Ricardo Plc

United Kingdom-based Ricardo Plc (LON: RCDO) is an Industrial support services company that is mainly in the business of providing Engineering, Strategic, Technical as well as environmental consulting and advisory.

Decent Half Year Performance with Decline in Organic Basis

(Source: Interim Results, Company Website)

The company announced its interim results for the six months ended 31st December 2019. The order intake and order book for the current period surged by 3% and 6% to £208.6 million and £319.4 million respectively as compared with the corresponding period of the last year. At the same time, on an organic basis, both declined at 20% and 29%. Revenues increased by 3% to £192.9 million in H1 FY20 (H1 FY19: £188.1 million). Organic revenue was 1 per cent lower, after regularizing the previous period result for the impact of the PLC Consulting and Transport Engineering acquisitions in July 2019 and May 2019, respectively. In the current period, the profit before tax reduced by 4% on an underlying organic basis.  For the current period, the underlying earnings per share (EPS) rose by 4% to 23 pence as compared with the corresponding period of the last year. On an organic basis, the underlying EPS reduced by 7%. The underlying cash conversion was reported at 80.8%, a decrease of 6% from the same period last year. On a statutory basis, the company’s financial performance was down as compared with the corresponding period of the last year. On 31st December 2019, the net debt stood at £73.8 million. The Board has declared an interim dividend per share of 6.24 pence.

Share Price Performance

Daily Chart as at March-09-20, before the market closed (Source: Thomson Reuters)

Ricardo Plc shares were trading at GBX 650.96 before the market close (at 9:00 AM GMT) on 9th March 2020 and were up by 0.46% versus the previous day closing price. Stock 52 weeks High and Low are GBX 846 /GBX 592.  The group’s stock is reflecting the higher volatility as against the benchmark index, based on the company’s beta of 1.06.

Bearish Technical Indicator
At the current trading level, shares were trading below its long-term crucial support level of 20-day and 50-day Simple moving average price, and prices could fall further from the current trading level.

From the price-performance standpoint, its shares have delivered a negative return of approximately 14.57% on a year to date basis and losses of around 16.11% recorded in the past one-month period.

Ricardo Plc V/S FTSE All-Share Index – 1 Month
 
(Source: Thomson Reuters)

In the last months, RCDO share price has delivered negative 16.33 per cent return as compared to negative 13.06 per cent return of FTSE All-Share index, which shows that the stock has underperformed as compared with the index.

Ricardo Plc V/S Industry V/S Sector – 1 Year
  
 (Source: Thomson Reuters)

In the last one year, RCDO share price showed a negative performance of 2.41 per cent. This also reflects that the company is underperforming as compared with the industry and sector performance in a one-year period.

Valuation Methodology


Navigating a Volatile Market and Economic Backdrop
H1 Brexit uncertainty, very weak Automotive backdrop, and slowing China economy (H2 Coronavirus).The company is facing slowdown in both order intake and the progress of ongoing projects amid coronavirus outbreak.

Conclusion
The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. The company remained well-positioned with strong pipeline and order-book, which will help them to improve their performance in the long run. In the short-term, the prevailing economic and political uncertainty faced by the Automotive sector across the world, together with the impact of the Coronavirus (COVID-19) outbreak on the China operations, pose continued and additional headwinds to performance.

At the current trading level, the stock was trading quite below its short-term crucial support level, a bearish technical indicator which reflects prices could move down from the current trading level.
Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of GBX 650.96 (as on 9^th March 2020, before the market close), with support from few catalysts needs to be evaluated at a later stage.

Xaar Plc

Xaar PLC (LON: XAR) is the world’s prominent independent manufacturer of piezoelectric drop-on-demand industrial inkjet printheads.

The group will release its preliminary results on 24th March 2020.

Trading Update (as on 16^th January 2020)
Xaar released an update for trading for the second half ending 31st December 2019. The company’s trading for H2 FY2019 was in line with H1, with the expected revenue to be around GBP 46 million for the period. The company had made a further investment in the development of Thin Film platform and successfully completed the restructuring of its Printhead Business.

The company has reduced the Thin Film’s costs to a minimum level which resulted in higher satisfaction level. The company received net cash of GBP 12 million for the period. The cash balances stood at GBP 25.4 million (including Xaar 3D’s investment) as on 31st December 2019.

Share Price Performance

Daily Chart as at March-09-20, before the market closed (Source: Thomson Reuters)

Xaar PLC shares were trading at GBX 28.80 before the market close (at 8:52 AM GMT) on 9^th March 2020 and were down by 15.543% versus the previous day closing price. Stock 52 weeks High and Low are GBX 139.86/GBX 28.43. The group’s stock is reflecting the lower volatility as against the benchmark index based on the company’s beta of 0.39.

From the technical standpoint, 14 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Growth Catalyst
In the first half of 2019, the company has shown progress in inkjetand also showed progress in certain segments which determines the resilience and potential in this product portfolio. Meanwhile, 3D stays an exhilarating growth area for Xaar.

Conclusion
The company’s operations are impacted by several risks such as competition, Brexit, inventory obsolescence, loss of manufacturing facility and volatility in exchange rates. The company, after a successful restructuring of its Printhead Business, looks for decent progress and robust sales pipeline.

The company has increased investment in Thin Film, which has helped the company to lower down the costs to the minimum level and resulted in increased satisfaction levels among customers. The company also believe that the next stage of the partnership with Stratasys provides substantial value for the investors. Also, the 3D investment will also improve the cash position of the group.

Based on the healthy prospects, we have given a "SPECULATIVE BUY" recommendation at the current price of GBX 28.24 (as on 9^th March 2020, before the market close at 8:53 AM GMT).
 
 
*All forecasted figures and information have been taken from Thomson Reuters.

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