Connect Group PLC

United Kingdom-based Connect Group PLC (CNCT) is a distributor company. The company operates in magazine and newspaper wholesaling, and varied freight distribution. The operations of the group are differentiated in three core operating segments, namely Smiths News, DMD and Tuffnells. The group’s subsidiaries comprise Dawson Media Direct Ltd., Tuffnells Parcels Express Ltd., and Smiths News Holdings Ltd. The group is a member of the FTSE All-Share.

Trading Update (as 13^th August 2019)
The company’s overall trading was slightly decreased than the market expectations, with a robust performance in Smiths News mainly offsetting a slower turnaround performance in Tuffnells.

On 6^th November 2019, the company will release its preliminary financial results.

Financial Highlights (H1 FY19, £million)

(Source: Interim Reports, Company Website)

In H1 FY2019, the company’s reported revenue decreased by 4.4 per cent to £732.5 millionas compared with the corresponding period of the last year, due to decline in Smiths revenue, DMD’s revenue and Tuffnells’ revenue. The company’s continuing Adjusted operating profit stood at £13 million, a decrease of 27.8 per cent from the previous year same period data.Adjusted profit before tax reduced by 34.4 per cent to £9.9 millionas compared to £15.1 million in H1 FY18, while statutory profit before tax was £3.3 million in H1 FY19.Adjusted basic earnings per share decreased by 36 per cent to 3.2 pence against the 5 pence in H1 FY19. Statutory basic earnings per share reduced by 64.5% to 1.1 pence as compared with the corresponding period of the last year.

The free cash flow (including adjusted items) decreased by 42 per cent to £5.8 millionas compared with the corresponding period of the last year. The net debt stood at £77.5 million, a decrease of 7.3 per cent against the £83.6 million in H1 FY18.

Share Price Performance
 
Daily Chart as at September-03-19, before the market closed (Source: Thomson Reuters)

On 3^rd September 2019, at the time of writing (before the market close, GMT 8:45 AM), Connect Group PLC shares were trading at GBX 38 and decreased by 3.797% against the previous day closing price. Stock's 52 weeks High and Low are GBX 46.39/GBX 30. The company’s stock beta was 0.65, reflecting the lower movement of the stock as compared to the benchmark index.

Conclusion
The company’s operations are impacted by the uncertainty created due to ongoing Brexit and other macro-economic factors. Further, any change in the legislation or regulatory changes also impact negatively on the company’s performance. Although the company’s revenue decreased in the first half of the financial year ending 2019, the profitability margins have remained stagnant or declined. The company’s bottom-line performance had reduced from the corresponding period of the last year. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.

Based on the above rationale, we have given a "Watch" recommendation at the closing price of GBX 39.5 (as on September 2, 2019), while we look for any upcoming catalysts.
 

Cabot Energy Plc

Cabot Energy Plc (CAB), formerly known by the name Northern Petroleum, is an independent upstream oil and gas company. The group explores for, produces, and develops oil and natural gas; and trades assets. The company operates in onshore and offshore projects, including gas producing fields and oil fields. Cabot's operational assets are in Canada, Italy, French Guiana, and Australia.

Trading Update Q2 FY2019
On 20th August 2019, Cabot Energy Plc provided a Q2 and H1 update ending June 30th, 2019. The company’s production (gross averaged) was 485 bopd (barrels of oil per day) versus 761 bopd in H1 FY2018. The production (gross averaged) in Q2 FY2019 was 459 bopd versus 781 bopd in Q2 FY2018. The declined in the production was due to deferred production and decline in field and wells for the period.

The company’s sales volumes in H1 FY2019 was 87,555 bbls against 139,632 bbls in H1 FY2018. The sales volumes in Q2 FY2019 was 41,284 bbls against 73,021 bbls in Q2 FY2018. Edmonton Light Oil sales price declined to US$46/bbl in H1 FY2019 from US$52.83/bbl in H1 FY2018. Cabot's Canadian operations are at cash flow break-even based on the crude oil sales prices for the month of June 2019. The company’s licences in Italy had been suspended due to signing of a decree by the Italian Government, the company is evaluating its Italian portfolio to prioritise The Sicily Channel, and The Adriatic based offshore opportunities.

Financial Highlights – Financial Year 2018 ($, thousand)

(Source: Annual Report, Company Website)
 
The company’s Canadian crude oil revenues surged by 154 per cent to $12.2 million as compared with the financial year 2017 of $4.8 million. Group’s EBITDA improved from a loss of $2.6 million in 2017 to a loss of $2.4 million in 2018, while adjusted EBITDA (adjusting for nonrecurring and exceptional items), improved from a loss of $2.4 million in FY17 to a profit of $0.1 million in 2018. The company’s operating loss for FY2018 was at $5,996 thousand versus an operating loss of $3,741 thousand in FY2017. The loss before tax stood at $6.2 million as compared with the previous year data. The company’s loss for the year 2018 was $6.1 million. Basic and diluted loss per share stood at 0.9 cents against the prior year data.

Share Price Performance

Daily Chart as at September-03-19, before the market close (Source: Thomson Reuters)

On September 3, 2019, at the time of writing (before the market close, at 3:07 PM GMT), Cabot Energy Plc shares were trading at GBX 4.185 and down by 7 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 240.00/GBX 3.30.

Conclusion
The company's operations could be affected by the fluctuations in the prices of oil and natural gas. Such fluctuations could affect the company’s business, operating results and financial condition. Oil prices are dependent on factors beyond the company’s control, including the supply of and demand for oil; weather conditions; and political conditions, among others.

Future oil and gas exploration and production may involve unprofitable efforts, not only from dry wells but also from producing wells, when they are not commercially viable. The combination of technology and recovery cost may be higher than revenue earned owing to production. In addition, drilling hazards and environmental damage could lead to well shut down. 

In the Q2, the company had witnessed a decline in the production due to deferred production and decline in field and wells for the period. The company’s licences in Italy had been suspended due to signing of a decree by the Italian Government. The company is evaluating its Italian portfolio to prioritise The Sicily Channel, and The Adriatic based offshore opportunities.

Keeping in mind the headwinds faced by the company, investors are recommended to “AVOID” the stock at the closing price level of GBX 4.50 (as on 2nd September 2019).

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