Abcam PLC

Abcam PLC (LON: ABC) is an FTSE AIM UK 50 Index listed multinational Life Sciences Company, which produces and markets protein research agents and tools to assist life science researchers and clinical communities.

Rationale for Valuation – SELL at GBX 1,583.00

• Lower Profitability Against Industry Median: On the profitability front, the net margin of 5.4% remained lower than the industry median of 9.8% during H1 FY21.
• Poor Shareholder Returns: Despite reporting improvement in top-line revenue and bottom-line profitability, the Company had not declared any dividend with respect to H1 FY21.
• Weak Leverage Position: ABC’s debt to equity ratio of 0.17x remained more than the industry median of 0.12x during H1 FY21.
• Unfavourable Technical Indicators: From a technical standpoint, ABC’s stock price is trading around the upper Bollinger band, reflecting a bearish price momentum. Moreover, the 14-days RSI of ~66.57 in inching towards the overbought territory.

Key Risks

• Acquisition Risk: The financial position could be hampered due to the overvaluation of the target company, ineffective due diligence, and failure to identify proper synergies.
• Lack of Innovation: ABC might get failed to deliver on the innovation aspect for the transformational projects as per customers’ expectations with regards to their digital experience.

H1 FY21 Interim Results (for the six months ended 30 June 2021 as of 13 September 2021)

 (Source: LSE Website)

• Robust Revenue growth: The top-line revenue had increased to £150.2 million during H1 FY21.
• Decent Gross Profit: On the profitability front, the gross margin had slightly improved from 68.9% during H1 FY20 to 71.4% for H1 FY21.
• Cash from Operating Activities: The net cash inflow from operating activities remained £71.9 million for the 12 months period ended 30 June 2021.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion 

The key clients of ABC are researchers and scientists in academic institutions, pharmaceutical & biotechnology companies, research institutes and diagnostic companies. ABC had demonstrated rising demand in the life sciences market well supported by increasing public funding and focus on clinically relevant biologics.

However, the stock price surged gradually after the release of H1 FY21 results and breached the target as provided in our last coverage. Hence, it would be prudent for the clients to book profit at the current levels. The stock made a 52-week High and Low of GBX 1,740.00 and GBX 1,234.00, respectively.

Considering the weak profitability and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Abcam PLC at the current market price of GBX 1,583.00 (as on 18 October 2021 at 08:51 AM GMT+1).

Playtech PLC

Playtech PLC (LON: PTEC) is a FTSE 250 listed entity that provides gambling software services, and platform technology pertaining to casino, sports betting, poker, bingo, among others.

Investment Rationale – SELL at GBX 679.50

• Profit Booking: Playtech’s share price has soared over 58% today, post announcing its all-cash acquisition by Aristocrat. It is giving an attractive opportunity to book profit.
• Macroeconomic Uncertainties: British consumers’ confidence has already got a hit by fuel crisis, inflationary concerns, and supply chain disruption. Moreover, the likelihood of interest rate hike before the year end by the Bank of England can keep the market jittery in the short-term.
• Technical Indicator: From a technical standpoint, 14-day RSI (~85.75) indicates an overbought signal while the stock has gone significant above the upper standard deviation of the Bollinger Bands.
• Overvalued Valuation: On a forward 12-month basis – EV/Sales and Price/Earnings multiples are overvalued against industry median of the Consumer Cyclicals sector, while the Company has lower Dividend Yield than the industry.

Key Risks

• Negative macroeconomic outlook: The sliding consumer confidence in the UK with rising prices and subdued economic outlook could impact the market sentiments. Moreover, British inflation rose to its highest in 10 years, while the strengthening of US Dollar with an increase in US Treasury Yields can hinder the PTEC’s growth prospects.
• Pandemic related uncertainties: The Covid-19 led disruption can lead to the cancellation of sports events, impact consumer spending, and have a prolonged effect on general economic conditions.

Recent News

Takeover: On 17 October 2021, Bidco (a wholly owned subsidiary of Aristocrat) reached an agreement to acquire the entire issued capital of Playtech PLC at 680 pence per share. The acquisition value stood around £2.7 billion on an enterprise value basis.

Financial Highlights (for the six months ended 30 June 2021, as on 23 September 2021)

 (Source: Company Website)

• Financial Growth: Playtech reported solid performance from B2B online and recorded excellent progress on its strategic priorities in H1 FY21.
• Strategic Progress: The Company continued to accelerate its US presence, while simplification strategy is also progressing.
• Strong Balance Sheet: As on 30 June 2021, net debt stood at €677.9 million, compared to €627.4 million on 31 December 2020. The Company recorded the total cash of €540.8 million.

One Year Share Price Chart

 (Data Source: REFINITIV, analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion 

Playtech has received a premium price takeover from Aristocrat’s wholly owned subsidiary, Bidco. This transaction has bought significant benefits to its stakeholders, while the combination of two firms will create an industry leadership in the global online space. As the stock has breached our previously given target price, it is recommended to book profit now and invest capital plus gains in other value or growth opportunities. The stock made a 52-week High and Low of GBX 683.50 and GBX 327.65, respectively.

Based on the acquisition news of the company, overstretched valuation conducted above, macroeconomic uncertainties, we have given a “SELL” recommendation on Playtech PLC at the current price of GBX 679.50 (as on 18 October 2021, at 8:50 AM GMT+1).  

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

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

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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