. Brexit impact, stiff competition, and declining economy of the UK may affect the growth of the company. However, strategic collaboration, growing numbers of HNWIs and their wealth, and positive outlook towards the equity market of the UK may offer significant growth opportunities for STJ. Based on the strong growth prospects, and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 1,028.00 (as on 29th March 2019) with single-digit upside potential based on 20.45x NTM Price/Cash Flow(approx.) on FY19E cash flow per share (approx.).

Smurfit Kappa Group PLC (SKG)

Smurfit Kappa Group Plc is a provider of paper packaging solutions. It distributes, manufactures, and markets corrugated containerboards, containers and other paper-based packaging goods. The company’s product offerings include graphics and solid boards, paper bags, protective packaging products, containerboards, kraft liners, corrugated and packaging products. It operates paper mills, recovered fiber facilities and converting plants in Europe and the Americas.

Financial Highlights (FY2018, € million)

(Source: Annual Report, Company Website)

In FY2018, reported revenue was €8,946 million, up 4 per cent from the same period last year. Reported EBITDA for the financial year 2018 was €1,545 million, 25 per cent ahead of 2017, due to the increase in earnings in Europe and the Americas though partly offset by higher Group centre costs. The pre-exceptional profit before income tax increased by 56 per cent to €938 million as compared to €601 million reported for the financial year 2017. On a pre-exceptional basis, basic earnings per share were 292.2 cents for the full year 2018, 58% higher than the 185.3 cents in 2017. Free cash flow in FY2018 was €494 million as compared to the financial year 2017 of €307 million, an increase of €187 million. The company return on capital employed surged by 4.3 per cent to 19.3 per cent as compared with the financial year 2017 data. Net debt was €3,122 million at the end of December 2018, resulting in a net debt to EBITDA ratio of 2.0x as compared to 2.3x at the end of 2017.

Share Price Performance

Daily price chart as on April-01-2019, before the market close. (Source: Thomson Reuters)

At the time of writing (as on April 01, 2019, at 12:50 PM GMT), shares of SKG were quoting at GBX 2,178.27 and increased by 24.27 points or 1.12% against its previous day close. During the last one-year shares have reached to a 52w high of GBX 3,308.00 and a 52w low of GBX 1,915.00 and at the current price level (as indicated in the price chart) shares were trading 34.15% lower than its 52w high level and 13.75% higher against its 52w low level.

Recent News
On 14^th March 2019, Smurfit Kappa Group PLC of Republic of Ireland plans to launch a tender offer to raise its interest to 85.48 per cent from 69.94 per cent by acquiring a further 15.54 per cent or 16.739 million ordinary shares in Carton de Colombia SA, an Yumbo-based manufacturer of folding paperboard boxes, for an estimated COP 320.519 billion (USD 101.925 million), in a privately negotiated transaction. On 1^st March 2019, Smurfit Kappa Europe BV of the Netherlands, a unit of Smurfit Kappa Group PLC, acquired BalkanPack Ltd, a Kazanluk-based manufacturer of fiber boxes. On 15^th February 2019, Smurfit Kappa Europe BV of Netherlands, a unit of Smurfit Kappa PLC, planned to acquire Vitavel JSC, a Lukovit-based manufacturer of fiber boxes, from Vitavel-Invest AD.

Valuation Methodology
 
(Note: All Euro figures have been converted into GBX; EUR: GBX - 0.86)

Conclusion
The company's dominant market position, business performance of the Americas segment, diversified customer base and strong manufacturing capabilities are the company’s main strengths, whereas limited liquidity position remains an area of concern. Regulatory environment, highly competitive market and foreign currency fluctuations may affect it’s business operations. However, strategic growth initiatives, acquisitions and increasing demand for paperboard packaging industry are likely to provide accelerating growth opportunities to the company. Based on the strong growth prospects, and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 2,154 (as on 29th March 2019) with single-digit upside potential based on 9.69x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 

Melrose Industries PLC (MRO)

Melrose Industries Plc is an investment company that specialises in buying strong fundamental manufacturing business which can be further improved in terms of performance and monetize. The company provides products such as air management, security, home automation, ergonomic and electricity generating equipment. Its business portfolio comprises Nortek and brush. Melrose's air management offers air quality and home solutions; residential and commercial havoc, custom and commercial air solutions products.

Financial Highlights (FY2018, £ million)

(Source: Annual Reports, Company Website)

The company achieved strong results, with revenue reported as £8,605 million (2017: £2,092 million) and an operating loss of £392 million (2017: operating loss was £7 million), driven by the result of the required accounting for the GKN acquisition. The diluted earnings loss per share of 12.0 pence (2017: loss of 1.2 pence). The Board proposes to pay a final dividend per share of 3.05 pence (2017: 2.8 pence) making a total of 4.6 pence for the year (2017: 4.2 pence), an increase of 10 per cent in line with its progressive annual dividend policy. The company’s reported total free cash flow from trading was £196 million. The net debt to EBITDA leverage ratio has reduced to 2.3x as compared with 2.5x reported last year.

Share Price Performance

Daily price chart as on April-01-2019, before the market close. (Source: Thomson Reuters)

At the time of writing (as on April 01, 2019, at 12:50 PM GMT), shares of MRO were quoting at GBX 186.45 and increased by 3.3 points or 1.80% against its previous day close. During the last one-year shares have reached to a 52w high of GBX 248.80 and a 52w low of GBX 145.94 and at the current price level (as indicated in the price chart) shares were trading 25.06% lower than its 52w high level and 27.76% higher against its 52w low level.

Valuation Methodology


Conclusion
Melrose’s business plan is unique in the UK Industrial Goods sector.  The company seeks to acquire underperforming industrial businesses whose operational performance can be improved. GKN was long considered a potential target for Melrose by the investors.The group believes that therigorous focus on cost control, productivity, and improved customer delivery will continue to drive improvements in performance for all the businesses. With culture change based on accountability,backed bysignificant investments and a more disciplined strategic focus being applied to improve all aspects of the businesses, the company will remain confident of further success in 2019. Based on the strong growth prospects, and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 183.15 (as on 29th March 2019) with single-digit upside potential based on 14.16x NTM Industry Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures have been taken from Thomson Reuters.
*The buy recommendation is valid for the current price as covered in the report (as on Apr-01-19).
 

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
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.
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. 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 do 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 in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser. Our publications are NOT a solicitation or recommendation to buy, sell or hold.