Dunelm Group Plc

Dunelm Group Plc (DNLM) is a UK based general retailer company and operates in the UK's homeware market. Dunelm and Dorma are the key brands of the company. Dunelm Plc has around 170 stores and a total headcount of around 10,000 workforces. The company offers products like furniture, curtains, blinds, bedding, rugs and decors through its platform and facilitates multichannel convenience through the online, mobile, catalogue, and telephone orders.

Trading Update
In the fourth quarter ending 29th June 2019, the company’s LFL (like-for-like) revenue surged by 15.4 per cent. The increase in the revenue was driven by strong adjusted growth in stores and online business, the advantage of a weak comparator and good weather conditions. The store revenue (LFL) was up by 12.1 per cent, and online business delivered a revenue (LFL) growth of 37 per cent for the period. The company’s gross margin surged by 240 basis points for the period. Core Dunelm margin increased by 200 bps. The company expects the full-year margin to be increased by 160bps and core Dunelm margin to be around 100bps. The company forecasted its PBT (profit before tax) on the higher side between £124 million - £126 million. The company remained cash generative with net debt of £25.3 million. The company is making progress in rolling out its new digital platform and will fully shift on it during FY2020. The company also invested in creating brand awareness.

Financial Highlights – H1 Financial Year 2019 (£, million)

(Source: Half Yearly Report, Company Website)
 
For the H1 of the financial year 2019, the company’s reported revenue improved marginally by 1.2 per cent to £551.8 million as compared with the revenue of £545.4 million during the corresponding period of the previous financial year. However, on Like-for-like basis, the company achieved good revenue growth in the first half of the FY19 and was up by 6.9 per cent, Dunelm continued to win market share in the Homewares arena in the UK. In the H1 FY2019, gross margin of the general retailer surged by 170 bps to 50.3 per cent, primarily because of the improvement in sourcing, hedging gains, the abolishment of Worldstores product lines, and superior end of season stock management. The company’s reported EBITDA surged by 21.5 per cent to £92.8 million in H1 FY2019 versus £76.4 million in H1 FY2018. Profit before tax during the H1 FY2019 surged by 24.3 per cent to £70.0 million as against £56.3 million during the first half of the FY18. The company’s Basic earnings per share stood at 27.6 pence in H1 FY2019 versus 22.3 pence in H1 FY2018. The company’s diluted earnings per share stood at 27.5 pence in H1 FY2019 against 22.2 pence in H1 FY2018.

Share Price Performance

Daily Chart as at August-19-19, before the market close (Source: Thomson Reuters)

On August 19, 2019, at the time of writing (before the market close, at 3:45 PM GMT), Dunelm Group Plc shares were trading at GBX 860.00, up by 1.65 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 992.79/GBX 482.21.

Valuation Methodology

*Peers: B&M European Value Retail SA, ASOS Plc, Pet at Home Group Plc, Next Plc and Halfords Group Plc.

Conclusion
The company’s financial performance in the Q4 and in the H1 of the financial year 2019 remained positive, with LFL growth supported by new ranges and up-weighted marketing spend.

However, the Britain consumer environment is uncertain, and consumers have reduced spending on the big-ticket items, as per the latest retail sales data revealed last month. The group’s performance has historically been synched with levels of a housing transaction, which is also witnessing a decline. The company operations are also impacted negatively by the uncertainty created due to ongoing Brexit.

Based on the above risk factors, we have given a “WATCH” recommendation on the Dunelm Plc stock at the closing price of GBX 846.00 (as on 16th August 2019), based on 10.42x NTM Price/ Cash Flow (approx.) on FY19E cash flow per share (approx.), with support from few catalysts needs to be evaluated at a later stage.
 

Omega Diagnostics Group Plc

Omega Diagnostics Group PLC (ODX) is a Health Care Equipment & Services company focused on providing diagnostics related to Global Health, Allergy and Food Intolerance. The company offers product categories related to autoimmunity, growth and fertility hormones, infectious disease, quality control, thyroid hormones, tumor markers, food intolerance, anemia and inflammation.

Trading Update
The company expects its turnover to be £9.76 million for 31^st March 2019versus £13.55 million for 31^st March 2018. The company’s segment revenue (continuing operations) increased from Food Intolerance and Infectious Disease/Other both by 7 per cent ending 31^st March 2019. The company’s EBITDA (continuing operations) was expected to be £0.2 million for the period ending 31^st March 2019 versus a loss of £0.81 million ending 31^st March 2018.

Financial Highlights – H1 Financial Year 2019 (£)

(Source: Half Yearly Report, Company Website)
 
For the H1 financial year 2019, the company’s revenue declined by 27 per cent to £5.23 million from £7.11 million in H1 FY2018. The company’s revenue (continuing operations) declined by 7 per cent from £4.54 million in H1 FY2018 to £4.22 million in H1 FY2019. The company’s gross margin dipped by 2.9 per cent to 60.2 per cent in H1 FY2019 against 63.1 per cent in H1 FY2018. The company’s operating loss (before exceptional) was at £601,161 for H1 FY2019 versus an operating profit (before exceptional) was at £99,262 for H1 FY2018. The company’s operating profit (after exceptional) was at £849,466 for H1 FY2019 versus an operating profit (after exceptional) was at £99,262 for H1 FY2018. The company’s Statutory profit before tax was at £0.8 million in H1 FY2019 as against £0.1 million in H1 FY2018. The adjusted loss before tax was £0.51 million in H1 FY2019 versus adjusted profit before tax of £0.22 million in H1 FY2018. The company’s loss per share was 0.5 pence in H1 FY2019 versus an earnings per share of 0.3 pence in H1 FY2018.

Share Price Performance

Daily Chart as at August-19-19, before the market close (Source: Thomson Reuters)

On August 19, 2019, at the time of writing (before the market close, at 4:10 PM GMT), Omega Diagnostics Group Plc shares were trading at GBX 8.188, down by 6.42 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 18.00/GBX 8.1.

Conclusion
The company’s revenue for the first half of the financial year 2019 had declined. Due to exceptional items, the profitability of the company had increased. But the company’s underlying operating profit and profit before tax had declined, which questions the operational performance of the company.

The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of its competitors.
Based on the above risk factors, we have given a “WATCH” recommendation on the Omega Diagnostics Group Plc at the closing price of GBX 8.75 (as on 16th August 2019), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures have been taken from Thomson Reuters.

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