Fever-Tree Drinks PLC

Fever-Tree Drinks PLC (LON: FEVR) is a FTSE AIM UK 50 index listed Company that supplies carbonated mixers in around 75 countries globally.

On 15 September 2021, FEVR expects to release interim results for six months ending 30 June 2021.

Investment Rationale – SELL at GBX 2,290.00

• The rising case of Delta variant of coronavirus sending alarming signals of gloomy economic outlook.
• Increased costs due to logistical challenges could fizz out the Company’s profits. The stock slumped over 7% yesterday post the Company’s profit warning.
• In terms of a technical indicator, the stock price is sustaining below the 20-day EMA (GBX 2,495.00), reflecting a bearish price momentum.  
• In the past year, FEVR’s stock price has yielded merely ~4.19% of return, showing significant underperformance against the FTSE AIM UK 50 Index.

Risk Assessments

• Sales slowdown with lockdown easing; inflation apprehensions, failure to adopt with Brexit policies; ongoing Covid-19 pandemic related uncertainties regarding labour shortage, supply chain disruption, and volatile macroeconomic conditions can impact the Company’s profitability.
• Also, there are rising concerns pertinent to climate risk and data privacy. The Group is also exposed to strict regulatory guidance regarding safety standards, failure of which can lead to significant reputational damage.

Pre-Close Trading Update for the first six months 30 June 2021 (as on 20 July 2021)

(Source: Company Website)

• Fever-Tree delivered solid sales growth across all markets in H1 FY21; however, global logistics related challenges have impacted the Company’s margins.
• The On-Trade segment continued to re-open with lockdown easing.
• The Off-Trade sales remained strong due to increased premium spirits consumption.
• The EBITDA margin stood around 20.5% in H1 FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

Fever-Tree’s stock has been quite volatile in the past year. Moreover, the trading update yesterday unveiled that rising logistics costs could affect the Company’s profitability margins. Adjacently, resurgence of pandemic has jolted the global markets and creating significant macroeconomic uncertainties. Amidst Covid-19 warning on costs, it is prudent to liquidity the position and reinvest when the short-term uncertainty fades away. The stock made a 52 week High and Low of GBX 2,786.54 and GBX 1,919.00, respectively.

Considering the profit warning, macroeconomic challenges, supply chain disruption, logistics cost pressures, and unfavourable valuation conducted above, we have given a “SELL” recommendation on Fever-Tree Drinks PLC at the current market price of GBX 2,290.00 (as on 21 July 2021, at 10:25 AM GMT).

Ten Entertainment Group PLC

Ten Entertainment Group PLC (LON: TEG) deals in the entertainment business in the UK with a total of 46 entertainment centres providing Tenpin Bowling. It has around 1,103 bowling lanes across the estate.

On 22 September 2021, TEG expects to unveil its H1 FY21 results.

Rationale for Valuation – SELL at GBX 254.00

• The resurgence in Covid-19 cases and reintroduced restrictions can impact the Company’s operating results.
• TEG’s stock has yielded a stellar return of over 62.87% in the past year, giving a lucrative opportunity to book profit.
• From a technical standpoint, TEG’s stock price is approaching towards the upper Bollinger Band, while 14-day RSI (57.92) is also indicating an overbought stance.
• On a forward 12-month basis, valuation metrics – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book are quite overvalued against the Hotels & Entertainment Services industry.

Key Risks

• The uncertainty about macroeconomic factors and change in consumer disposable income might impact the share of income consumers would spend over leisure activities.
• Rising concern over the spread of the Delta coronavirus variant could dampen the economic recovery.

Financial Highlights for the 26 weeks to 27 June 2021 (as on 07 July 2021)

• During H1 FY21, the business of TEG returned to profit and cash generation. However, all centres were closed for the first 20 weeks of FY21 due to Covid-19 restrictions.
• Since reopening on 17 May 2021, sales growth was 27.4% higher against the same period the previous year.
• As of 27 June 2021, the Group’s had nearly £23 million of liquidity headroom.

One Year Share Price Chart

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

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

Conclusion

TEG’s stock is hovering close to its 52-week high, while there is a trend of stock sell-off globally amid mounting Delta variant Covid-19 cases. The likelihood of reintroduced restrictions can impact the Company’s entertainment centres. Moreover, the short-term implications of inflationary market conditions can impact the consumers’ spending capacity. As the stock has given a remarkable return in the past year, it is prudent to escape the prevailing uncertainties and book profit. The stock made a 52-week High and Low of GBX 262.00 and GBX 118.15, respectively.

Based on the uncertain outlook, rising Delta variant concerns, overvalued trading multiples, unfavourable technical stance, supported by the unsatisfactory valuation conducted above, we have given a “SELL” stance on Ten Entertainment Group PLC at the current price of GBX 254.00 (as on 21 July 2021, at 1.03 PM GMT), while we look forward to reinvesting when short-term uncertainty fades away.

LoopUp Group PLC

LoopUp Group PLC (LON: LOOP) is a FTSE AIM All-Share quoted Company, which provides premium cloud communications services.

Investment Rationale – SELL at GBX 64.00

• There is an intense competitive pressure which can impact the Company’s customer base, while the market uncertainties related to Covid-19 pandemic has already dragged the stock to near 52-week low.
• The Company has recommended any dividend for the past two years.
• In terms of a technical indicator, LOOP’s stock price is sustaining below the 20-day EMA (GBX 66.00), reflecting a bearish price momentum.
• In the past year, LOOP’s stock price has yielded a negative ~66.34% of return, showing significant underperformance against the FTSE AIM All-Share Index.

Risk Assessments

• The Company still has accumulated trading tax losses of £8.5 million, even after the profitability of FY20.
• There is a high degree of uncertainty relating to the societal and economic effects of the Covid-19 pandemic.
• Due to operational challenges, LOOP might fail to deliver on existing and new contracts.

Recent News

Re Nominated Adviser and Broker: On 23 March 2021, LoopUp announced that Panmure Gordon (UK) Limited would continue to serve as a sole corporate broker and nominated adviser of the Company.

Financial Highlights for the year ended 31 December 2020 (as on 30 March 2021)

 (Source: Company Website)

• In FY20, LoopUp Platform Capabilities (LPC) reported a 25% growth to £43.0 million (FY19: £34.4 million) with gross margin improvement to 77.8% (FY19: 76.8%).
• The Group revenue surged 18% (versus FY19) to £50.2 million in FY20, while the EBITDA increased 239% to £15.3 million.
• At the end of FY20, the Company improved its net debt position to £0.7 million from the net debt of £11.5 million at the end of FY19, driven by a significantly gross cash position of £12.1 million.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

LoopUp stock price has crashed over 66% in the past year and hovering close to its 52-week low. The tough competition in its core professional services marketplace can impact its profitability, while the macroeconomic environment is already volatile. The rising cases of Delta variant coupled with inflationary pressure and weakening of pound sterling can further impact the Company’s financial condition. Therefore, it is rational to liquidate the position at the current levels. The stock 52 made a 52-week High and Low were GBX 250.00 and GBX 61.00, respectively.

Based on the bearish price trend, fears over inflation, uncertain macroeconomic outlook, and unfavourable valuation conducted, we have given a “SELL” recommendation on LoopUp Group PLC at the current market price of GBX 64.00 (as on 21 July 2021, at 1:33 PM GMT).  

*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).

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