HICL Infrastructure PLC

HICL Infrastructure Company (HICL) deals in infrastructure space that is essential to the delivery of public services and is the UK's largest infrastructure investment company. The company's operations are differentiated in three segments: Public-Private Partnerships, Regulated infrastructure and Demand-based infrastructure. The company was earlier known as HSBC Infrastructure Company Ltd.

On 26^th February 2020, the company will announce the 3^rd quarterly interim dividend.
Financial Highlights (for the six months ended 30 September 2019)

(Source: Interim Results, Company Website)

On an investment basis, the company’s total income decreased to £97.9 million in H1 FY20, and this signifies the return from the portfolio recognised as income comprising dividends, sub-debt interest and valuation movements. The NAV per share rose by 0.3 pence to 157.8 pence in H1 FY20 as compared to 157.5 pence reported as on 31-March 2019. As at 30th September 2019, total shareholder return was 10.8% on an annualised basis. On an Investment Basis, the Directors' valuation of the portfolio at 30 September 2019 was reduced by 1.1 per cent to £2,966.2 million as compared with the previous year data (March 2019: £2,998.9 million). On both the IFRS Basis and Investment Basis, Earnings decreased to £79.3 million, and Earnings per share declined to 4.4 pence against the corresponding period of the last year, due to the lower earnings. The company declared a quarterly interim dividend per share of 2.06 pence against the previous year period (March 2019: 2.02 pence).

Share Price Performance

Daily Chart as at November-20-19, before the market closed (Source: Thomson Reuters)

On 20^th November 2019, HICL Infrastructure PLC shares were trading at GBX 169.80 at the time of writing before the market close (at 10:03 AM GMT), up by 0.236% against the previous day closing price. Stock's 52 weeks High and Low are GBX 174/GBX 149.

Conclusion
In the current period, the company has stated a resilient performance, with NAV per share of 157.8 pence and total shareholder return on an annualised basis of 5.7%. The predictability of the long-term, stable cash flows from the company’s portfolio enables the Board to re-affirm the current dividend per share targets of 8.25 pence for the financial year 2020 and 8.45 pence for the financial year 2021. Further, the company will announce the target dividend per share guidance of 8.65 pence for the financial year 2022. In the long term, the company’s plan will maintain to provide the main infrastructure for communities and sustainable returns for investors.

HICL notes the uncertain political risk and potential nationalisation, although they believe the latter would face considerable hurdles. Even without the examination provided by PR19, the more general political risk pressures cast upon the UK water sector. Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited.

On the basis of the above rationale, we have given a "Watch" recommendation at the current price of GBX 169.80 (as on 20th November 2019, before the market close), while we look for any upcoming catalysts in the near term.

Mitchells & Butlers PLC

Birmingham, United Kingdom-based Mitchells & Butlers PLC (MAB) is an operator of managed pubs and restaurants which offers a broad choice of drinking and eating-out experiences with its well-known brands (All Bar One, Toby Carvery, Harvester and Browns).

The company will announce the trading update in January 2020.

Financial Highlights (for the 52 weeks ended 28 September 2019, £million)

(Source: Full Year Results, Company Website)

In the financial year 2019, the company’s reported revenue surged by 3.9% to £2,237 millionas compared with the previous year data (FY18: £2,152 million), while like-for-like sales were up by 3.5%, due to robust performances across all of the brands. Adjusted operating margin surged to 14.2% in FY19. On a statutory basis, the profit before tax surged by 36.2% to £177 million (£197 million on an adjusted basis) as compared with the last year performance. Statutory basic earnings per share stood at 33.5 pence, an increase from the previous year data (FY18: 24.5 pence). Adjusted earnings per share were 9.1% higher than the previous year. The returns from the capital programme were up by 5ppts to 21% against last year. In FY19, capital expenditure and adjusted free cash flow were £152 million and £11 million respectively. The company also reduced its net debt to £1.56 billion, representing an adjusted EBITDA to net debt of 3.6 times.

Share Price Performance

Daily Chart as at November-20-19, before the market closed (Source: Thomson Reuters)

On 20^th November 2019, Mitchells & Butlers PLC shares were trading at GBX 474 at the time of writing before the market close (at 10:15 AM GMT), up by 6.278% against the previous day closing price. Stock's 52 weeks High and Low are GBX 483/GBX 236.50.

Valuation Methodology


Conclusion
The company’s like-for-like sales increased by 1.4% in the first seven weeks of the new financial year 2020.The UK economic and political environment stays uncertain. The effect of Brexit remains unclear. From the perspective of employment, the unemployment levels are at a 40-year low, any restriction on the free movement of labour would be anticipated to have a material effect on the cost of labour. Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited.

