SThree Plc

SThree Plc (STHR) is a London-headquartered leading international staffing company which consists of a family of ten niche recruitment brands, each with expertise and focus on niche areas. The group is focused on STEM industries (Science, Technology, Engineering, and Mathematics), including Information and Communication Technology, Life Sciences, Engineering and Energy, and provides specialist Contract and Permanent recruitment services to its customers - both client companies and individual candidates.
SThree Plc will announce its trading update for the full year on 13^th December 2019.
Recent News
On 23rd October 2019, SThree announced the selection of a new joint corporate broker. Panmure Gordon will hold the responsibility of a joint corporate broker effective immediately.
Financial Highlights – H1 Financial Year 2019 (31st May 2019, £, thousand)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the company’s revenue during the period was up by 12 per cent on a reported basis and by 10 per cent on a constant currency basis to £653.3 million as against £585.9 million in H1 2018. On an adjusted basis, the operating profit surged to £24.6 million in H1 FY2019 versus £20.4 million in H1 FY2018. Reported operating profit increased to £23.3 million in H1 FY2019 from £18 million in H1 FY2018. Adjusted profit before tax was up by 18 per cent to £24.0 million in H1 FY2019 (H1 2018: £20.3 million) and reported profit before tax was up by 27 per cent to £22.7 million in H1 FY2019 (H1 2018: £17.8 million). Due to improved trading performance and decline in restructuring costs, Basic EPS increased to 12.7 pence, up by 2.6 pence on a reported basis and on an adjusted basis, EPS was up by 1.9 pence at 13.5 pence. The stock’s annual dividend yield was 5.2 per cent.

Share Price Performance

Daily Chart as at 15^th November 2019, before the market closed (Source: Thomson Reuters)

On November 15^th, 2019, SThree Plc shares were trading at GBX 289.80 at the time of writing before the market close (at 12:39 PM GMT), up by 0.28 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 321.00/GBX 245.00.

Conclusion
The performance of the company has a relationship with the performance of the economies of the countries in which it operates, and a change in the market conditions can adversely impact performance, thereby reducing profitability and liquidity, the risk of which has increased lately. A resilient and well-established platform is available to the group as it focuses on specialised STEM and Contract with international reach. The company continues to be highly cash generative, allowing it to invest in the areas of the business which present the greatest opportunity, including Permanent business in Japan and Energy in the US.

Based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 288 (as on 15 November 2019, before the market close at 12:05 PM GMT).

AA Plc

AA Plc (AA) is a United Kingdom-based company which operates in the roadside and insurance businesses. The company is a leader in the UK roadside assistance market and offers personal and business partnerships, driving lessons training within the Driving Services division.

Recent News
On 15th November 2019, AA announced that Suzi Williams will be stepping down from a position of Chair and would be replaced by Mark Brooker.

Financial Highlights – H1 Financial Year 2020 (31st July 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, due to the steady rise in the performance of both the segments, trading revenue grew by 2.3 per cent to GBP 491 million as compared with GBP 480 million in the first half of FY2019. Operating profit increased by 3.4 per cent to GBP 120 million in H1 FY2020 as compared with the corresponding period of the last year. While reported profit before tax increased to GBP 42 million from GBP 28 million in H1 FY2019, adjusted profit before tax decreased from GBP 50 million in H1 FY2019 to GBP 46 million in H1 FY2020. Basic earnings per share increased by 44.7 per cent to 5.5 pence and adjusted basic earnings per share fell to 6 pence from 6.5 pence in H1 FY2019. The stock’s annual dividend yield was 4.3 per cent.
Share Price Performance

Daily Chart as at 15^th November 2019, before the market closed (Source: Thomson Reuters)

On November 15^th, 2019, AA Plc shares were trading at GBX 47.42 at the time of writing before the market close (at 12:41 PM GMT), up by 1.45 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 101.30/GBX 42.62.

Valuation Methodology

*Peers: Costain Group Plc, Aggreko Plc, Morgan Sindall Group Plc and Mears Group Plc.

Conclusion
Fuelled by a growing number of cars and a relatively resilient economy, the roadside recovery market has seen a steady expansion, and AA is the largest player and is well placed to take advantage of the emerging new trends. In the Insurance business, the company persists to generate robust rates of profitable policy progress, and also anticipate this to continue in the second half of FY2020. In the Roadside business, personal membership base has been stabilised by the company and are confident that in 2020 it will progress. 

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from £925 million in FY16 to £979 million in FY19. Compounded annual growth rate (CAGR) stood at 1.91 per cent.

Based on the decent prospects and supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 46.74 (as on 14 November 2019) with a single digit-upside potential based on 3.50x NTM Price/Earnings (approx.) on FY20E Earnings per share (approx.).

