BT Group

BT Group Plc (LON: BT.A) is an FTSE 100 Company, which provides communication and connectivity services. It provides services related to broadband, fixed-voice, mobile and TV to the consumers in the United Kingdom.

The Company will release Q3 FY2021 results on 4 February 2021.

Investment Highlights - BT Group Plc – Buy at GBX 119.44

• Despite the Covid-19 crisis, the Company delivered a strong operational performance and a relatively strong financial performance and reached a record level with 3.5m FTTP.
• In the last six months, the Company delivered a decent return of ~ 17.20% and delivered higher returns compared to the benchmark Index (FTSE-100 Index).
• As per valuation metrics, EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow and Price/Book Value multiples of the BT Group Plc are currently lower as compared to the corresponding multiples of the Telecommunication Services industry. It reflects, shares are undervalued as compared to the industry.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (104.38), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Company’s financial performance is impacted by the risks related to foreign exchange, interest rates, funding and liquidity and counterparties risk.
• The confidence of investor and future strategy can be impacted by changing political conditions. 

Financial & Operational Highlights – H1 FY2021 (30 September 2020) (released on 29 October 2020)

(Source: Interim Report, Company Website)

• In the first half of the financial year 2021, the Company has a relatively resilient revenue. The revenue declined by 8%, due to the impact of covid-19.
• The adjusted EBITDA declined by 5%, due to lower revenue offset by savings from the modernisation programme, sports rights rebates and other cost initiatives.
• The Company has shown strong operational performance, despite the covid-19 pandemic, the 5G-ready customer base exceeds 1 million and is live in 112 cities and towns.
• The Company entered into a partnership with Belfast Harbour for the deployment of private 5G network.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Despite a decline in the financial performance in the first half of the financial year 2021, the Company delivered a strong operating performance and is committed to supporting colleagues and customers. Based on improved operational performance, the Company expect to reach the lower end of the range for EBITDA outlook for FY2021 and expects EBITDA of around £7.9 billion in FY2022/2023. The Company’s investment in the network has helped in doubling the number of Openreach's FTTP orders versus last year and the 5G network expanded to 112 cities and towns in the United Kingdom. The stock made a 52-week low and high of GBX 94.68 and GBX 209.20, respectively.

Based on the above rationale and support from the valuation as done using the above method, we have given a “BUY” recommendation for BT Group Plc at the current price of GBX 119.44 (as on 12 November 2020, before the market close at 8:10 AM GMT), with lower double-digit upside potential based on 7.20 Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

Moneysupermarket.Com Group Plc

Moneysupermarket.Com Group Plc (LON: MONY) is an FTSE-250 listed Company, which provides price comparison services through three brands – TravelSupermarket, MoneySuperMarket, and MoneySavingExpert.

Investment Highlights - Moneysupermarket.Com Group Plc – Buy at GBX 262.40

• During the Q3 FY2020, the insurance and motor business performed well, along with robust operating cash flows and a strong balance sheet.
• As per valuation metrics, EV/EBITDA, Price/Earnings and Price/Cash Flow multiples of the Moneysupermarket.Com Group Plc are currently lower as compared to the corresponding multiples of the Software & IT Services industry. It reflects, shares are undervalued as compared to the industry.
• Over the course of 6 years (Q3 FY14 – Q3 FY20), the company’s revenue surged from GBP 66.8 million in Q3 FY14 to GBP 85.1 million in Q3 FY20, the growth trajectory of ~4.12 per cent.
• From the technical standpoint, shares were trading well above the support level of 20-day simple moving average prices (253.60), which reflects an uptrend in the stock and can move up further.

Key Risks

• The Company may experience operational glitches, which may result in the transfer of incomplete or incorrect data to or from partners, which could negatively impact brands reputation.
• The operations may be impacted by an increase in the competition as it operates in a highly competitive and dynamic marketplace.

Trading Update for Q3 FY2020 (30 September 2020) (released on 22 October 2020)

• In the third quarter of the financial year 2020, the Company’s revenue decreased by 16%, due to ongoing COVID-19 disruption.
• The trading dynamics were similar to the second quarter of 2020, with low product availability and tightened lending criteria in banking. However, MONY saw good levels of search demand for lending products.
• The Company witnessed a strong balance sheet and robust operating cash flows, with a net cash position of £5 million as on 30 September 2020.
• Overall, Insurance business was slightly ahead of June 2020 and consistent through the quarter, with a strong performance in Motor.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Despite the lower revenue, the Company witnessed an improvement in Motor and Insurance businesses. The Company witnessed a little improvement in lending criteria or banking product availability. MONY has a strong cash conversion, with robust operating cash flows. Overall, the Company seems to be well-positioned to deliver growth in future and to navigate through an uncertain period. The stock made a 52-week low and high of GBX 210.00 and GBX 368.85, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Moneysupermarket.Com Group Plc at the current price of GBX 262.40 (as on 12 November 2020, before the market close at 8:30 AM GMT), with lower double-digit upside potential based on 22.75x Price/NTM Earnings(approx.) on FY20E earnings per share (approx.).

 

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

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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