Experian Plc

Experian Plc (LON: EXPN) is an FTSE 100 listed information service company with global operations. The Company segments its geographic operations into the United Kingdom, North America, Latin America, Ireland, and EMEA/Asia Pacific.

The Company will announce interim results on 17 November 2020.

Investment Highlights – Expensive at GBX 2,924

• With an increase in the investment in innovation agenda, the Company expects organic growth in costs in H1 FY2021 from 2% to 3%.
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Cash Flow multiples of the Experian Plc are currently higher as compared to the corresponding multiples of the Professional & Commercial Services industry, reflecting overstretched valuations.
• The Company has a Debt/Equity ratio of 1.94% in FY2020 and is continuously increasing on year-on-year basic from 2017, reflecting an increase in the debt in the capital structure, and is ahead of industry median of 0.74%.
• From the technical standpoint, 14-day RSI is currently in an overbought zone (around 64 level), which means the stock price could decline in the short term.

Key Risks

• Any change in government policy or regulation could impact the overall business of the company.
• The company’s operations are impacted negatively due to uncertain political and economic climate for short to medium term.

Update on Trading Performance for Q2 FY2021 (released on 8 September 2020)

• The Company has changed its revenue guidance for Q2 FY2021 to be in the range from 3% to 5% growth from previous guidance of 5% decline, driven by strong trading performance in July and August 2020.
• The Company’s performance was further improved by strength in the services provided to customers, strength in US mortgage and resilience of portfolio.
• The Company expects an organic costs growth of in between 2% and 3% in the first half of FY2021, driven by continued investment in innovation agenda.

One Year Share Price Chart

Daily Chart as of 8 September 2020, after the market close (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company stated in July 2020 that it expects a decline of 5% in revenue in the Q2 FY2021. Driven by strong trading performance in July and August, EXPN changed guidance for the second quarter and is expecting revenue growth of 3% to 5%. The performance was also supported by resilience of portfolio, strength in US mortgage and strength in the services provided to customers.

The Company expects organic costs growth between 2% and 3% in H1 FY2021 and continue to make an investment in the innovation agenda. Presently, the Company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of GBX 1,823.50 and GBX 2,956.00, respectively.

Based on the factors as highlighted above, we believe the stock of Experian Plc is “Expensive” at the closing price of GBX 2,924.00 (as on 8 September 2020), with support from few catalysts needs to be evaluated at a later stage such as improving trading conditions and customer services.

JD Sports Fashion Plc

JD Sports Fashion Plc (LON: JD.) is an FTSE 100 listed sports fashion retailer. It deals in multi-branded sports fashion and outdoor clothing along with footwear and equipment.

Investment Highlights – JD Sports Fashion Plc – Expensive at GBX 795.80

• Despite the sales retention in unprecedented times, the profitability has declined for the period and is making investments in the warehouses, which will impact the liquidity position, and the Company might not be able to meet its working capital needs.
• As per valuation metrics, EV/Sales, EV/EBITDA, Price to Book Value and Price/Cash Flow multiples of the JD Sports Fashion Plc are currently higher as compared to the corresponding multiples of the Specialty Retailers industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is currently in an overbought zone (around 89 level), which means the stock price could decline in the short term.
• JD Sports Fashion Plc has a dividend yield of 0.04 per cent, which is significantly lower than the industry dividend yield of 1.25 per cent. The Company has a Debt/Equity ratio of 1.66% in FY2020 and is continuously increasing on year-on-year basic from 2016, reflecting an increase in the debt in the capital structure, and is ahead of industry median of 0.84%.

Key Risks

• Due to the supply chain disruption, the rising operating cost is a major concern for the Company.
• Due to Covid-19 pandemic, footfall in malls and shopping centres is quite weak, which could affect financial performance and disrupt the conversion cycle.

Financial & Operational Highlights – H1 Financial Year 2021 (1 August 2020)

(Source: Interim Report, Company Website)

• In the first half of the financial year 2021, the Company managed to retain sales through an unprecedented period, reflecting loyalty and affinity to the brand.
• The Company, through agile omni-channel capabilities, ensured customers to enjoy the experience when switching to online channels.
• witnessed a decline in profitability was due to additional costs incurred to shift to online business and temporary store closures, while the net cash increased for the period.
• The Company experienced strong demand for Finish Line in the US market, continue to make an investment in the warehouse in Rochdale to enhance online business and reduce the operational impact of social distancing.
• The Company’s small test warehouse get operational in Belgium, to help its long term supply chain strategy for the European region.

One Year Share Price Chart

Daily Chart as of 8 September 2020, after the market close (Source: Refinitiv, Thomson Reuters)

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

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2021. Both the top-line and the bottom-line performance declined, with a decline in profitability margins. With the reopening of stores, the performance has stating to improve, while the retail footfall remains weak.

Despite the weak performance, the Company has confidence in its strengths and platform to achieve positive growth. Based on ongoing challenges of attracting footfall, uncertain outlook for consumer confidence and potential for further operational restrictions, the Company expects headline profit before tax to be around £265 million for FY2021 on IFRS 16 basis. Presently, the Company is trading near a 52-week high, raising doubts at its upside potential at current prices. The stock made a 52-week low and high of GBX 274.70 and GBX 890.00, respectively.

Based on the factors as highlighted above, we believe the stock of JD Sports Fashion Plc is “Expensive” at the closing price of GBX 795.80 (as on 8 September 2020), with support from few catalysts needs to be evaluated at a later stage such as improved trading performance with reopening of stores and online platforms.

*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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