PayPoint

PayPoint PLC is a United Kingdom-based holding company and is the national network for collecting payments 'over the counter', mostly cash payment of bills and services. The group operates more than 50,000 stores across the UK and Romania, representing a 43% share of the UK convenience market. The company's machine can also be used to pre-pay for mobiles and energy meters, with outlets located in newsagents, convenience stores, supermarkets, and forecourts across the country. The company's operations are differentiated in three geographical segments: UK, Ireland and Romania.

Recent Development
On 19^th February 2019, the company announced that Dominic Taylor had resigned as the Chief Executive Officer of the company, he has been succeeded by Patrick Headon. He assumed the role on 1^st April 2019.

Key Financial Metrics (Half year ended 30 September 2018, £m)

(Source: Company Filings)

Although the net revenue was down by 1.6% on a reported basis to £55.6 million, underlying growth of 3.2% or an increase of £1.8 million was reported, driven by strong performance in UK and Romania service fee revenue. Total revenue surged by 8.7 per cent at £106.1 mn in H1 FY19(H1 FY18: £97.6 mn).Operating profit rose by 4.5% to £25.5 million, reflecting an operating margin of 45.8%, which rose by 2.7 percentage points. The group reported profit before tax rose by 4% to £25.3 million, which included improved VAT recovery related to prior years. Earnings per share rose by 3.5% to 30.1p. Interim dividend rose by 2% to 15.6 pence per share, while an additional interim dividend of 12.2 pence per share was declared. Total dividend per share was 27.8 pence per share, representing a rise of 1.1%. Strong conversion of profit to cash was generated, and net assets were worth £45.7 million.

Valuation Methodology
 

Share Price Commentary
 
Daily Chart as at April-05-19, after the market closes (Source: Thomson Reuters) 

On 5^th April 2019, after the market closed, PAY shares closed at at GBX 881.00, up by 0.34 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,087.44 /GBX 721.98. The outstanding market capitalisation was around £602.93 million.

Conclusion
The company is in excellent position to leverage its healthy market share in the growing convenience retail sector and its core business, over-the-counter utility bill payments, is a steady earner. It has business in Romania as well, which after Brexit can serve as a significant gateway in the broader EU market. Based on strong prospects, and supported by valuation done using the method, we have given a BUY recommendation at the closing price of GBX 881.00 (as on 5th April 2019) with low double digit-upside potential based on 15.84x NTM Price/Earnings Value (approx.) on FY19E earnings per share.
 

Dart Group

Dart Group PLC is a British aviation and distribution company, headquartered in Leeds, the United Kingdom. The company operates scheduled holiday flights to leisure destinations, offers bonded package holiday services, and operates distribution and logistics business. The company’s operations are differentiated in two operating segments: Leisure Travel, which includes Jet2.com and Jet2holidays, and Distribution & Logistics, which includes Fowler Welch. Philip Meeson is the Executive Chairman of the company.

Key Financial Metrics (Half year ended 30 September 2018, £m)

(Source: Company Filings)

The revenue for the year increased by 36% to £2,247.1 million, driven by Leisure Travel revenue which grew by 38%. Driven by a continued focus on developing existing and new business opportunities, operating profit increased by 68% to £350.1 million, while operating margin increased by 3 percentage points to 15.6%. Profit before taxation increased by 56% to £337.4 million. However, losses are expected to grow in the second half as the company continues to invest in marketing and additional aircraft. Basic EPS rose by 56% to 186.15p. The company announced an interim dividend of 2.8p per share, reflecting an increase of 87%. Driven by the Leisure Travel trading performance, the company generated net cash flow from operating activities of £423.8m in H1 FY19, increasing from £257.2m in H1 FY2018.

Valuation Methodology


Share Price Commentary

Daily Chart as at April-05-19, before the market close (Source: Thomson Reuters) 

On 5^th April 2019, at the time of writing (before the market closed, GMT 11:50 am), DTG shares were trading at GBX 799.26, down by 1.2 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,053.00/GBX 725.00. The outstanding market capitalisation was around £1.21 billion.

Conclusion
The management expects to meet the current market expectations, helped by an aggressive push into leisure travel. The company expanded its fleet to 90 aircraft for summer 2018, from 75 in the corresponding period. Assuming a balanced Brexit agreement, the outlook for the company's operations remain bright, with continued confidence in both the segments. In the long term, the company aims to grow both its package holiday and flight-only products. However, the company is facing emerging headwinds and cost pressures. Cost of fuel and other operating charges are expected to rise, coupled with an increased cost associated with continued investment in products and operations. Brexit uncertainty might also affect consumer spending, raising questions on the sustainability of medium-term demand. The company faces an uncertain outlook, though the performance and financial position remain strong. Keeping in mind the prospects and risks faced by the company, and supported by valuation done using the method, we have given a SPECULATIVE BUY recommendation at the closing price of GBX 809.00 (as on 4th April 2019 based on 8.90x NTM Price/Earnings Value (approx.) on FY19E earnings per share.

 

Fuller Smith & Turner PLC

Fuller Smith & Turner PLC is a British pure-play pub and hotel operator, headquartered in South London, United Kingdom. The company's operations are differentiated in three operating segments: Managed Pubs and Hotels, The Fuller's Beer Company, and Tenanted Inns. The company operates own-operated pubs and hotels, as well as manages pubs operated by third parties under tenancy or lease agreements. Simon Emeny is the Chief Executive of the group.
Recent Development
On 25th January 2019, the company entered into an agreement with Asahi Europe Ltd to sell off its entire beer business for £250 million. The company will now be focused on operating a premium pub and hotel.

Key Financial Metrics (Half year ended 30 September 2018, £m)

(Source: Company Filings)

The company’s revenue increased by 6% to £222.1 million, against £209.3 million reported in the corresponding period in 2017. Due to heavy capital expenditure in the first half of FY19, adjusted profit decreased by 1% to £23.6 million, versus £23.8 million in H1 FY2018. This reflected on the adjusted earnings per share as well, which declined by 1% to 33.83p, while basic EPS decreased to 29.65p. EBITDA increased by 2% to £38.2 million, while profit before tax decreased by 12% to £20.8 million. The company announced an interim dividend of 7.80p and increased by 3% over the year. Proforma net debt to EBITDA was 3.1 times, versus 2.8 times reported last year.

Share Price Commentary
 
Daily Chart as at April-05-19, before the market close (Source: Thomson Reuters) 

On 5^th April 2019, at the time of writing (before the market closed, GMT 11:50 am), FSTA shares were trading at GBX 1,170.00, up by 2.47 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,210.00/GBX 846.00. The outstanding market capitalisation was around £368.05 million.

Conclusion
The company recently sold its beer business which will help it to focus on its core business now. A new online B2B sales are slated to be launched which would help the group to optimise and drive business. As the company has no operations in Europe, it is well insulated against any direct impact of Brexit. However, the company operates in a highly regulated and competitive environment, and any new legislation impacts the operations of the group. There is also an increased risk of staffing shortages, which will lead to recruitment getting more competitive. This might drive wage inflation, especially if the free movement is restricted after Brexit. Market uncertainty is affecting the consumer sentiment which can adversely impact discretional demand as well. Weaker pound also risks increasing the input costs, which can reduce the profitability margins. Keeping in mind the risks faced by the company, we recommend investors to keep a watch on the stock going forward.
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.
*The buy recommendation is valid for the current price as covered in the report (as on April-05-19).
 

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