Melrose Industries PLC

Melrose Industries PLC (LON: MRO) is a FTSE 100 listed entity that operates through four business segments, namely Aerospace, Automotive, Powder Metallurgy, and Other Industrial.

Investment Rationale – EXPENSIVE at GBX 191.00

• On 2 September 2021, Melrose Industries released its H1 FY21 results (for the six months ended 30 June 2021) and reported
  • Better earnings per share, improved profit margins, and lower net debt against H1 FY20.
  • On a statutory basis, it continued to report operating losses in H1 FY21.
  • It recommended an interim dividend of 0.75 pence per share (H1 FY20: nil).
• GKN Aerospace division still has not shown the improvements as Covid-19 induced disruption continued to impact the sector.
• Global factory activities have lost momentum in August 2021 due to coronavirus pandemic-disrupted supply chains. Moreover, the slump in consumption, production shortages, and logistical troubles can cap the economic recovery. Consequently, the economic downturn and market volatility can impact the level of activity in its end markets.
• The resurgence in the Covid-19 cases due to the delta variant can restrict the growth, while the markets are already dented with inflationary concerns, and speculations regarding early asset tapering by the US Federal Reserve.
• From a technical standpoint, MRO’s stock price is trading above the upper Bollinger Band, while the 14-day RSI (~70.78) is confirming the overbought position.
• MRO’s Price/Earnings valuation multiple is overvalued, while its Dividend Yield is lower against the median of the Consumer Non-Cyclicals industry.

Share Price Chart

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

Conclusion

Based on the global semiconductor shortage, the downturn in the Aerospace market, input price inflation, overstrained share price, and macroeconomic uncertainties, we have given an “EXPENSIVE” recommendation on Melrose Industries PLC at the current price of around GBX 191.00 (as on 6 September 2021, at 7:40 AM GMT).

Made.Com Group PLC

Founded in 2010, Made.Com Group PLC (LON: MADE) is an online furniture retailer that offers trendy and affordable home furnishings and accessories.

On 14 September 2021, Made.com intends to publish its Interim Financial Results for the six months ended 30 June 2021.

Investment Rationale – HOLD at GBX 173.00

• com has shown significant growth in gross sales in the past few years. Moreover, it plans to leverage IPO proceeds to expand its homeware range and reduce the wait time between placing and delivering orders.
• com offers high quality products at attractive price points. Moreover, it has a large active customer base, and the brand is quite popular among millennials.
• The Company has delivered impressive growth in recent years. Moreover, the resurgence in Covid-19 cases can sustain the demand for online shopping.
• From a technical standpoint, the current share price is sustaining above the 20-day EMA (GBX 167.00), reflecting a bullish price momentum.  
• From FY18 to FY20, Made.com has maintained gross margin of over 53%, which is significantly higher than the industry median of 42.5%.

Risk Assessments

• The Company is still not profitable, and its growth depends upon external financial resources.
• The recent spike in Covid-19 cases can dent the investors’ optimism and drain global supply chain.
• The inflationary market conditions and rising input prices can also impact its operating costs and customer buying power.

Recent News

Admission to Trading on the London Stock Exchange: On 21 June 2021, Made.com was admitted to trading post issuing 387,660,176 Shares. The offer price was set up at 200 pence per share.

Appointment of Joint Corporate Brokers: On 30 July 2021, the Company appointed J.P. Morgan Securities PLC and Liberum Capital Limited as its joint corporate brokers, with immediate effect.

Trading Update (for the six months ended 30 June 2021, as on 30 July 2021)

(Source: Company Website)

• com demonstrated sound financial in FY20, despite the challenging environment.
• The rapid acceleration in online shopping amid lockdown restrictions spurred the Company’s sales.
• The Company has an active customer base of 1.1 million customers, reflecting a large and loyal customer base.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

Made.com is a fast-growing business and its sales climbed in FY20 despite operational difficulties, demonstrating its brand resilience. Moreover, it has recently raised funds through an initial public offer (IPO), which shall be invested to support further growth in the existing markets, increase working capital flexibility, and expand its homeware range. However, there are uncertainties that customers might resume spending on outdoor activities, and lockdown-fuelled gains might not last for long. Nevertheless, the Company has the potential to consolidate a fragmented market and capitalise on long-term demand trends. The stock made a 52-week high and low of GBX 214.44 and GBX 150.00, respectively.

Based on the excellent sales growth, robust active customer base, promising demand trends, supported by the valuation conducted above, we have given a “HOLD” recommendation on Made.Com Group PLC at the current market price of GBX 173.00 (as on 6 September 2021, as on 7:40 AM GMT).

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

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

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

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