Vodafone Group PLC

Vodafone Group Plc (VOD) is a telecommunication company, headquartered in the United Kingdom. It provides a range of services including mobile communication, fixed communication, unified communication, internet of things (IoT), cloud hosting and security & carrier services. The company is mainly operating in two geographies, AMAP (Africa, the Middle East and the Asia Pacific) and Europe which comprise of 24 countries.

On 5^th February 2020, the company will announce the trading update for the quarter ended 31 December 2019.

Financial Highlights (for the six months ended 30 September 2019, €million)

(Source: Interim Reports, Company Website)

For the six months ended 30 September 2019, the company’s reported revenue surged by 0.4 per cent to €21.9 billionas compared with the corresponding period of the last year, due to the benefiting from the acquisition of Liberty Global's assets in Central & Eastern Europe and Germany. Whilst the company organic service revenue surged by 0.3% and returned to progress in the second quarter, due to the continued progress in Vodafone Business, market share gains in Europe Consumer fixed, and robust mobile data demand and client base progress in Emerging Consumer. Adjusted EBITDA surged by 1.5 per cent to €18.5 billion in H1 FY20against the €18.3 billion in H1 FY19, while organic adjusted EBITDA was up by 1.4 per cent, reflecting €0.2 billion operating expense savings in Europe and common functions. The loss for the H1 FY2020 period stood at €1.9 billion mainly driven by the losses in relation to Vodafone Idea post an unfavourable judgement as compared to the industry by the Supreme Court (SC) in India. Basic loss per share was reported at 7.24 eurocents in H1 FY20 versus 28.89 eurocents in H1 FY19, while adjusted earnings per share stood at 0.85 eurocents in H1 FY20. The interim dividend stood at 4.50 eurocents per share, equivalent to 50 per cent of the financial year 2019 total dividend payout. In H1 FY2020, the free cash flow stood at €34 million, and net debt was €48.1 billion.

Share Price Performance
 
Daily Chart as at November-12-19, before the market closed (Source: Thomson Reuters)

On 12^th November 2019, Vodafone Group PLC shares were trading at GBX 163.90 at the time of writing before the market close (at 11:35 AM GMT), up by 2.26% against the previous day closing price. Stock's 52 weeks High and Low are GBX 171.78/GBX 122.22. The company's stock beta was 1.19, reflecting the higher volatility as compared to the benchmark index.

Conclusion
The upgrade to 5G network, will cost billions in spectrum and deployment across all of Vodafone’s markets. The company has also acquired a Liberty Global business in Germany. In FY2020, the company is expecting between €14.8- €15 billion of adjusted EBITDA, reflecting lower single-digit organic growth and free cash flow of approximately €5.4 billion. Pro-forma financial leverage, excluding the INWIT transaction is anticipated to be around 3.0x at the year-end and the intention to decrease the leverage towards the lower end of the 2.5x-3.0x range within the next few years. The digital transformation is already generating a healthier experience for the clients, enhancing the differentiation, supporting growth and at the same time decreasing the structural costs.

In most of the major European markets, the company has now secured network sharing agreements.The company released a key long-term wholesale collaboration with Virgin Media in the United Kingdom, in order to enhance the use of the network assets. In May 2020, the company anticipate the European TowerCo to be operational and continue to unlock the substantial value implanted in the tower infrastructure.

Despite a decent rise in the stock over the last couple of months, the 14-day Relative Strength Index of the stock is hovering in a neutral zone and strengthening the further upside move in the stock price.

Therefore, based on the current trend in the stock and with reduced balance sheet risks, we have given a "Hold" recommendation at the closing price of GBX 160.28 (as on November 11, 2019).
 

AVEVA Group PLC

The software and computer service provider AVEVA Group Plc (AVV) was incorporated in 1967 and is headquartered in Cambridge, United Kingdom. Company is engaged in providing engineering, design and information management software with geographical presence in the Asia Pacific, Americas and Europe and EMEA.

Financial Highlights (for the six months ended 30 September 2019, £million)

(Source: Interim Reports, Company Website)

In the first half of the financial year 2020, the company’s reported revenue surged by 16.5 per cent to £391.9 million as compared with the corresponding period of the last year, while recurring revenue surged by 42.1 per cent to £242.5 million in H1 FY20(H1 FY19: £170.7 million). On a constant currency basis, the organic revenue growth of 11.9 per cent reflected robust sales execution and benefited from initial contract renewals. The increase in revenue was because of the good growth across all geographic areas with the Asia Pacific showing strength. Each of the Business Units also increased, with particularly robust growth in Engineering. In H1 FY20, the adjusted EBIT surged by 66.5 per cent to £90.6 millionagainst the £54.4 million in H1 FY19, driven by the revenue growth, higher gross margin and operational leverage. Adjusted EBIT margin was reported at 23.1 per cent, an increase of 690bps from the corresponding period of the last year. The profit before tax was £24 million in H1 FY20versus a loss of £5.5 million in H1 FY19. The adjusted diluted earnings per share surged by 65 per cent to 43.31 pence against the 26.25 pence in H1 FY19, while reported diluted earnings per share stood at 11.13 pence in H1 FY20. Interim dividend per share was up by 10.7 per cent to 15.5 pence in H1 FY20.

Share Price Performance

Daily Chart as at November-12-19, before the market closed (Source: Thomson Reuters)

On 12^th November 2019, AVEVA Group PLC shares were trading at GBX 4,364 at the time of writing before the market close (at 10:20 AM GMT), up by 2.49% against the previous day closing price. Stock's 52 weeks High and Low are GBX 4,434/GBX 2,264. The company's stock beta was 1.44, reflecting the higher volatility as compared to the benchmark index.

Conclusion
Demand for the company’s products is decent,due to the stable conditions in key end markets and continuing digitalisation of the industrial world. The company's combined product offering is seeing increasing industry recognition. Against this backdrop, the benefits of integration and measures taken to drive progress, enhance revenue mix and increase margin will have a positive effect. The company's order pipeline is decent.

There are several potential risks and uncertainties which could have a material impact on the company's long-term performance. Unfavourable changes in the foreign currency exchange rates will likely to increase the expenses of the company. The company’s success depends on its ability to provide high quality and reliable products and services. The company's products and services are characterized by rapid technological changes, which may affect its business operations. Moreover, the company’s stock is trading near a 52-week high, raising doubts at its upside potential at the current price level.

Based on the above rationale, we have given a "WATCH" recommendation at the current price of GBX 4,364 (as on 12th November 2019, before the market close), with support from few catalysts needs to be evaluated at a later stage.

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