Compass Group Plc (LON: CPG)

Compass Group Plc is a Chertsey, United Kingdom-headquartered consumer support services company.

Recent News
On 16^th December 2019, the company announced that its Annual General Meeting would be held on 6^th February 2020.

Financial Highlights – Financial year 2019 (30^th September 2019, GBP)

(Source: Interim Report, Company Website)

In the financial year 2019, the company’s underlying revenue increased by 6.4 per cent to £25.15 billion as compared to £23.80 billion in FY18, while statutory revenue surged by 8.8 per cent to £24.88 billion. The increase in revenue was driven by the good performance in North America with a wide-based organic revenue increase of 7.7 per cent. The Statutory operating profit reduced by 5.4 per cent due to the impact of the cost action programme offset by foreign exchange benefit and higher gains. For the year ended 30 September 2019, the operating margin was reported at 7.4 per cent. For the current period, the net debt to EBITDA ratio was 1.3x. The annual dividend per share was 40 pence, an increase of 6.1% from the previous year.

Share Price Performance  

Daily Chart as on 31^stDecember 2019, before the market closed (Source: Thomson Reuters)

On December 31^st, 2019, Compass Group Plc shares were trading at GBX 1,899.3 at the time of writing before the market close (at 9:35 AM GMT), down by 0.26 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 2,150/GBX 1,575.50.

Valuation Methodology

*Peers: InterContinental Hotels Group Plc, Whitbread Plc, Accor SA, Edenred SA and SSP Group Plc

Conclusion
The company has witnessed a decent financial performance in the fiscal year 2019. The steady growth is getting offset with an increased mobilisation cost and inflation prevailing in the UK and European markets. The company’s outlook stays strong. For 2020, the company expects organic growth around the mid-point of the 4%-6% range while maintaining a robust margin.

The company’s gross profit has grown from GBP 13,863 million in FY2016 to GBP 17,787 million in FY2019, giving approximately 8.66 per cent growth on a CAGR basis.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 1,889 (as on 31st December 2019 at 8:10 AM GMT) with single-digit upside potential based on 23.36x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Micro Focus International Plc (LON: MCRO)

Micro Focus International Plc is a UK-based software & computer services provider company.

Recent News
On 20th November 2019, the company announced its trading update for the financial year 2019 ended on 31st October 2019.

Trading Update FY2019
The company expected net debt of $4.3 billion at a leverage multiple of approximately 3.2x adjusted EBITDA. Full-year revenue and adjusted EBITDA are expected to consistent with the revised revenue guidance. The company intended to provide an update on the strategic review, which was reported to be progressing in line with the original timetable, along with the preliminary results announcement, which would be announced on 4 February 2020.

Share Price Performance  

Daily Chart as on 31^stDecember 2019, before the market closed (Source: Thomson Reuters)

On December 31^st, 2019, Micro Focus International Plc shares were trading at GBX 1,075.9 at the time of writing before the market close (at 10:40 AM GMT), down by 2.20 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 2,174.50/GBX 998.

Valuation Methodology

*Peers: RM Plc, Indra Sistemas SA, Atos SE, Telefonaktiebolaget LM Ericsson and ICT Group NV

Conclusion
The company has delivered a weak financial performance in the first half of the fiscal year 2019. The company’s revenue has dropped, and it has reduced its growth guidance. However, the company has adopted a more conservatism policy due to a deteriorating macro environment. There remained a significant pipeline of business opportunity for the company. The company continues to implement the strategy and business model to deliver returns.

The company has a dividend yield of 9.22 per cent, and its revenue has grown from $834.5 million in FY2015 to $4,754.4 million in FY2018 giving 78.60 per cent growth on a CAGR basis.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 1,067.60 (as on 31st December 2019 at 9:30 AM GMT) with higher single-digit upside potential based on 7.65x Median Peers NTM EV/EBITDA (approx.) on FY19E EBITDA (approx.).

Manolete Partners Plc (LON: MANO)

Manolete Partners Plc is a UK based financial services company which specialises in insolvency litigation financing.

Recent News
On 10^th December 2019, the company announced that the company's Chief Financial Officer, Mark Tavener, was granted options over 64,593 ordinary shares of 0.4p each in the company.

