BAE Systems PLC

BAE Systems PLC (BA) is a Farnborough, United Kingdom-headquartered security, defence and aerospace group with operations spread in many countries across the world. The group delivers a wide range of advanced defence technology and services that covers air, land, naval forces and cyber domain. The group has an employee base of 85,800 people spread across over 40 countries. The company’s business is differentiated in five operating segments, namely Platforms & Services (US), Maritime, Air, Cyber & Intelligence, and Electronic Systems.

Financial Highlights (H1 2019, in £m)
                             
(Source: Company Filings)

In the latest period, order intake declined by £1,283 million from £9,701 million reported in H1 2018 to £8,418 million in H1 2019, while it resulted in the order backlog rising by £7.7 billion to £47.4 billion, with further growth in the US businesses offsetting trading on multi-year, long-term contracts in Air partly. Revenue, which measures financial performance as defined in IFRS, rose by 4% on a constant currency basis to £8.7 billion, and sales, which measures financial performance defined by the group, increased to £9.4 billion and recording a growth of 4% on a constant currency basis. Underlying EBITA was up by 14% on last year, or 9% on a constant currency basis, to £999 million (H1 2018: £874 million), while operating profit was up by 13% on last year, or 7% on a constant currency basis, to £896 million (H1 2018: £792 million). Profit for the period attributable to equity shareholders rose from £471 million reported in the prior year to £795 million, while underlying earnings (excluding the one-off tax benefit) rose from £631 million in H1 2018 to £696 million and underlying earnings (including the one-off tax benefit) was up to £857 million from £631 million in H1 2018.

Share Price Commentary

Daily Chart as at 06-November-19, before the market closed (Source: Thomson Reuters) 

On 06 November 2019, at the time of writing (before the market closed, GMT 12:39 pm), BA shares were trading at GBX 581.2, up by 1.34% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 590.80/GBX 439.40. The company's stock beta was 1.15, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around GBP 18.36 billion, with a dividend yield of 3.94%.

Conclusion
The future performance of the company in terms of bottom-line growth and revenue growth is anticipated to get a boost from several crucial contracts which were won during the financial year 2018 and further established positions on the long-term programmes and a growing presence in other international markets. It helps to improve the outlook and geographic base of the group. Research and development activities, diversified operations and growth in revenue are the major strengths of the group, and contracts and agreements, the global market for Unmanned Aerial Vehicles (UAVs), expanding cybersecurity market and strategic acquisitions will provide growth opportunities for the company.

Based on the decent prospects, we have given a "HOLD" recommendation at the closing price of GBX 573 (as on 05 November 2019).
 

Connect Group PLC

Connect Group PLC (CNCT) is a Swindon, United Kingdom-headquartered specialist distributor, with Smiths News and Tuffnells enjoying the leading positions in their respective markets with established partnerships. The company operates in magazine and newspaper wholesaling, and mixed freight distribution, and seeks to take advantage of economies of scale to make over 20 million deliveries every year. The operations of the group are differentiated in three core operating segments, namely Smiths News, DMD and Tuffnells.
Financial Highlights (FY 2019, in £m)
         
 (Source: Company Filings)

As the revenue of Smith News was down 4.3% to £1,303.3 million(FY2018: £1,361.6 million), the revenue of the group declined by 4.3% to £1,467.9 millionagainst £1,534.3 million in the prior year. The challenging turnaround at Tuffnells more than offset a recovery in financial performance at Smiths News, where adjusted operating profit was up by £4.7 million to £43.6 millionwhile continuing adjusted operating profit of the group was £29.5 million, down £4.4 million (13.0%) on the prior year. Adjusted profit before tax was £23.2 million, down 18.3% on last year. Statutory continuing loss before tax was reported at £37.6 million, which was an increase on the prior year by £2.1 million (FY2018: £35.5 million loss). Statutory continuing loss per share of 12.9pwas up 2.6p (FY2018:15.5p loss), as a statutory continuing loss after tax of £31.5 millionwas down by £6.6 million (FY2018: £38.1 million loss). Earnings attributable to shareholders on a continuing adjusted basis of £19.4 millionresulted in an adjusted EPS of 7.9p, a decrease of 1.4p on last year.

Share Price Commentary

Daily Chart as at 06-November-19, before the market closed (Source: Thomson Reuters) 

On 06 November 2019, at the time of writing (before the market closed, GMT 1:33 pm), CNCT shares were trading at GBX 29.10, down by 1.02% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 46.39/27.50 The company's stock beta was 0.75, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around GBP 72.81 million.

Conclusion
The company’s operations are impacted by the uncertainty created due to ongoing Brexit and other macro-economic factors. Further, any change in the legislation or regulatory changes also impact negatively on the company’s performance. Although the company’s revenue decreased in the first half of the financial year ending 2019, the profitability margins have remained stagnant or declined. The company’s bottom-line performance has reduced from the corresponding period of the last year. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.


Based on the above rationale, we have given a "Watch" recommendation at the closing price of GBX 29.40 (as on 05 November 2019), while we look for any upcoming catalysts.
 

Serabi Gold PLC

Serabi Gold PLC (SRB) is a London-headquartered mining company which is focused on production and exploration of gold in Brazil. The company conducts its operations in Palito Mining Complex and Coringa Gold Project in northern brazil. The Palito Mining Complex and Coringa Gold Project presently have a production capability of 40,000 ounces and 32,000 ounces per annum (approx.) respectively. The operations of the group are differentiated in two segments, namely UK and Brazil.

Financial Highlights (H1 FY 2019, in $m)
    
(Source: Company Filings)

During the first six months of 2019 the company produced 19,691 ounces of gold (H1 2018: 18,751 ounces) and recognised sales for 21,976 ounces (H1 2018: 19,180 ounces), with revenue from gold bullion of $21.24 million (H1 2018: $20.5 million) and $8.37 million (H1 2018: $5.65 million) in revenue from the sale of copper concentrate. The total revenue for the period was reported at $29.58 million against $25.70 million in the prior year, while gross profit was $6.17 million. Operating profit before interest and other income stood at $3.37 million (H1 2018: operating profit of $1.16 million). For the year to date, profit before tax was reported at $2.3 million with earnings per share of 2.92 cents.

Share Price Commentary

Daily Chart as at 06-November-19, before the market closed (Source: Thomson Reuters) 

On 06 November 2019, at the time of writing (before the market closed, GMT 1:55 pm), SRB shares were trading at GBX 83.80, down by 0.82% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 92.80/GBX 24.00. The company's stock beta was 0.99 reflecting the same volatility as compared to the benchmark index. Total outstanding market capitalisation was around GBP 49.78 million.

Conclusion
The company had shown good financial performance in the second quarter of the financial year. The company’s top-line performance has improved, but its bottom-line performance improved significantly. The company had shown strong production with above 10,000 oz in two successive quarters. The company has improved its production guidance for the financial year 2019 as against 2018 production.

Based on prospects, we have given a "HOLD" recommendation at the current price of GBX 83.80 (as on 06 November 2019, before the market closed).

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