Marshall Motor Holdings PLC – Anticipating Gradual Revival in Demand Post Showroom Reopening

Marshall Motor Holdings PLC (LON: MMH) is a FTSE AIM All-Share Listed Company, which deals in automotive retailing. It is engaged in the sale and servicing of commercial and passenger cars along with associated services.

On 16 July 2020, the Company is expected to hold the annual general meeting. Further, the Company plans to announce the interim results (for the six months ending 30 June 2020) in August 2020.

Trading and Covid-19 Update (as on 1 June 2020)

In this update, the Company reported that 62 aftersales operations remained open during the lockdown period, while it was maintaining a retail presence online or through telephone support. Moreover, the Group reopened 117 car showrooms with immediate effect. However, the Company is expecting to report a loss in H1 FY20 due to lockdown. Hence, it has been implementing cost management and cash preservative actions to reduce the financial impact. Regarding the financial position after cost mitigation initiatives, the Company had adjusted net debt of £3.2 million, as of 31 May 2020. Further, the Group had a revolving credit facility of £120 million.

Share Price Performance


1-Year Chart as at 14 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Marshall Motor Holdings PLC’s shares were trading at GBX 122.50 on 14 July 2020 (before the market close at 8.00 AM GMT+1), which remained flat against the last day closing price. Stock 52 week High and Low were GBX 163.29 and GBX 80.00, respectively.

From the technical standpoint, the shares were trading well above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock and carrying the potential to move up further.

Valuation Methodology
 

Risk Assessments

The Company is expecting to report a loss in H1 FY20 due to temporary closure of showrooms during the Covid-19 crisis. The landscape for UK retail market might change ahead due to demand disruption amid weak consumer confidence. Moreover, the Company can face liquidity pressure with a prolonged level of weak demand.

Conclusion

During the FY19, the Company reported decent growth in both top-line and bottom-line items of the income statement. Also, the order book and overall performance prior to the lockdown was robust. Further, it is encouraged with reopening of showrooms and expecting a gradual return to a normalised level of trading. Meanwhile, it will remain focused on cash preservation and cost mitigations due to uncertain demand levels. The financial guidance for FY20 remained suspended considering the continued uncertainties. However, the Company is well-positioned for the opportunities in the long run with a long-standing partnership with the right brands.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Hold” recommendation at the current price of GBX 122.50 (as on 14 July 2020, before the market close at 8.00 AM GMT+1).
 
Topps Tiles Plc - Well-Positioned as the Economy Begins to Recover

Topps Tiles PLC (LON: TPT) is FTSE All-Share listed retailer of tiles, which supplies tiles and associated accessories to both trade and retail customer base for the refurbishment of domestic housing.

On 30 September 2020, the Group will release the full-year trading update.

Q3 FY20 Trading Update (for the 13-week period ended 27 June 2020, as on 1 July 2020)

The Group’s average sales per week were growing from £0.8 million during April 2020 (when all stores were closed) to £3.9 million in the final week of June 2020 (when all stores were trading). However, the average sales per week decreased by 5.4% (on a like for like basis) as compared with the same week in the previous year. The Group stated that the retail trading over Q3 FY20 improved significantly, following the gradual reopening of stores from the end of May 2020. For the third quarter of 2020, the retail revenue stood at £1.9 million, while a decrease of 16% in commercial sales reduced for Q3 FY20. According to the liquidity position at the end of the quarter, the Group had net cash of £3.9 million, with available cash headroom of £52.9 million. Through the sale and leaseback of the central office and warehouse facility, the Group has strengthened the financial liquidity in the current challenging environment. 

Share Price Performance


1-Year Chart as on July-14-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Topps Tiles Plc’s shares were trading at GBX 44.90 on 14 July 2020 (before the market close at 8.05 AM GMT+1), up by 4.42% against the last day closing price. Stock 52 week High and Low were GBX 81.80 and GBX 25.00, respectively.
From the technical standpoint, shares were trading well above the short-term support level of 50-day simple moving average prices, which reflects an upward trend in the stock.

Valuation Methodology



Risk Factors

The Group is exposed to operational risk arising from a loss of customers with increased competition and poor operating performance due to climate change. Moreover, the unfavourable economic conditions can lead to a non-recovery of customer debt. The continuous weakening in home improvement spending has affected the financial performance of the Group. Also, the Company is facing challenging conditions after Covid-19 outbreak. To meet the new regulations, the Group needs to implement new processes, failing to do so would increase the compliance risk.

Conclusion
The Group has shown strong growth in the online business. It has demonstrated the resilience, with revenues ahead of the anticipations, and has shown strong financial liquidity. Furthermore, it has taken significant actions to strengthen financial liquidity. Overall, the Group is on-track as the economy begins to recover. Looking ahead, the Company is well-positioned for the long term. The return on equity (ROE) recorded by the Group in the past several years was considerably above the industry average.

Based on the decent fundamental prospects and support from valuation done using the above method, we have given a “Speculative Buy” recommendation at the current market price of GBX 44.90 (as on 14 July 2020, before the market close at 8.05 AM GMT+1) with lower double-digit upside potential based on 0.6x 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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