DCC Plc

DCC Plc (LON: DCC) is a sales, marketing, distribution and support services group operating primarily in the UK, Ireland and mainland Europe. 

The Company will release interim results on 10 November 2020.

Investment Highlights - DCC Plc – Buy at GBX 5,312.00

• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Cash Flow multiples of the DCC Plc are currently lower as compared to the corresponding multiples of the Support Services industry. It reflects, shares are undervalued as compared to the industry.
• Over the past four years (FY16 – FY20), the Company’s operating profit has surged from GBP 254.26 million in FY16 to GBP 366.64 million in FY20, compounded at an annual growth rate (CAGR) of ~ 9.58 per cent.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 14 level – oversold zone), which means the stock price could increase in the short term.

Key Risk

• The Company fails to develop an IT infrastructure; it could lead to cyber-attacks or frauds and could hamper the reputation.
• The Company operates in multiple locations, and any change in the economic and political policy could hamper the company’s operating performance.

Recent News

On 21 September 2020, DCC announced the expansion of LPG business in the Netherlands and the US.

Interim Management Statement for Q1 (released on 17 July 2020)

• In the first quarter, the Company experienced improvement, and trading stood ahead of management expectations, but remained behind last year performance for the same period, due to imposed lockdown.
• Reflecting lower industrial and commercial volumes in Ireland and Britain, resulting in lower operating profit in LPG business versus last year.
• The demand for domestic and retail cylinder remained strong during the period. The performance of the Retail & Oil business remained good, driven by strong demand in the domestic sector and agricultural customers.
• In the Technology business, the operating profit declined as compared to last year but experienced steady improvement in trading in the Q1. The Healthcare business performed well with increased operating profit.
• The Health & Beauty Solutions witnessed strong demand and were benefited from the acquisition of Amerilab and Ion Labs in the US. Driven by strong demand for products related to covid-19, the DCC vital business performed well. 

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown resilient business performance in the first quarter of the financial years 2020. The Company has a resilient and diverse business model with leading market positions and a strong balance sheet. The trading environment has started to show signs of recovery, and many of the Company’s businesses are performing well. The recent expansion in the US and Netherlands markets will help the Company to increase market share and explore additional growth opportunities. DCC people and operations have responded very well to Coronavirus challenges. The Company is well-positioned to achieve development and growth in the future. The stock made a 52-week low and high of GBX 3,463.00 and GBX 7,548.00, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on DCC Plc at the current price of GBX 5,312.00 (as on 13 October 2020, before the market close at 8:27 AM GMT+1) with lower double-digit upside potential based 18.10x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

WH Smith Plc

WH Smith Plc (LON: SMWH) is an FTSE-250 listed retail Company, which is engaged in high street retail and travel businesses.

The Company will release preliminary results on 12 November 2020.

Investment Highlights - WH Smith Plc – Buy at GBX 962.00

• The Company maintained ROE (Return on Equity) of above 15% from the last 5 years and stood significantly ahead of the industry median of 0.7%.
• Over the course of 4 years (FY15 – FY19), the company’s Operating Profit surged from GBP 124 million in FY15 to GBP 140 million in FY19, compounded at an annual growth rate (CAGR) of ~3.08 per cent.
• From the technical standpoint, 14-day RSI is currently supporting an upside move (around 42 level), which means the stock price could increase in the short term.

Key Risks

• The Company is facing a significant financial impact due to stores closures.
• The next wave of Covid-19 could reduce the demand for non-essentials and also disrupt the supply chain.

Update on Trading Statement (released on 5 August 2020)

• The Company witnessed a gradual recovery after an ease in lockdown restrictions globally, while sales for the period are less than last year data for the same period.
• The Company opened 53% of the UK Travel store estate and is focussed on improving average transaction value.
• SMWH expecting a faster recovery in the US market compared to the rest of the world and accelerated the integration of InMotion head office into Marshall Retail Group (MRG).
• The Company experienced strong online performance and also improved redundancy policy.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

With the ease in lockdown restrictions, the Company has experienced a gradual recovery in the trading environment. The Company expects full-year headline loss before tax to be in-between £70 million to £75 million, following the impact of the covid-19 outbreak in H2 FY2020. The Company has experienced an early sign of recovery in the Travel business. SMWH is well-placed for the long term and will continue to grow the market share in the international travel retail market. The stock made a 52-week low and high of GBX 584.04 and GBX 2,660.00, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on WH Smith Plc at the current price of GBX 962.00 (as on 13 October 2020, before the market close at 10:15 AM GMT+1) with lower double-digit upside potential based 1.89x EV/NTM Sales (approx.) on FY20E sales (approx.). 

 

*Dividend Yield may vary as per the stock price movement.

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

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