CRH PLC

Ireland-based CRH PLC (CRH) is a leading global diversified building materials company. The group's operations are differentiated in three segments: Americas Materials, Building Products, and Europe Materials.

On November 26, 2019, the company will release the trading update.

Recent News
On 26^th September 2019, the company declared that Richard Boucher was appointed as a Chairman Designate on September 25, 2019.Boucher will succeed the current Chairman, Nicky Hartery, on January 1, 2020.

Financial Highlights (six months ended 30 June 2019, €million)
For the first half of 2019, the company’s revenue surged by 11% from €11.944 billion in H1 FY18 to €13.217 billion in H1 FY19, while on a like-for-like basis, it surged by 3%. Revenue increased because of a surge in all the three divisions. The EBITDA margin increased to 11.7% in H1 FY19 against the same period in the last year. From continuing operations, the earnings per share surged by 50.6% to 67.8 cents as compared with the corresponding period of the previous year. For the H1 ended 30 June 2019, the company has proposed a dividend per share of 20 cents, a slight increase from the 19.2 cents in H1 FY18. The divestments and asset disposals created a total profit on disposals of €171 million in the current period, a surge from the same period in 2018.

Share Price Performance

Daily Chart as at October-23-19, before the market closed (Source: Thomson Reuters)

On 23rd October 2019, CRH PLC shares were trading at GBX 2,751 at the time of writing before the market close (at 8:30 AM GMT), up by 1.29% against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,889/GBX 1,960.56. The company’s stock beta stood at 1.14, reflecting the higher movement of the stock as compared to the benchmark index.

Conclusion
In the first half of 2019, the company has delivered substantial profit growth, with a robust contribution from recent acquisitions and decent performance in the heritage business. There is a potential risk to the supply chain in case of no-deal Brexit. In all the three segments, the company expected to increase its EBITDA from the previous year period. The group’s board intends to continue the share buyback programme with an additional tranche of 350 million pounds and will be completed by year-end. The share buy-back programme will bring the total share repurchases to 900 million pounds in 2019. Through the continued robust cash generation and financial discipline, the company anticipated that the debt composition to be below the normalised levels by the year-end. In the second half of 2019, the company expect additional progress with gains from positive underlying momentum in all the segments and have a good contribution from the acquisitions.

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 2,716 (as on 22nd October 2019).
 

Compass Group PLC

The United Kingdom-headquartered Compass Group Plc (CPG) is a consumer support services company. Its areas of operations are divided into segments like North America, Europe, Rest of the world and Central activities.

On 26^th November 2019, the company will announce the full-year results.

Q3 FY19 Trading Update (as on 25^th July 2019)
The company updated its trading update for the three months ended to June 30, 2019. Led by decent performance of the company in North America, the group is eying for an organic revenue growth in between 4-6% range for the full-year FY19. However, gross margin is estimated to remain flat against the previous financial year. During the three months under consideration, the company recorded an organic growth of 6.3%, primarily led by a decent revenue growth in the North America with improved performance in the Rest of the World. For the nine months ended as on June 30, 2019, the group’s organic revenue was up by 6.5% against the comparing period of the corresponding financial year. Around £100m was invested in the Q3 FY19 to ramp up acquisition mainly in Europe and in the past nine-months, the total amount invested by the company for acquisitions stood at £470m respectively.

Share Price Performance

Daily Chart as at October-23-19, before the market closed (Source: Thomson Reuters)


On 23rd October 2019, Compass Group PLC shares were trading at GBX 1,951 at the time of writing before the market close (at 9:20 AM GMT), up by 0.52% against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,150/GBX 1,467.50. The company’s stock beta stood at 0.86x, reflecting the lower movement of the stock as compared to the benchmark index.


Conclusion
Revenue growth in Rest of World is improving, and in North America is excellent. The company remain mindful of the macro uncertainty in parts of Europe and its effect on the business. The company continue to be excited about the substantial structural market prospects internationally and the potential for further revenue, margin and profit growth combined with additional returns to shareholders over time.


Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 1,941 (as on 22nd October 2019).
 

IMI PLC

United Kingdom-based IMI PLC (IMI) is a specialized engineering group. The group is involved in manufacturing, servicing, and designing engineered products that manage the accurate movement of fluids. The company’s operations are differentiated in three operating segments, namely IMI precision engineering, IMI Critical Engineering, and IMI hydronic engineering.

