Unite Group Plc (UTG)

Unite Group PLC (UTG) is a Bristol, United Kingdom-based manager and developer of student accommodation with approximately 130 properties across 22 leading university towns and cities in the UK. As on April-11-2000, shares of the company got listed on the main market of the London Stock Exchange. APG Asset Management NV, The Vanguard Group, Inc. and BlackRock Investment Management (UK) Ltd. are the major institutional shareholders in the group. (Source: TR)
               
Interim Results: (H1 FY19, £m)

Source: Company filing

The proposed acquisition of the Liberty Living will enhance the group's portfolio with a gross asset value of £7bn, including around 75,000 beds all across the UK. The proposed acquisition will cost the company around £1.4bn. At the pre-tax level, the group's profit narrowed to £125.5m against £142.5m recorded in the year-ago period. Also, the debt levels soured up to £897m and increased by 16.4% on a YoY basis. This shows an ongoing level of development activity. The cost-to-debt ratio of the group during the period under consideration remained stable at 3.8% and expected to reduce to 3.4% on a fully drawn basis. Dividend declared during the period stood at 10.25 pence and recorded an increase of 8% on a YoY basis.

Stock Performance

Daily Price Chart (as on July 24, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 11:59 AM GMT), shares of UTG were quoting at GBX 1,076 and remained flat against the previous day closing price. Shares have registered a 52w high of GBX 1,090.0 and in the past one year, its shares have registered a 52w low of GBX 793.0 respectively.

Valuation Methodology
 

Conclusion
Growth seems to be already priced in, and risks are inflating for the Group. However, the group has reported decent growth in term of revenue and margins in the H1FY19, and future prospects are also looking good as company is expanding its portfolio assets, number of beds and witnessing good demand. But what we understood that this growth is already priced in, as at the current trading level its shares were trading at a considerable premium, compared to its peers, i.e. the Price-to-Book value of the company stood at 1.37x, whereas Industry median stood at 1.0x and  trailing twelve months EV/EBITDA of the company stood at 56.25x, whereas industry media was at 35.2x, which indicates the market is already paying substantial premium to this stock and the valuation has been stretched higher.

After confirmation of Boris Johnson as the new British Prime Minister, the chances of Brexit have heightened, being it with deal or without a deal but it is now carrying high probability to be exercised on October 31. A no-deal Brexit could create passporting issues for the EU bloc students, those who now can travel freely across the EU countries without carrying any passport and a plunge in sterling could have a substantial impact on the group's top-line as its geographical area of operation is limited to the UK only.

Also, the net debt level has risen sharply during the H1FY19 to £897m from £770m, which is above the full-year net debt of FY18. However, the group is carrying strong ability to serve its debt liabilities effectively as the Net-debt-to-EBITDA ratio at the end of the H1FY19 stood at 6.0x.

Therefore, on the basis of above discussed metrics and valuation done using the above methodology, we have given a "Avoid" recommendation at the closing price of GBX 1,076 (as on July 23, 2019), based on 24.09x NTM EV/EBITDA multiple (approx.) on the FY19E EBITDA (approx.)

Beeks Financial Cloud Group Plc (BKS)

Beeks Financial Cloud Group Plc (BKS) is an AIM-listed software and computer services company and is primarily engaged in providing automated trading infrastructure services in the Forex, Futures, Equities, Fixed income and cryptocurrency financial products offerings to the domestic and global clients. As on November-27-2017, shares of the Beeks Financial Cloud Group got listed on the AIM segment of the LSE for trading. Hargreave Hale Ltd., Octopus Investments Ltd. and Liontrust Investment Partners LLP are some of the major institutional investors in the company. (Source: TR).

Recent Deals
As on May 09, 2019, the group notified about the acquisition of a US-headquartered online service provider- Commercial Network Services (CNS). This transaction costs up to $1.4m to the Beeks Financial Cloud Group. The acquired company specialises in providing an algorithmic trading system with a retail client base of approximately 1000 traders, with annual recurring revenue of $1m. This transaction would help the group to extend its reach in the retail offering.

Recent Updates
In an exchange filing made by the company as on July 23, 2019, the group notified that it has contracted with two tier-1 clients, one is a global investment management organisation, and another one is global bank to provide managed connectivity to support fixed income platforms. The deal will worth approximately £0.5m over the initial period of two-years.

Also, in the same exchange filing, the group mentioned that its performance in the second half of FY19 was broadly in line with the group’s expectations and detailed results will be released by late August.

Interim Performance- (H1 FY19, £m)

Source: Company filing

Led by strong growth in the recurring revenue during the period under consideration, the company’s revenue surged by 36.2% to £3.5m on a YoY basis, out of which 99% was recurring revenue. On account of previous investments made in the capacity expansion that has now contributed in the revenue generation and  took the Annualised Committed Monthly Recurring Revenue (ACMRR) from £5.93m in H1FY18 to £7.45m in the H1FY19 and recorded a growth of 25.6% and gross margin improved by 190bps on a YoY basis. Driven by complete organic growth, the company’s underlying EBITDA leapt up by 49.2% to £0.94m and underlying basic earnings per share jumped by 88.2% to 0.96 pence/share. During the period under consideration, the company proposed its first maiden dividend of 0.20 pence/share.

Stock Price Performance

Daily Price Chart (as on July 24, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 02:04 PM GMT), shares of the BKS were up by 0.83% against the previous close and trading at GBX 90.74. In the year-ago period, its shares have registered a 52w high price of GBX 146.73 and a 5w low price of GBX 66.0. On a YoY basis, its shares have delivered a price return of approximately 28.57%, and in the past five trading session, the stock was up by 12.50% with substantially increased volume in the last five trading session.

Valuation Methodology


Conclusion
Over the past four quarters, the company's top-line has increased with a CAGR of 18%, and Gross profit has surged with a CAGR of 23% during the same period. Also, its performance in the first half of the FY19 was stellar and propped its maiden dividend during the period that shows the decent financial position of the company.

The group has a larger revenue contribution from the institutional clients, in which they are expanding their reach further and recently secured two contracts from tier-1 clients. Also, the acquisition of Commercial Network Services (CNS) will add yearly £1.0 recurring revenue to the company’s top-line in the initial two-year period and enable the company to expand their retail footprints as well.

Also, its revenue is not restricted to the UK boundaries instead diversified into many geographies, which will prevent the company when the seasons will turn rough for the UK amid growing uncertainties upon Brexit, also any fall in the pound value against the US dollar would benefit the company.

However, a slowdown in the global economy and chances of UK to drag down into recession could have a material impact on the group's performance.

Therefore, based on the decent performance, promising future growth prospects and valuation done using the above methodology, we have given a “Speculative Buy” recommendation at the closing price of GBX 90.0 (as on July 23, 2019), with lower double-digit upside potential, based on the 6.68x NTM Industry Median EV/Sales multiple (approx.) on the FY19E Sales (approx.).

*The Speculative Buy recommendation is also valid for the current price as on July-24-2019.

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