River and Mercantile Group Plc

River and Mercantile Group PLC (RIV) is a London, the United Kingdom-based asset management and advisory services, focussing on consulting and advisory to fiduciary and fund management.

Recent News
On 7th November 2019, River and Mercantile Group announced that company’s CFO, Kevin Hayes, has decided to leave the group in coming six months.

Trading Update
On 4th November 2019, River and Mercantile Group announced its Q1 update ending 30th September 2019. The company’s AUM/NUM Fee earning surged by 5 per cent to £41.7 billion for the period. The group’s gross sales stood at £1.2 billion, while the net flows were at £1.0 billion.

Financial Highlights – Financial Year 2019 (30th June 2019) (GBP)
 

(Source: Annual Report, Company Website)

For the financial year ending 30th June 2019, driven by increased net management fee and performance fees, the company’s revenue increased to £78,103 thousand as against £74,773 thousand in FY2018. The company’s statutory Profit before financial expenses and tax was at £16,450 thousand in FY2019 versus £18,442 thousand in FY2018.  Statutory profit before tax declined from £18,452 thousand in FY2018 to £16,788 thousand in FY2019. Adjusted basic earnings per share stood at 20.26 pence in FY2019 against the 21.85 pence in FY2018. The Statutory Basic earnings per share stood at 16.22 pence in FY2019 against the 18.83 pence in FY2018. The stock’s annual dividend yield was 4.86 per cent.

Share Price Performance

Daily Chart as at 15^th November 2019, before the market closed (Source: Thomson Reuters)

On November 15^th, 2019, River and Mercantile Group Plc shares were trading at GBX 233.00 at the time of writing before the market close (at 2:00 PM GMT), down by 2.92 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 293.39/GBX 208.98.

Valuation Methodology


Conclusion
The company’s top-line performance has improved in the financial year 2019. The bottom-line performance and profitability have declined for the period. River and Mercantile Group Plc’s operations are backed by efficient management, and huge market opportunity which will help the group to scale up their footprints and acquire more customers. It has been very encouraging to see the contribution to growth from both investment performance and net rebalancing. The company has witnessed growth in demand for derivatives solutions offered by the company.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from £52.59million in FY15 to £78.10 million in FY19. Compounded annual growth rate (CAGR) stood at 10.39 per cent.

Based on the decent prospects and supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 233 (as on 15 November 2019, before the market close) with a single digit-upside potential based on 14x NTM Price/Earnings (approx.) on FY20E Earnings per share (approx.).
 

Topps Tiles Plc

Topps Tiles Plc (TPT) is a Leicestershire, United Kingdom-headquartered retailer of tiles, which supplies tiles and associated accessories to both trade and retail customer base for the refurbishment of domestic housing in the UK through 1,500 specialist experts and 364 stores nationwide, making it the biggest tile specialist in the country.

Recent News
On 5th November 2019, Topps Tiles announced that Mr Matt Williams, CEO, has decided to leave the board effective from 29th November 2019. Rob Parker will overtake the responsibilities of CEO.

Financial Highlights – H1 Financial Year (30th March 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, driven primarily by a reduction in the average number of stores trading to 362 in the latest period from 372 in the prior-year period, adjusted group revenue decreased by 0.5 per cent to £109.0 million versus £109.6 million in H1 FY2018, while statutory group revenue for the first half declined by 0.2 per cent to £110.3 million from £110.5 million in H1 FY2018. Statutory gross profit rose to £67.5 million from £66.68 million in H1 FY2018, which corresponded to a gross margin of 61.2 per cent for the period. The Adjusted basic earnings per share rose by 4.7 per cent to 3.15 pence in H1 FY2019 from 3.01 pence in H1 FY2018. The stock’s annual dividend yield was 4.9 per cent.
Share Price Performance

Daily Chart as at 15^th November 2019, before the market closed (Source: Thomson Reuters)

On November 15^th, 2019, Topps Tiles Plc shares were trading at GBX 68.60 at the time of writing before the market close (at 2:14 PM GMT), down by 2 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 85.00/GBX 59.80.

Conclusion
Due to continued benefits of scale and sourcing, which resulted in higher gross profit and a reduced adjusted cost base, profit margins on an adjusted basis increased during the latest period, and the group was successful in reducing net debt.

The commercial tile business continued to grow rapidly, and the retail segment is expected to be supported by an increase in real income in the country. The company is looking to expand its commercial business with the Strata Tiles acquisition and will provide an entry to the company in a large and attractive market Parkside commercial segment.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 68.60 (as on 15 November 2019, before the market close).
 
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 15th November 2019).
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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