Glencore Plc (LON: GLEN)

Business Overview
Glencore Plc (LON: GLEN) is a natural resource company which is into production and marketing of commodities. The company operates in the business of minerals, metals such as copper and zinc, crude oil and oil products. The company also involves in coal and agricultural products.

Recent News
On 7^th January 2020, the company announced its corporate calendar for the year 2020. It will announce its annual results for FY2019 on 18^th February 2020.

Third Quarter 2019 Production Report (as on 25th October 2019)
In the third quarter of the fiscal year 2019, copper production of the company decreased by 4 per cent to 1,015,800 tonnes as compared to the third quarter of the fiscal year 2018. The company’s cobalt production increased by 21 per cent to 34,400 tonnes in the third quarter of FY2019 against the third quarter of FY2018. The company’s zinc production increased by 3 per cent to 809,200 tonnes in the Q3 FY2019 as compared to the third quarter of FY2018. In the third quarter of the FY2019, the company’s nickel production was 89,400 tonnes. The company’s coal production increased by 8 per cent to 104 million tonnes in the Q3 FY2019 as compared to Q3 FY2018.

Share Price Performance

Daily Chart as on 31^stJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 31^st, 2020 Glencore Plc shares were trading at GBX 226.10 at the time of writing before the market close (at 8:32 AM GMT), down by 0.15 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 343.90/GBX 212.10. The stock price has givennegative 26.98 per cent returns during the previous year and now we expect some pullback action in stock price.

Valuation Methodology

*Peers: Fresnilo Plc, BHP Group Ltd and Antofagasta Plc

Conclusion
In the third quarter of 2019 production report, the company’s performance declined and the production of almost all the commodities reduced due to tough economic conditions. The company also suffered operating setbacks which hampers its margins. However, the company is well-positioned, and the remaining business performance remained robust. Excluding the Koniambo and the African copper assets, the coal and metal industrial assets provided healthy Adjusted EBITDA mining margin of 39 per cent. Adjusted EBIT guidance will be in the range of $2.2-$3.2 billion. The company had expected that the commodity market fundamentals would step in the company’s favour and that the varied commodity portfolio would perform a vital role in the transition to a low-carbon economy with international progress. All through a continued constructive collaboration, the company stay concentrated on generating sustainable long-term value for all the shareholders.

The company’s gross profit has grown from USD 2,947 million in FY2015 to USD 9,138 million in FY2018, giving approximately 45.8 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 225.15 (as on 31st January 2020 at 8:25 AM GMT) with single-digit upside potential based on 20.07x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).

Naked Wines Plc (LON: WINE)

Business Overview
Naked Wines Plc (LON: WINE), previously known as Majestic Wine Plc, is a United Kingdom-based holding company, which is engaged in the retailing of wines and is a leading wine specialist. The company's operations are differentiated in four separate divisions - Majestic Wine, Naked Wines, Majestic Commercial and Lay & Wheeler - with each targeting different customer segments. Naked Wines funds independent winemakers through crowdfunding and in exchange, customers get exclusive wines, at preferential prices, which are then passed on to the customers.

Recent News
On 9^th January 2020, the company announced that Rowan Gormley, CEO of the company, has retired from the Board. Nick Devlin had been announced as the new Chief Executive of the Group with immediate effect. The company’s Chairman, Greg Hodder, had stepped down from the Board and John Walden would be the new chairman of the company.

Trading Update (As on 31^st December 2019)
The company has reported its Christmas trading performance for the 10-week period ending 31 December 2019. The performance was within the range of expectations. Underlying revenue for the continuing business was up by 11 per cent on the same period last year. Total Gross margin was 1 percentage points higher year on year. It was due to higher proportion of repeat customer sales. The company expected investment in new customers for the year to be at the lower end of the GBP 20-25 million range.

Share Price Performance

Daily Chart as on 31^stJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 31^st, 2020 Naked Wines Plc shares were trading at GBX 209.50 at the time of writing before the market close (at 8:18 AM GMT), down by 0.25 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 312.70/GBX 205. The stock price has givennegative 21.24 per cent returns during the previous year.

Valuation Methodology 
 

*Peers: Hotel Chocolat Group Plc, Carrefour SA, Boohoo Group Plc and ASOS Plc

Conclusion
The company has witnessed an improvement in its financial performance during the latest trading update for the 10-week period ending 31^st December 2019. However, certain risks such as excessive competition could impact the revenue and profitability of the company. Financial, liquidity and treasury risks could affect the operations of the company. Failure to cope with the regulatory norms could hamper its overall business and its reputation. To drive growth through increasing its digital capability and investing in customer relationships, the company began on a transformation plan to broaden its sales footprint outside of the UK. The group now has a tight focus on the significant Naked growth opportunity as the division has more than doubled in size since its acquisition, and has substantial growth potential driven, in particular, by the US business. The company had completed the disposal of Les Celliers de Calais S.A.S and Majestic Wine Warehouses Limited and declared a special dividend for its shareholders.

Over the course of 3 years (FY15 - FY18), the company’s revenue surged from GBP 284.5 million in FY15 to GBP 476.1 million in FY18, giving annual growth rate of approximately 18 per cent on CAGR basis.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 209.50 (as on 31st January 2020 at 8:18 AM GMT) with high single-digit upside potential based on 46x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and information have been taken from Thomson Reuters.
*Currency exchange rate taken for 1 US Dollar = 0.76 GBP.

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