Vesuvius Group PLC

Vesuvius PLC (LON: VSVS) provides molten metal flow engineering and technology services. It serves the steel and foundry industries.

Rationale for Valuation – BUY at GBX 532.00

• There was a 100% improvement in the interim dividend, reflecting confidence in the optimized manufacturing footprint, new product pipeline, and ongoing R&D investment to generate substantial value for its shareholders.
• The incremental selling price shown structural growth in its end markets of steel and foundry.
• On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, Price/Book and Price/Cash Flow valuation multiples are undervalued against the median of the Industrials sector.
• From a technical standpoint, the momentum oscillator RSI (~32.17) is in the oversold zone, while the stock price is hovering close to the lower Bollinger Band.

Key Risks

• As 40% of the UK Companies are facing recruitment difficulties, it can create operational challenges in the short-term.
• The UK inflation rate has jumped to 9-year higher in August 2021, which can keep the consumer sentiments subdued.
• The increase in selling prices offset the raw-material costs; however, it didn’t fully mitigate the freight costs in H1 FY21. The resurgence in delta coronavirus variant can exacerbate the supply chain disruption and impact profitability margins.
• There is a likelihood of revenue reduction from reduced end-market access amid a complex and changing regulatory environment.

Interim Results (for the half year ended 30 June 2021, as on 29 July 2021)

 (Source: Company Website)

• During H1 FY21, revenue jumped 18% year-on-year on an underlying basis, reflected recovery in Steel and Foundry Divisions.
• Similarly, trading profit soared 54% year-on-year in H1 FY21 to £73.3 million.
• VSVS continued robust working capital performance and improved Net Debt/EBITDA to 1.1x at the end of H1 FY21 from 1.2x at FY20 end.
• The Group recommended a 100% increase in interim dividend from 3.1 pence in H1 FY20 to 6.2 pence in H1 FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion 

During H1 FY21, VSVS optimized manufacturing footprint established a new product pipeline and continued R&D investments to build a platform for further financial improvements. Vesuvius demonstrated a solid commercial performance in H1 FY21 on the back of market share gains and continued improvement in end markets. However, it also continued to experience inflationary pressure pertaining to raw materials and freight. With incremental selling price, the trading profit in H2 FY21 is expected to be similar to H1 FY21. Beyond FY21, continuing structural growth in end markets shall present attractive organic growth opportunities. The stock made a 52-week High and Low of GBX 595.00 and GBX 380.20, respectively.

Based on the strong commercial performance, end markets recovery, incremental selling prices, market share gains, upcoming growth opportunities, and favourable valuation conducted above, we have given a “BUY” stance on Vesuvius Group PLC at the current market price of GBX 532.00 (as on 17 September 2021, at 8:00 AM GMT+1), with lower double-digit upside potential based on 18.74x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Oncimmune Holdings PLC

Oncimmune Holdings PLC (LON: ONC) is a FTSE AIM All-Share listed Company that develops immunodiagnostics, focusing on immuno-oncology, infectious diseases, and autoimmune disease.

Investment Rationale – SPECULATIVE BUY at GBX 185.00

• The eightfold increase in revenue and equity placing with gross proceeds of £9 million has increased capital to strengthen capacity for future contracts.
• The continued strength of ImmunoINSIGHTS services business shall deliver strong revenue growth in FY22.
• Over the past two years, ONC’s stock price has delivered a return of over 105%, showing significant outperformance against the benchmark FTSE AIM All-Share index.
• From a technical standpoint, the momentum oscillator RSI (~47.55) is around the oversold zone, while the stock price is hovering close to the lower Bollinger Band.

Key Risks

• There are uncertainties regarding the commercial acceptance of products, which could lead to reputational damage and impact growth outlook.
• The heightened level of supply chain disruption can impact the Company’s ability to develop products.

Recent News

Agreement: On 23 July 2021, ONC signed an autoantibody profiling contract with Dana-Farber Cancer Institute to examine SeroTagTM for identifying autoantibodies.

Full Year Trading Update (for the 12 months ended 31 May 2021, as on 8 June 2021)

• During FY21, Oncimmune Holdings reported 8 times increase in revenue on FY20 to £5.6 million.
• The Company also conducted an equity placing to bolster operating capacity and ImmunoINSIGHTS business development.
• It also signed a major ImmunoINSIGHTS contracts for Genentech and Roche Pharmaceuticals.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative) 

Conclusion

ONC has demonstrated excellent top-line growth in FY21 despite the Covid-19 challenges. Over the past eight years, it has kept an average of 40% quarter on quarter growth. The strength of ImmunoINSIGHTS as a stand-alone business shall work as a catalyst to grow the business further. However, the Company has a history of operating losses, which can take some time to be profitable amid the rising level of supply chain disruption and market inflation. Notwithstanding, the outlook for FY22 seems promising with ImmunoINSIGHTS service contracts, which can lead to strategic commercial partnerships. The stock made a 52-week High and Low of GBX 261.63 and GBX 137.51, respectively.

Based on the outstanding top-line growth, FY22 outlook, capital boost with equity placing, and support from the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Oncimmune Holdings PLC at the current price of GBX 185.00 (as on 17 September 2021, at 8:00 AM GMT+1), with lower double-digit upside potential based on 25.50x EV/NTM Sales (approx.) on FY21E Sales (approx.). 

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.d