DCC Plc

DCC Plc (LON: DCC) is listed on the FTSE 100 index. It provides services related to marketing, sales and support services.

On 9 November 2021, DCC would release its H1 FY2022 results.

The last dividend of GBX 107.85 per share was paid on 22 July 2021 (final dividend).

Investment Rationale for Valuation – Hold at GBX 6,112.00

• DCC offers solutions to customers to enable the decarbonisation of their energy requirements.
• DCC has acquired Primagaz, Jones Oil and Azenn in Q1 FY2022.
• During Q1 FY2022, the operating profit growth of DCC was well ahead of that in Q1 FY2021.
• On the technical front, the 20-day EMA at about GBX 6,067.00 is sustaining below the stock price, indicating a potential uptick in the stock price in the near term.

Key Risks

• The acquisitions may not bring the desired synergies to DCC, increasing costs and affecting margins.
• Any breach in data security could damage the reputation of DCC. It could also hamper its future margins.
• The payment of dividends could affect the Company’s liquidity.
  

Q1 FY2022 management statement (released on 16 July 2021)

• DCC continued its strong momentum of FY2021 in Q1 FY2022. It traded well in Q1 FY2022.
• Driven by the recovery of volumes, DCC LPG achieved good growth in operating profit in Q1 FY2022.
• Due to an excellent performance in North America, DCC technology delivered very solid growth in operating profit in Q1 FY2022.
• Driven by these strong results, overall operating profit growth exceeded expectations.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

During Q1 FY2022, the Company had a resilient performance, with DCC technology and DCC Healthcare achieving very strong organic profit growth. These strong performances provide confidence to the management for FY2022. Hence, the management wants to continue its development activity and deliver another solid operating profit growth in FY2022. Meanwhile, the stock made a 52-week low and high of GBX 4,943.00 and GBX 6,920.00, respectively.

Considering the resilient performance by the Company amid the macroeconomic challenges, the acquisitions made by the Company, and support from valuation as done using the above method, we have given a “HOLD” recommendation on DCC Plc at the current market price of GBX 6,112.00 (as of 24 August 2021 at 7:30 AM GMT), while we will revisit our stance based on further corporate announcements by the Company.

Tate & Lyle Plc

Tate & Lyle Plc (LON: TATE) is listed on the FTSE 250 index. It is a food producers company that provides solutions and ingredients for food, beverage and industrial markets.

The last dividend of GBX 22.00 per share was paid on 6 August 2021 (final dividend).

Investment Rationale for Valuation – Buy at GBX 714.00

• The Company is re-positioning itself as a growth business to pursue exciting opportunities in speciality food and beverage solutions.
• TATE completed two acquisitions in FY2021, which broaden TATE’s presence in the Asian market.
• On the profitability front, the net margin since H2 FY2019 has been higher than the industry median of 4.8%.
• On the liquidity front, the current ratio since H2 FY2019 has been higher than the industry median of 1.53x.
• On the technical front, the 14-day RSI at about 36.10 is sustaining above the oversold zone. Hence, there could be an uptick in the stock price in the near term.

Key Risks

• If TATE’s acquisitions fail to bring desired synergies, then it would affect the margins of TATE.
• Any failure to promote healthier products could pose reputational risk and loss of customers.
• Failure to grow food & beverage solutions would prevent TATE from delivering against the targets, affecting its profitability.

Financial Highlights (for the year ended 31 March 2021 (FY2021), as of 27 May 2021)

(Source: LSE Website)

• Driven by strong customer demand for ingredients, revenue for Food & Beverage solutions in FY2021 rose 6% YoY.
• Due to pricing pressure, revenue in Sucralose was down 2% YoY in FY2021.
• Covid-19 induced lower volume resulted in revenue from Primary products declining 2% YoY in FY2021.
• Overall, these led to total adjusted revenue rising 1% YoY in FY2021. Furthermore, due to the lower effective tax rate, adjusted diluted EPS surged 12% YoY in FY2021.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

TATE has expanded its presence and customer offering in Asia. Also, the management recognises the good potential for growth for its Primary Products and expects another year of growth from Food & Beverage solutions. There could be further productivity benefits as the pandemic situation improves. Meanwhile, the stock made a 52-week low and high of GBX 587.20 and GBX 821.20, respectively.

Based on the re-positioning of the Company as a growth business, its resilient performance, decent prospects of the Company, and support from valuation as done using the above method, we have given a “BUY” recommendation on Tate & Lyle Plc at the current market price of GBX 714.00 (as of 24 August 2021 at 7:40 AM GMT), with a lower double-digit upside potential based on 15.11x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

GB Group Plc

GB Group Plc (LON: GBG) is listed on the FTSE AIM All-Share index. It provides a range of solutions to its clients for validating and verifying the location and identity of their customers.

In October 2021, GBG would release its pre-close trading statement.

The last dividend of GBX 3.40 per share was paid on 3 August 2021 (final dividend).

Investment Rationale for Valuation – Hold at GBX 880.00

• The continuing consumer shift to greater online activity provides a tailwind for GBG, growing its business.
• The Company continues to invest in channel-to-market capacity and technology to enhance its growth-focused capabilities.
• On the profitability front, GBG has a higher net margin than the industry median of 9.9% in H2 FY2021.
• On the leverage front, GBG has a lower debt/equity ratio than the industry median of 0.14x in H2 FY2021.
• In the last six months, the stock has outperformed its benchmark FTSE AIM All-Share index.
• On the technical front, the 20-day EMA at about GBX 869.90 is below the stock price. Hence, there could an uptick in the stock price in the near term.

Key Risks

• Any disruptive technology by a competitor could take away the market share of GBG, affecting its margins.
• Any breach in data security could damage the reputation of GBG. It could also hamper its future margins.
• The payment of dividends could affect the Company’s liquidity.

AGM Statement (released on 29 July 2021)

• GBG has made a good start to FY2022, driven by consumer activity shifting online supporting its businesses.
• Consumption volumes in Q1 FY2022 were strong, driven by the increase in global cryptocurrency activity.
• GBG has a strong balance sheet. The Company’s net cash and treasury deposits stood at £37.7 million in Q1 FY2022.
• The Company also has £110 million of unutilised revolving credit facility.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

During Q1 FY2022, the Company had a resilient performance, with all the three business units achieving growth driven by continuing consumer shift to greater online activity. GBG has a strong balance sheet, which provides confidence to the management for FY2022. Hence, the management wants to accelerate its investment in further growth-focused capabilities. Meanwhile, the stock made a 52-week low and high of GBX 673.00 and GBX 999.00, respectively. 

Considering the continuing investment by the Company amid the macroeconomic challenges, the tailwind from the greater online activity by the consumers, and support from valuation as done using the above method, we have given a “HOLD” recommendation on GB Group Plc at the current market price of GBX 880.00 (as of 24 August 2021 at 7:30 AM GMT), while we will revisit our stance based on further corporate announcements by the Company.

*All forecasted figures and Peer information have been taken from Refinitiv.

*The reference data in this report has been partly sourced from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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