Redrow PLC

Redrow PLC (RDW) is prominent in the residential housing development. The group is involved in constructing homes throughout Wales and England. Its operations are mainly focused on housebuilding. The company’s product range is mainly focused on traditional family housing in its apartment schemes and regional businesses in Greater London.

Financial Highlights (FY2019, £million)

(Source: Annual Report, Company Website)

In FY2019, the company’s reported revenue surged by 10 per cent to £2.1 billionas compared to £1.9 billion in FY18, with homes revenue rose by 10 per cent to £2.1 billion (FY18: £1.9bn) and other revenue from land sales was £21 millionand also in line with the previous year (FY18: £20 million). Gross margin decreased by 50 basis points to 23.9 per cent against the £24.4 per cent in FY18, driven by the change in tenure mix of the residential housing turnover with Homes revenue coming from Affordable Homes of 12 per cent as compared to 7.5 per cent previous year.

In the financial year 2019, operating margin was 19.5 per cent, a decrease from the prior year (FY18: 19.9 per cent). As a result, the company delivered a record profit before tax of £406 million, an increase from the last year (FY18: £380 million), due to an increase of 6,443 new homes. For the year 2019, basic earnings per share climbed by 8 per cent at 92.3 pence as compared with the financial year 2018 of 85.3 pence.

In FY19, the return on capital employed stood at 28.5 per centand remained the same from the last year. Return on equity decreased to 26.5 per cent in FY19 from 28 per cent in FY18. The cash inflow generated from operations stood at £371 million (FY18: £276 million). The net cash balance surged to £124 million at the end of June 2019 from £63 million at the end of June 2018.

Dividend
The group’s Board proposed a final dividend per share of 20.5 pence in 2019which will be paid on 13^th November 2019 to investors on the registration date on 20^th September 2019. The full-year dividend per share was 30.5 pence, an increase of 9 per cent from the 28 pence in FY18.

Share Price Performance

Daily Chart as at September-06-19, before the market closed (Source: Thomson Reuters)

On 6^th September 2019, at the time of writing (before the market close, GMT 8:56 AM), Redrow PLC shares were trading at GBX 591.50 and increased by 0.94% against the previous day closing price. Stock's 52 weeks High and Low are GBX 643.82/GBX 455.32. The company’s stock beta was 0.90, reflecting slightly lower movement of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
Since the start of the financial year 2020, trading has been encouraging and the demand for the homes is robust with reservations running ahead of the previous year. Moreover, the company has exchanged contracts for an additional PRS (Private Rented Sector) scheme at Colindale Gardens adding 347 plots to an already significant order book.

From the perspective of the market, the new homes remain resilient in spite of economic and political uncertainty. The company is well-positioned for the future with a robust order book, an outstanding product and a dedicated team to deliver for the future.

The company has a decent balance sheet, helping it to remain agile and respond swiftly to new opportunities.  With continued availability of Help-to-Buy, good access to affordable mortgage finance and high employment supporting strong demand for affordable homes, conditions in the latest build UK housing market remains positive.

Based upon trading over recent weeks, the company has several reasons to be confident that the financial year 2020 will be another fruitful year for the group as driven by EPS which will increase to 99.7 pence, DPS will surge to 32 pence, revenue will up to £2.2 billion, sales outlets will increase to 135 outlets, etc.

Based on the above factors and supported by valuation done using the above method, we have given a “Hold” recommendation at the closing price of GBX 586 (as on 5th September 2019), based on 0.95x NTM EV/Sales multiple (approx.) on FY20E sales (approx.).
 

Boohoo Group PLC

AIM-listed Boohoo Group Plc (BOO) is among the top online fashion retail company in the UK. It has a global footprint, including the UK, Europe, Australia and the US being the primary markets. The company products are targeted at the age group of 16-30 years with its brands such as Boohoo, PrettyLittleThings, NastyGal and boohooMAN.

On 25^th September 2019, the company will announce interim results.

Trading Update (as on 5^th September 2019)
The company announced a trading update for the H1 FY20, where performance has been ahead of prospects with robust revenue growth driving operating leverage over key brands.

The group’s board now expects that results for the current financial year will be ahead of prior guidance, with company’s sales progress now anticipated in the range of 33%-38% against the prior guidance which was in between 25% and 30%. The board expects EBITDA margin for the financial year to remain at approximately 10%.

Recent News
On 27^th August 2019, a total headcount of 2,343 were found entitled and applied for the 2019 SIP (Share Incentive Plan) and have been approved free Ordinary Shares of 884 each.

On August 06, 2019,the company reported that it had acquired several widely known British brands Karen Millen and Coasts out of administration. The acquired brands were put up for sale by Icelandic bank, Kaupthing.

Financial Highlights (Q1 FY2020, £million)

(Source: First Quarter Report, Company Website)

In the update reported by the company as on June 12, 2019, the group’s total revenue increased by 39 per cent to £254.3m against £183.6m recorded in the year-ago period, primarily driven by revenue growth across all geographical segments with the UK business recorded a growth of  27% on a YoY basis and international business nudged by 56 per cent. Gross margin during the period under consideration stood at 55 per cent against 55.2 per cent recorded in the first quarter of the previous financial year. Net cash reported at the end of the 1Q FY20 was at £194m.
During the period under consideration, the apparel retailer company acquired the brand and intellectual property assets of the MissPap. On a segment-specific standpoint, its boohoo brand revenue recorded a growth of 27 per cent to £123.5m with a gross margin of 54.1 per cent, the PrettyLittleThing brand revenue surged by 42 per cent to £112.1m, with a gross margin of 55.9 per cent and Nasty Gal brand revenue leapt up by 153 per cent to £18.2m, with a gross margin of 56.1 per cent respectively.

Share Price Performance

Daily Chart as at September-06-19, before the market closed (Source: Thomson Reuters)

On 6^th September 2019, at the time of writing (before the market close, GMT 9:15 AM), Boohoo Group PLC shares were trading at GBX 284.10 and increased by 1.46% against the previous day closing price. Stock's 52 weeks High and Low are GBX 288.60/GBX 146.39. The company’s stock beta was 1.45, reflecting the higher movement of the stock as compared to the benchmark index.

Conclusion
On account of the stellar performance of the company recorded in the initial quarter of the FY20, the management expects revenue growth of 33-38 per cent and forecasted a 10 per cent adjusted EBITDA margin for the full-year FY20.

The apparel retailer company Boohoo Group Plc has recorded decent growth during the Q1 FY20,driven by the decent performance of its key brands like boohoo, PrettyLittleThing and NastyGal.

The group's performance in the FY19 period in terms of revenue growth, EBITDA margin, net margin and from the return on equity (ROE) standpoint was substantially better than the industry average performance.

From the technical standpoint, shares were quoting substantially above the 200-day simple moving average price, which indicates a bullish trend in the stock and carrying the potential to increase further from the current trading levels.

Therefore, based on the above rationale, we have given a "Hold" recommendation at the closing price of GBX 280 (as on September 05, 2019).
 
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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