Financial Highlights – H1 Financial year 2020 (30^th September 2019, GBP)
In the first half of the fiscal year 2020, the company’s investment in cases was up by 83 per cent to £25.4 million for the period due to availability of increased cash resources from the IPO. The company’s revenue surged by 15 per cent from £6.5 million in H1 FY2019 to £7.5 million in H1 FY2020. The gross profit increased by 50 per cent to £6.6 million in H1 FY2020 from £4.4 million in H1 FY2019. In the first half of the financial year 2020, the PAT (Profit after tax) increased by 41 per cent to £3.5 million versus £2.5 million in H1 FY2019. The company’s earnings per share were up by 41 per cent to 7.9 pence in H1 FY2020 from 5.6 pence in H1 FY2019, while the company proposed an interim dividend of 0.5 pence.

Share Price Performance  

Daily Chart as on 31^stDecember 2019, before the market closed (Source: Thomson Reuters)

On December 31^st, 2019, Manolete Partners Plc shares were trading at GBX 441 at the time of writing before the market close (at 8:02 AM GMT), down by 4.13 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 620/GBX 192.

Conclusion
The company could be exposed to adverse cost liabilities if their investments underperform against expectations which could affect their business. However, the business of the company continued to grow at a decent pace. The insolvency market is a developing market with decent market share being captured by Manolete Partners in the UK region. The company has forecasted a strong stream of new cases and seeks to deploy new funds from an IPO which could help to grow its business.

The company’s total revenue has grown from GBP 4.80 million in FY2016 to GBP 13.77 million in FY2019, giving approximately 42 per cent growth on a CAGR basis.

Based on the rationale as highlighted above, we have given a “Speculative Buy” recommendation at the current price of GBX 441 (as on 31st December 2019 before the market close at 8:02 AM GMT).

Litigation Capital Management Ltd

Litigation Capital Management Ltd (LON: LIT) is an Australia based Litigation Finance and ancillary services group. The company is the first litigation funding group and has assisted companies and individuals.

Recent News
On 20^th December 2019, the company announced the resolution of two single-case investments.

On 10^th December 2019, the company confirmed that they are having advanced discussions in relation to the establishment of a 150 million US dollar third party fund where the company will act as a fund manager to the fund.

Financial Highlights (for the year ended 30 June 2019, AUD)
For the financial year ending 30th June 2019, driven by an increase in the litigation services revenue for the period, the company’s revenue increased to AUD 34,707 thousand from AUD 29,683 thousand in the financial year 2018. The company’s basic earnings per share stood at 8.65 cents in the financial year 2019 versus basic earnings per share of 15.24 cents in the financial year 2018. The company’s IRR (Internal rate of return) for 8 years stood at 80 per cent. The company’s 8-year Portfolio ROIC (Return on Invested capital) was at 135 per cent. Cash and cash equivalents stood at AUD 49,119 thousand in FY2019 as compared to AUD 13,787 thousand in FY2018, reflecting a surge of 256 per cent.

Share Price Performance

Daily Chart as at December-31-19, before the market closed (Source: Thomson Reuters)

On 31st December 2019, Litigation Capital Management Ltd shares were trading at GBX 69.80 at the time of writing before the market close (at 9:21 AM GMT), up by 1.75% against the previous day closing price. Stock's 52 weeks High and Low are GBX 117.50/GBX 57.43.

Valuation Methodology


Conclusion
Although the profitability performance declined marginally, the top-line performance has improved for the period. The company needs to manage its operating and non-operating cost-effectively. The company has made a significant increase in both the quality and the number of applications received. The company is actively engaged to improve its referral network, which will help them to capture more market share and is monitoring opportunities to enter into new markets. The company is looking forward to exploring opportunities in the untapped and vast corporate portfolio space and expects single-case funding growth. The company based on its strong pipeline expects strong operational and financial performance in the coming years with support coming from the litigation funding market.

Over the course of 5 years (FY14 - FY19), the company’s revenue surged from AUD 0.42 million in FY14 to AUD 34.71 million in FY2019. Compounded annual growth rate (CAGR) stood at 141.79 per cent.

Based on the decent  fundamental prospects and support from valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 68.60 (as on 30th December 2019) with lower-double-digit upside potential based on 16.50x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Renold PLC

Renold Plc (LON: RNO) is a Manchester, United Kingdom-based world's leading manufacturer of industrial chain, gearboxes and couplings.

Recent News
On 27^th November 2019, the company announced that the group’s Board had declared the half-yearly payment of the preference dividend in accordance with the terms of the 6% cumulative preference stock of 1 pound each (3 pence per unit). The dividend will be paid on January 2, 2020, to preference shareholders.