On the basis of the above rationale, we have given a "Watch" recommendation at the current price of GBX 474 (as on 20th November 2019, before the market close), while we look for any upcoming catalysts in the near term.
 

Babcock International Group PLC

London, the United Kingdom-based Babcock International Group Plc (BAB) is an Aerospace and Defense company, which provides the engineering support services for armies, navies and air forces. It offers naval support services, technical services, testing, assembly, consultancy and training for the marine sector.

Financial Highlights (six months ended 30 September 2019, £million)

(Source: Interim Results, Company Website)

In the first half of 2020, the company’s underlying revenue was £2,458 million, remained almost the same against the corresponding period of the last year. Statutory revenue stood at £2,194.8 million in H1 FY20. Underlying profit before tax (PBT) for H1 FY20 reduced to £202.5 million.For the current period, the underlying earnings per share decreased to 32.5 pence, while statutory basic EPS surged to 25.6 pence. Free cash flow for the first half of 2020 decreased to £6.8 million. Interim dividend per share surged to 7.2 pence. On 20^th November 2019, the order book was £18 billion, and the pipeline was £16 billion,with substantial new Defence prospects added in both UK and global markets.

Share Price Performance

Daily Chart as at November-20-19, before the market closed (Source: Thomson Reuters)

On 20^th November 2019, Babcock International Group PLC shares were trading at GBX 520.40 at the time of writing before the market close (at 10:45 AM GMT), down by 4.51% against the previous day closing price. Stock's 52 weeks High and Low are GBX 601.60/GBX 410.10.

Conclusion
The company expect underlying revenue to be approximately £4.9 billion. On an IFRS 16 basis, the company anticipate underlying operating profit to be in between £540 million to £560 million. The company’s margin anticipations stay unchanged except for the impact of the adoption of IFRS 16. The company anticipate free cash flow (post pension payments) to be more than £250 million. In the near term, the company is expecting an increase in Marine and Land sectors performance but some weakness in the Aviation sector growth.

The group reported decent order book of more than £18 billion as a result of substantial contract wins in the key markets, comprising building the Type 31 warship for the United Kingdom’s Royal Navy and offering training to London’s Metropolitan Police Service.

Based on the decent fundamentals, we have given a “Hold” recommendation at the current price of GBX 520.40 (as on 20th November 2019, before the market close).

Hunting PLC

London, the United Kingdom-based Hunting PLC (HTG) is an international energy services provider with a portfolio that is dedicated to the wellbore and a distinct ability to manufacture high tolerance products. The company’s operations are differentiated in five operating segments, namely Hunting Titan, US, Canada, Asia Pacific, and Europe, Middle East and Africa.

On 17^th December 2019, the company will announce the pre-close trading update.

Q3 FY2019 Trading Update (as on 29^th October 2019)
In the third quarter of 2019, there is an overall net decrease in the group’s profit against the first and second quarters of 2019. In the drilling market, the management of the company foresees a slowing across North America in Q4 FY19 as well, which will further weigh on the results of the H2 FY19. During the year 2019, the new technology launched by the group, comprise the T-Set One setting tool and the E-SUB Perforating System, both are witnessing decent client traction. The company’s H-1 and H-2 Perforating Gun Systems sales continue to add value to the group’s revenues and show a greater share of Titan’s overall gun sales revenue. At the end of Q3 FY19, the net cash, excluding lease liabilities, was $58.5 million. The interim dividend per share of 5.0 cents, was paid on 23rd October 2019.

Share Price Performance
 
Daily Chart as at November-20-19, before the market closed (Source: Thomson Reuters)

On 20^th November 2019, Hunting PLC shares were trading at GBX 401 at the time of writing before the market close (at 11:45 AM GMT), down by 2.05% against the previous day closing price. Stock's 52 weeks High and Low are GBX 657/GBX 384.50.

Valuation Methodology


Conclusion
The company remains focused on the ability to respond to the commodity price and geopolitical volatility. However, the company stated that the near-term outlook remained uncertain, given the instability of the market backdrop, and the onshore market remained highly competitive. The company remains well-positioned to capture opportunities in the current market with a strong presence in upstream equipment and service markets, a healthy balance sheet and tightly managed cost base. In the last four years, its gross profit has risen at a CAGR of 5.64%, and it has consistently reported decent financials.

Keeping in mind the healthy prospects of the group, and supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 401 (as on 20th November 2019, before the market close) with lower double-digit upside potential, based on the 13.66x NTM Price/Earnings multiple (approx.) on the FY19E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency Conversion used for USD:GBP – 0.7752.

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