Berkeley Group Holdings PLC – Well-positioned to continue delivering for all its stakeholders.

Berkeley Group Holdings PLC (LON: BKG) builds homes, parks, and public places. The Company operates in residential-led, mixed-use property development.

Investment Rationale – Buy at GBX 4,200.00

• Over the past three years (H1 FY18 to H1 FY21), BKG maintained a net margin above 20% and gross margin above 30%, which are substantially higher than the industry median.
• In the past five years, BKG’s stock has delivered a positive return of ~23.69%, which is significantly higher as compared to the ~8.33% return of FTSE 100 Index.
• From the technical standpoint, 14-day RSI stood at 33.49, which is supporting the upside movement.
• H1 FY21 results demonstrated solid balance sheet position and strong forward sales to support the outlook.
• The Company invested in four new sites, maintained resilient trading and long-term view for delivering sustainable value for shareholders.

Risk Assessments

• Another phase of lockdown due to the second wave of COVID-19 outbreak could result in lower demand, a shortage of labour and shut down of operations.
• The performance is also subject to the change in government policy and planning regulations as it can affect the value of land purchasing.

Interim results for the six months ended 31 October 2020 (as on 4 December 2020)

 (Source: Company Website)

• BKG’s performance in H1 FY21 was characterised by the following four features:
  • Firstly, it fulfilled the commitments of all stakeholders despite the Covid-19 disruptions.
  • Secondly, it remained in line of achieving a 15% pre-tax return on equity guidance, while maintaining £280 million annual cash return to shareholders across the cycle, which is underpinned by Berkeley's uniquely long-term operating model.
  • Thirdly, it added four more sites and continued to invest in the business.
  • Finally, it developed a new ten-year vision for the business to ensure Berkeley continues to deliver a positive and lasting contribution to society.
• BKG’s earnings outlook is supported by forward sales which have increased since the year end to £1.94 billion (April 2020: £1.86 billion).

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

Berkeley's financial strength, resilient trading, investment in four new sites, and long-term view shows bright prospects for the Company. Its net cash position of £954 million, future gross margin in land holdings of £6.65 billion and forward sales of £1.94 billion articulates the Company’s financial strength. Overall, the Company has substantial resources in place to navigate through the challenging phase of the pandemic and generate long-term value for shareholders. The stock made a 52-week low and high of GBX 3,041.00 and GBX 5,562.00, respectively.

Based on the above-mentioned factors and valuation methodology, we have given a “BUY” recommendation on Berkeley Group Holdings PLC at the current market price of GBX 4,200.00 (as on 21 December 2020, before the market close at 8.06 AM GMT), with lower double-digit upside potential based 15.50x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Cranswick PLC – Increased interim dividend post solid half-yearly performance.

Cranswick PLC (LON: CWK) is a FTSE 250-listed Food Processor Company. It supplies fresh and value-added food products to the UK grocery retailers and food services.

On 4 February 2021, Cranswick expects to provide its third-quarter trading update for FY21.

Investment Rationale – Buy at GBX 3,426.00

• Over the past four years (H1 FY17 – H1 FY21), the Company’s revenue and gross profit have surged at a CAGR of ~12.54% and ~12.78%, respectively.
• The key trading multiples (EV/Sales, Price/Earnings, Price/Cash Flow and Price/Book) are currently undervalued compared to corresponding multiples of the Consumer Non-Cyclicals industry.
• From a technical perspective, 20-day SMA (43.33) is supporting the upside potential, a short-term rebound can be expected.
• The Company has made Brexit preparations well advanced all business areas.
• Experiencing exceptionally robust demand across all categories.

Risk Assessments

• The change in food consumption patterns or a significant deterioration in the UK economy could lead to a fall in demand for the Group’s products.
• A lack of availability of pig meat or an increase in pig prices could adversely impact the CWK’s operations and the ability to supply the key customers.
• The Board appeared cautious about the uncertainty surrounding the ongoing Brexit negotiations, the longer-term economic impact of COVID-19, and the conclusion of trade deals with other countries.

Recent News:

17 December 2020: CWK announced that it has withdrawn from the acquisition process for Inspired Pet Nutrition Limited.

Interim Results for the 26 weeks ended 26 September 2020 (as on 24 November 2020)

 (Source: Company Website)

• During H1 FY21, the Company maintained a robust financial position and strong trading.
• It witnessed strong revenue growth, earnings momentum, and exceptionally robust demand across all categories.
• The £20 million investment in new Hull cooked bacon facility is now well advanced and progressing as per the plan.
• During the period, total capital expenditure of £35 million spread across the Group's asset base.
• The Company also made positive progress towards meeting its 'Second Nature' sustainability targets.

One Year Share Price Chart

 (Source: chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

During H1 FY21, Cranswick reduced its net debt to £54.6 million (H1 FY20: £67.2 million), while statutory profit before tax was 13.3% higher year-on-year. The statutory EPS reflected 11.9% growth against H1 FY20, and thus, the interim dividend increased by 12.0% to 18.7 pence (H1 FY20: 16.7 pence). Overall, the Group registered a strong start to the year, albeit it remained cautious about the longer-term economic impact of COVID-19 and the continued uncertainty surrounding the ongoing Brexit negotiations. In a nutshell, the Group has a solid platform to continue successful long-term development. Stock 52 week High and Low were GBX 4,126.00 and GBX 2,688.00, respectively.

Based on the factors discussed above, we have given a “BUY” recommendation on Cranswick PLC at the current market price of GBX 3,426.00 (as on 21 December 2020, before the market close at 10.35 AM GMT) with lower double-digit upside potential based 22.72x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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