Financial Highlights (for the half-year ended 30 September 2019, £million)

(Source: Interim Reports, Company Website)

In the first half of 2020, the company’s underlying revenue and reported revenue stood at £98.2 million.This reflects a decrease of 2.6% in underlying revenue and reported revenue from continuing operations was unchanged from the corresponding period of the last year. The underlying adjusted operating margin was 7.8% in H1 FY20 (September 2018: 7.4%), reflecting additional progress in the delivery of strategic initiatives. The adjusted earnings per share (EPS), after deduction of pension administration costs and IAS 19R finance costs stood at 1.5 pence in H1 FY20 (H1 FY19: 1.6 pence). While reported basic EPS increased to 1 pence against the same period of the last year. On 30^th September 2019, the net debt stood at £34.2 million(31 March 2019: £30.3 million) and net debt to adjusted EBITDA of 1.4x.

Share Price Performance

Daily Chart as at December-31-19, before the market closed (Source: Thomson Reuters)

On 31st December 2019, Renold PLC shares were trading at GBX 17 at the time of writing before the market close (at 8:15 AM GMT), down by 3.68% against the previous day closing price. Stock's 52 weeks High and Low are GBX 35.50/GBX 16.65.

Conclusion
Despite challenging macro-economic headwinds, the company continues to create prospects in sectors of the market where Renold’s products can generate value for its clients and where the group is under-represented. This trend is anticipated to continue into the second half of the year. With emphasis on effectiveness and efficiency resulting from continuing strategic initiatives and investments has mitigated the effects of decreased revenues in H1 FY20. These benefits are anticipated to continue and combine with enhanced efficiency at the new Chinese factory during H2 FY20. The company stays on track to provide an overall result for the financial year 2020 in line with the Board’s anticipations with a widely consistent weighting between the first and second half of the year.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from £181.40 million in FY15 to £202.4 million in FY19. Compounded annual growth rate (CAGR) stood at 2.78 per cent.

Based on the decent prospect, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 17 (as on 31^st December 2019, before the market close).

Hvivo PLC

United Kingdom-based Hvivo Plc (LON: HVO) is a biopharma company having clinical testing capabilities. The company was earlier known as Retroscreen Virology Group PLC.

Recent News
On 31^st December 2019, HVIVO PLC to merge with OPEN ORPHAN PLC and released its first closing of the offer. This offer represents a value of around 15.56 pence per HVO Share and a 33.8% of premium based upon the HVO Closing Price on December 6, 2019, being the last practicable date before the announcement of the Offer, valuing HVO at around 12.96 million pounds.

Financial Highlights (for the six months ended 30 June 2019)
The revenue for the six-month period ended 30 June 2019 surged by 22 per cent to £5.9 millionas compared with the corresponding period of the last year. In H1 FY19, the adjusted loss from operations decreased by 27 per cent to £3.7 million against the loss of £5.0 million in H1 FY18, reflecting the ongoing rationalisation of the group’s cost base combined with an increase in revenues. Net cash generated from investing activities decreased to £0.03 million, due to declined capital expenditure.

Share Price Performance

Daily Chart as at December-31-19, before the market closed (Source: Thomson Reuters)

On 31st December 2019, Hvivo PLC shares were trading at GBX 11.50 at the time of writing before the market close (at 8:30 AM GMT), down by 4.17% against the previous day closing price. Stock's 52 weeks High and Low are GBX 41.40/GBX 9.75.

Conclusion
Some risks are highlighted- failure to protect the company’s financial performance and stewardship of assets against financial risk, and macroeconomic uncertainty. If the company does not keep pace with rapid technological change in the biopharmaceutical industry, services may become less competitive or obsolete.

The company with a robust level of acceptances, reinforces the view that this is a decent deal for the investors of both companies (HVIVO and OPEN ORPHAN). The merger will allow the combined business to increase the investor’s value.

The company’s pipeline of opportunities for the year 2020 looks extremely robust.The company is mainly focusing on its service business and is closing certain areas which are not worthwhile. The cost savings introduced by management since 2018 are anticipated to deliver operating cost efficiencies of £11 million by the year 2020.The company is looking forward to attaining market-leading position through expansion initiatives, which is also helping the company to increase its financial performance. In the future, the company’s focus is on having more client engagements, boost sales pipeline, revenue scalability and minimize cost.

Therefore, based on the market trends and above rationale as discussed, we have given a “Speculative Buy” recommendation at the current price of GBX 11.50 (as on December 31, 2019).
 
*All forecasted figures and Peers information has been taken from Thomson Reuters. Currency exchange rate taken for 1 AUD = 0.533251 GBP; 1USD = 0.76 GBP.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 31st December 2019).

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