Nichols PLC

Nichols PLC (LON: NICL) is an FTSE AIM UK 50 index listed company engaged in the soft drinks business worldwide. It deals in both carbonated and still categories.

On 12 January 2022, the Company is going to release the next trading update.

Investment Rationale for Valuation – SELL at GBX 1,372.25

• Weak Shareholders’ Returns: The Company had shown a significant drop of around 65% in the interim dividend attributable for H1 FY21 when compared with H1 FY20.
• Low Profitability: On the profitability front, the EBITDA margin and the gross margin remained lower than the respective industry median of 24.3% and 49.3% during H1 FY21.
• Sluggish Outlook: NICL mentioned in a recently released trading update that FY22 financial performance would get adversely impacted by inflationary pressures, including logistics, labour, and materials.
• Unfavourable Technical Indicator: From a technical standpoint, NICL is hovering around the upper Bollinger band, indicating a correction in the stock price.
• Relative Strength Index (RSI): The 14-days RSI of ~67.81 approaches overbought territory and indicates a correction in the stock price.

Key Risks

• Supply Shortage: The persistent supply shortage is topping new records and capping the growth of the retail sector.
• Macroeconomic Risk: The macroeconomic instabilities and inflationary concerns can impact the consumers’ disposable income and spending habits.

9M FY21 Trading Update (for the period ended 30 September 2021, as of 05 November 2021)

• Decent Revenue Growth: The Company’s revenue grew year-on-year by around 17% to £107 million during 9M FY21.
• Significant Progress of Vimto Brand: The Vimto brand value rose by around 4.5% on a YTD basis.
• Cash Balance: The Company had cash & cash equivalents of around £55.6 million as of 30 September 2021, while it was £45.4 million as of 30 September 2020.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company had highlighted of several uncertainties persisting during Q4 FY21 because of the increasing Covid-19 cases in the United Kingdom. Moreover, the stock price had breached the target levels mentioned in the latest coverage. Thus, it would be prudent for the clients to book profit at the current levels on this Company based on their risk appetite. The stock made a 52-week low and high of GBX 1,020.00 and GBX 1,650.00, respectively. 

Based on the Covid-19 related uncertainties during Q4 FY21, increased inflationary pressure, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Nichols PLC at the current market price of GBX 1,372.25 (as on 16 November 2021 at 09:06 AM GMT). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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