Ashtead Group Plc

Ashtead Group Plc (LON: AHT) is an FTSE 100 listed global equipment rental business with national networks in the United Kingdom, Canada, and the United States.

The Company will release Q2 FY2021 results on 8 December 2020.

Investment Highlights – Ashtead Group Plc – Sell at GBX 3,033.00

• The Company has shown a significant decline in the financial performance in the first quarter of the financial year 2021 on reported and underlying basis.
• As per valuation metrics, EV/Sales, Price/Earnings and Price/Book Value multiples of the Ashtead Group Plc are currently higher as compared to the corresponding multiples of the Professional & Commercial Services industry, reflecting overstretched valuations.
• The Company’s Debt/Equity ratio for FY2020 stood at 1.89x and is consistently increasing since FY2018, reflecting a higher portion of the debt in the capital structure.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 62 level), which means the stock price could decline in the short term.

Key Risks

• The Company’s business is exposed to risks such as environmental regulations, foreign exchange risks and expansion by competitors.
• Due to Covid-19 crisis, the Company could face disturbance in the supply chain.

Recent News

On 8 October 2020, Ashtead Group confirmed that England and Wales based High Court of Justice has made an order confirming the cancellation of 2,840,000 shares, purchased between 5 February to 18 March 2020. The order has been registered with Companies Registrar, and Capital Reduction has now become effective. The Company’s share capital after Capital reduction consists of 451,354,833 shares at £0.10/share.

Trading Update for Q1 FY2021 (31 July 2020) (released on 8 September 2020)

(Source: Quarterly Report, Company Website) 

• In the first quarter of the Financial year 2021, the financial performance declined with lower revenue and profitability margins. The Company maintained resilient performance during the pandemic.
• The Company generated a record FCF (free cash flow) of £447 million and reduced net debt to £4,822 million as on 31 July 2020.
• The Company resumed greenfield opening programme, with three openings in the quarter, and is in context with a macroeconomic backdrop, leverage range and balanced capital allocation policy.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

*Peers: Intertek Group Plc, HomeServe Plc, Ferguson Plc, Relx Plc and DCC Plc.

Conclusion

The financial performance in the first quarter of the financial year 2021 declined, with lower revenue and profitability. The Company do not expect any major market shutdowns due to covid-19 crisis. Due to imposed travel restriction, the operational and financial performance impacted for the short-term period.

AHT is expecting rental revenue for FY2021 to decline by mid to high single digits on a constant currency basis versus last year data. Reduction in share capital will have an adverse impact on the Company’s investment plans and shareholders wealth. Moreover, the Company’s share price is trading near its 52-week high, which raises doubt over its upside potential. The stock made a 52-week low and high of GBX 1,010.00 and GBX 3,039.00, respectively.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation for Ashtead Group Plc at the current price of GBX 3,033.00 (as on 4 November 2020, before the market close at 9:38 AM GMT) based on 21.61x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Reach Plc

Reach Plc (LON: RCH) is a West Sussex, United Kingdom-headquartered commercial national and regional news publisher in the country.

The Company will release a trading update on 27 November 2020.

Investment Highlights – Reach Plc – Sell at GBX 129.40

• Despite the strong recovery in digital advertising, the Company’s all revenue categories were impacted by Covid-19 pandemic, and overall revenue declined by 17.5% for the period.
• In the last nine months, the Company delivered a negative return of ~ 19.16% and delivered significantly lower returns compared to the benchmark Index (FTSE-All Shares Index).
• As per valuation metrics, Price/Cash Flow multiple of the Reach Plc are currently higher as compared to the corresponding multiples of the Media & Publishing industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is in the overbought zone and is supporting downward movement (around 79 level), which means the stock price could decline in the short term.

Key Risks

• The uncertainty about macroeconomic factors and change in consumer disposable income might impact business performance.
• Moreover, consumer confidence is battered in recessionary economic conditions.

Recent News

On 23 October 2020, Reach announced the submission of 12,798,952 shares of £0.10 LSE’s (London Stock Exchange) to premium listing segment maintained by FCA (Financial Conduct Authority) on 22 October 2020 and started to trade on LSE’s (London Stock Exchange) main market on 23 October 2020 at 8:00 AM.

Financial & Operational Highlights – H1 FY2020 (28 June 2020) (released on 28 September 2020)

(Source: Interim Report, Company Website)

• In the first half of the financial year 2020, due to the impact of a covid-19 pandemic, the revenue declined by 17.5%, while the experienced strong recovery in digital advertising and increased customer engagement.
• Reach witnessed strong cash generated from operations of £47.9 million, with net cash of £41.9 million as on 28 June 2020.
• In July 2020, the Company announced the Transformation programme, which shall provide a strong foundation to accelerate customer value strategy, with £35 million reductions in cost base annually.
• The Company has seen impressive growth, with more than 3.5 million customer registrations.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2020. Both the top-line and the bottom-line performance declined, with lower profitability margins. Despite the gradual recovery in circulation revenue, the revenue in Q3 FY2020 declined by 15%. The revenue from digital business increased by 12.9%, while print revenue declined by 19.9% in the third quarter. The cash dividend remained suspended due to uncertainty related to the covid-19 crisis. The Company intends to resume dividend payment as the market condition gets normal. The stock made a 52-week low and high of GBX 47.95 and GBX 179.19, respectively.

Based on the risks associated and support from valuation as done using the above method, we have given a “Sell” recommendation for Reach Plc at the current price of GBX 129.40 (as on 4 November 2020, before the market close at 12:13 PM GMT) based on 3.90x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

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

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.