On 7^th November 2019, the company will announce the interim management statement.

Recent News
On 20^th August 2019, IMI PLC of the UK acquired PBM Inc, an Irwin-based manufacturer of industrial wales for a total consideration of US$85 million. This transaction was completed on 23^rd September 2019.

Financial Highlights (six months ended 30^th June 2019)
In the first half of 2019, the company’s adjusted revenues decreased by 1% to £910 millionas compared with the corresponding period of the last year, due to £18 million lower divisional results offset by £13 million favourable exchange movements. Organic revenues were down by 3% in H1 FY19. Adjusted basic EPS reduced by 2% to 32.1 pence against the same period in 2018, while statutory basic EPS surged by 4% to 28.4 pence in H1 FY19. Adjusted operating cash flow rose by 49% to £101 million in H1 FY19against the £68 million in H1 FY18. Interim dividend per share stood at 14.9 pence, an increase of 2% from the previous year same period data. In H1 FY19, the net Debt of £516 million (2018: £459 million) resulted in a Net Debt to EBITDA ratio of 1.5x.

Share Price Performance

Daily Chart as at October-23-19, before the market closed (Source: Thomson Reuters)

On 23rd October 2019, IMI PLC shares were trading at GBX 980.20 at the time of writing before the market close (at 10:42 AM GMT), up by 1.05% against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,080.50/GBX 867.50. The company’s stock beta stood at 1.12, reflecting the higher movement of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
In H2 FY19, the company continue to anticipate that organic revenue will decrease like that in H1 FY19. However, the second half of 2019 profits are anticipated to remain the same against the previous year, backed by the business enhancement initiatives pursued by each of the three divisions. The company will face several risks and uncertainties, which could have a material effect on the company’s long-term performance. Based on the present market conditions, the company expect that the full-year 2019 results will be in-line with anticipations.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 980.20 (as on October 23, 2019, before the market close), while we look for any upcoming catalysts in the near term.

Morgan Advanced Materials PLC

Morgan Advanced Materials PLC (MGAM), is a Windsor, United Kingdom-based engineering company. The group is engaged in engineering of composites, carbon and ceramics, and advanced materials science. The company’s business is differentiated in three segments: North America, Europe and Asia/Rest of World.

Financial Highlights (for the six months ended 30 June 2019)
For the six months ended 30 June 2019, the company’s revenue stood at £525.8 million, an increase of 2.2% on a reported basis as compared with the corresponding period of the last year, due to an increase in the foreign exchange and underlying business. On an organic constant-currency basis, the revenue surged by 1.0%. Headline earnings per share growth stood at 3%, reflecting an increase in the operating profit. Interim dividend per share was 4 pence and remained the same against the corresponding period of the last year. In H1 FY19, the cash generated from continuing operations surged by 10.7% to £61.1 millionagainst the same period in 2018.

Share Price Performance

Daily Chart as at October-23-19, before the market closed (Source: Thomson Reuters)

On 23rd October 2019, Morgan Advanced Materials PLC shares were trading at GBX 233.70 at the time of writing before the market close (at 11:45 AM GMT), up by 0.47% against the previous day closing price. Stock's 52 weeks High and Low are GBX 287.60/GBX 229.60. The company’s stock beta stood at 1.16, reflecting the higher movement of the stock as compared to the benchmark index.

Valuation Methodology

*Peers: Bodycote PLC, Vesuvius PLC, RHI Magnesita NV, and TT electronics PLC.

Conclusion
The company’s outlook seems to be challenging due to macroeconomic and political concerns and the sluggish economic growth rate. However, the company made good progress in the implementation of strategy, continued investments in the research and development and streamlined operational processes. Based on the current condition, the company anticipate revenues to be broadly flat in H2 FY19 as compared to the previous year. For the full-year 2019, the expectations of profitability remain unchanged. In the first half of 2019, the Group’s headline operating margins slightly increased from the prior year.

Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 232.60 (as on 22nd October 2019) with lower double-digit upside potential based on 9.83x Peers Average NTM Price to Earnings (approx.) on FY19E earnings per share (approx.).

 
* All forecasted figures and peers have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 23rd October 2019).

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