SDL Plc

SDL Plc (LON: SDL) is a small-cap FTSE listed Software & Computer Services company and provides content management solutions. SDL works with Donnelley Language Solutions to provide innovation in language. Many big brands have trusted the company’s expertise in language translation and digital content management. SDL is presently working with 90 out of the top 100 global brands.

COVID-19 Updates
On 24^th March 2020, the company announced that it had postponed the reporting of its annual results which was intended to be published on 25^th March 2020.

SDL had taken several measures to minimize the impacts of COVID-19. It had established Crisis Committee which would regularly monitor the COVID-19 updates. It had enabled work from home to its staff members, and most of SDL's 4,300 staff are now working from home. The company’s sales and marketing activities had adapted to current market conditions. The company had been in communication terms with its employees, customers and suppliers. The company reported that till date, there had been no degradation in SDL's delivery capability for its clients.

Trading Updates – Financial Year 2019
On 21st January 2020, the company announced its trading updates for the fiscal year 2019. It expected that its revenue and adjusted operating profit during the period to be significantly ahead of 2018 and in line with market expectations. The Group reported net cash of GBP 26.4 million at 31 December 2019 as compared to GBP 14.4 million at the end of 31st December 2018.

Share Price Performance  

Daily Chart as on 1^stApril 2020, before the market closed (Source: Thomson Reuters)

On April 1, 2020, at the time of writing (before the market close, at 8:21 AM GMT), SDL Plc shares were trading at GBX 412.92, up by 4.54 per cent against the previous day closing price. Stock’s 52 weeks High and Low are GBX 640/GBX 380. 

Valuation Methodology


Conclusion
In the recent trading updates announced by the company, it reported revenue and adjusted operating profit to be ahead of the last year, which shows the Group is growing and its business is performing. The company had witnessed decent financial performance for the first half of the financial year 2019 also. Both the top-line and bottom-line performance for the period have improved. The company is benefited by the exchange rate between the US Dollar and the Pound Sterling. The company had successfully acquired and merged DLS (Donnelley Language Solutions), which would improve and accelerate innovation in the language. The company ends the second half with decent sales momentum and increased sales pipeline. The company had improved its customers’ satisfaction, and all investments have done since 2016 would result in long term growth of the company. Being an IT company, the SDL needs to invest heavily in innovation and system maintenance, any failure to do so could impact the brand royalty and may affect the company’s financial performance.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Speculation Buy” recommendation at the closing price of GBX 395 (as on 31st March 2020) with lower double-digit upside potential based 16.34x NTM Price/Earnings Value (approx.) on FY20E earnings per share (approx.).

McCarthy & Stone Plc

McCarthy & Stone Plc (LON: MCS) is a Bournemouth, United Kingdom-headquartered retirement housebuilder which has more than 58,000 properties across more than 1,300 developments since 1977.

The group will announce its interim results on 9^th June 2020.

AGM & Business Update
On 25^th March 2020, McCarthy & Stone released an update related to AGM (Annual General Meeting) and business. The group’s services teams are working for the wellbeing of its homeowners against the outbreak of Covid-19. The group is asking homeowners to limit access to visitors and practice social distancing. The group has also established two-way communication to reduce the infection risk, prepare self-isolation and stay safe. The group is taking necessary actions to preserve cash and reduce costs to ensure smooth operations for the long term. The group has a strong balance sheet a TNAV (Tangible net asset value) of around GBP 687 million as on 28^th February 2020, with new opportunities to generate additional cash. The group has an RCF (Revolving Credit Facility) of GBP 200 million and a cash balance of around GBP 127 million as reported on 18^th March 2020. The group also announced new cash measures and ensured that it would be able to operate for approximately 2.5 years with no sales revenue. The company has decided not to pay the final dividend. The group announced that it is in a good position to restart sales activity and development activity once the market conditions become normal. The company has offered 300 newly completed apartments to help local authority and government and can be used by NHS keyworkers or older people to recover from Covid-19.

Share Price Performance

Daily Chart as of1^st April 2020, before the market close (Source: Thomson Reuters)

McCarthy & Stone Plc shares were trading at GBX 62.50 at the time of writing before the market close (at 9:20 AM GMT) on 1^st April 2020 and down by 3.47% versus the previous day closing price. Stock's 52 weeks High is GBX 160.20 and Low is GBX 36.51.

Valuation Methodology


Conclusion
Ongoing economic uncertainties may impact the business operations of the group in the near term. The company increased the proportion of 2,100 target volumes anticipated to come from rental offering in FY20. H1 out-turn anticipated to be lower than the previous year, impacted by slower beginning to the new financial year 2020, driven by the General Election. The company observes that tougher market conditions are anticipated to continue throughout the new financial year 2020, including uncertainty over potential stamp duty changes denting transaction levels and resulting in a higher discount and incentive levels. The company expects a lower mix of sales from the South East, and through an ongoing need for an increased level of part-exchange, underlying operating margin is going to be impacted. Ongoing political and economic uncertainty on the secondary housing market also is a cause of concern. The group operations are also impacted by the outbreak of Covid-19 and are taking necessary actions to ensure the smooth running of operations for the long-term period.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 64.75 (as on 31^st March 2020), while we look for any upcoming catalysts in the near term.
 
 
*All forecasted figures and information have been taken from Thomson Reuters.     
* The “Speculative Buy” recommendation is also valid for the current price as covered in the report as on 1^st April 2020.

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