Scottish Mortgage Investment Trust Plc

Scottish Mortgage Investment Trust Plc (LON: SMT) is an FTSE 100-listed closed-end investment Company, with an objective to maximise the total return to investors, while generating real dividend growth through a diversified portfolio.

Investment Highlights – Scottish Mortgage Investment Trust Plc – Expensive at GBX 1,057.29

• The Company has shown a decent financial performance in FY2020, while the operating expenses are increasing, which could hamper the profitability margins in the near future.
• The ROE (return on equity) for the financial year 2020 stood at 12.4% and is continuously declined from FY2017.
• From the technical standpoint, 14-day RSI is currently supporting downward movement (around 61 level), which means the stock price could decline in the short term.

Key Risks

• Due to uncertainties regarding the Brexit and Covid-19, the consumer confidence dampened and affected the business operations.
• In the recent past, the Company faced challenges due to currency fluctuations in sterling.

Financial Highlights – Financial Year 2020 (31 March 2020)

(Source: Annual Report, Company Website) 

• For the financial year 2020, the shareholders witnessed a decent return, particularly when compared with the FTSE All-World Index.
• The total gains on investment and total net returns after tax increased for the period, with a higher net return per share.
• The Company had a modest amount of borrowings in place, supported by a much larger pool of liquid assets.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company has shown a decent financial performance in the financial year 2020 while delivering on the quantified objectives. SMT is focussed on identifying attractive prospects to deploy the excess liquidity. The political instability in the UK has reduced transaction activities, while prospects of London market still seems to be bright in the long-term. In the short-term, the portfolio remains challenging, due to covid-19 crisis, while SMT is optimistic about the underlying and aggregate progress of the portfolio. Moreover, the Company’s stock is trading near a 52-week high, raising doubts at the upside potential at the current price level. The stock made a 52-week low and high of GBX 451.80 and GBX 1,092.00, respectively.

Based on the factors as highlighted above, we believe the stock of Scottish Mortgage Investment Trust Plc is “Expensive” at the current price of GBX 1,057.29 (as on 15 October 2020, before the market close at 8:05 AM GMT+1), with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments.

Bunzl Plc

Bunzl Plc (LON: BNZL) is an FTSE 100 listed international distribution Company providing customised solutions to B2B customers.

Investment Highlights – Bunzl Plc – Hold at GBX 2,528.00

• The Company has strong revenue generation from the top 8 Covid-19 related products and revenue from other product sales is also improving with ease in lockdown restrictions.
• In the one year, the Company delivered a substantial return of ~ 28.71% and delivered higher returns compared to the benchmark Index (FTSE-100 Index).
• Over the course of 4 years (FY15 - FY19), the Company’s revenue surged from GBP 6,489.7 million in FY15 to GBP 9,326.7 million in FY19. Compounded annual growth rate (CAGR) stood at ~9.49%.
• From the technical standpoint, shares were trading well above the short-term support level of 50-day (GBX 2,442.66) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The organic growth can be impacted if it fails to respond to the competitive pressure successfully.
• The Company may fail to integrate new acquisitions, which will impact financial and operational performance.

Update on Trading Performance for Q3 FY2020 (released on 14 October 2020)

• In the Q3, the revenue surged by 4% on actual exchange rates, reflecting growth in the sale of Covid-19 related products.
• The top 8 Covid-19 related products contribute 17.5% of the total growth in sales, reflecting large orders received.
• The small orders declined for the period but remained strong. The revenue from other product sales improved after an ease in lockdowns.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The year to date performance for FY2020 remained strong with strong sales of Covid-19 related products. The Company expects the market outlook to remain uncertain based on increasing restrictions to reintroduced in some markets and current pandemic trends, which could limit underlying recovery. However, based on year to date performance and acquisitions announced, the Company expects higher revenue in H2 FY2020 along with higher operating profit margin. The stock made a 52-week low and high of GBX 1,242.00 and GBX 2,710.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for Bunzl Plc at the current price of GBX 2,528.00 (as on 15 October 2020, before the market close at 9:08 AM GMT+1) and will recommend fresh buying at the right time.

*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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