Inchcape Plc

Inchcape Plc (LON: INCH) is a London, United Kingdom-based automotive retailer and distributor. The Company’s business is differentiated in three segments: Distribution, Retail and Central.

On 29 July 2021, the Company will release its half-year results.

Rationale for Valuation – Sell at GBX 798.50

• Trading near a 52-week high, while on a trailing 12 months, EV/EBITDA, Price/Earnings, Price/Cash Flow and Price/Book Value multiples of INCH are currently higher than the corresponding multiples of the Automobiles & Auto Parts industry, reflecting overstretched valuations.
• Despite the decent financial performance in FY20, the Company expects the trading environment to remain uncertain in the near term.
• In FY20, the net margins and ROE were in the negative zone.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 55.35 level), which means the stock price could decline in the short term.

Key Risks

• The Company’s operations are impacted by the ongoing uncertainty created over the Coronavirus, as it would disturb the supply chain.
• In the wake of increased unemployment and falling purchasing power, it could lead to lower demand, especially for the non-essential products.
• As the lockdown measures continue to ease and societies and economies begin to reopen after months of closure, the markets are watching lenders’ credit activities and risk appetites with keen interest.

Recent News

On 26 May 2021, the Company announces that Jane Kingston, as an Independent Non-Executive Director, has been appointed to INCH’s Audit Committee.

Q1 FY21 Trading Update (for the period from 1 January to 31 March 2021, as on 29 April 2021)

(Source: Company Website)

• During the quarter, the reported revenue decreased by 3% year-on-year, with Distribution up 10% and Retail down 18%.
• In the distribution division, Hong Kong saw positive revenue growth, with improving top-line trend in Singapore.
• In the retail division, the Company was impacted by the Covid-19 restrictions in the UK & Europe regions, but it has shown a solid start to the year in Russia.

One Year Share Price Chart

 (Research Done by the Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative)

Conclusion

In Q1 FY21, the Company’s performance was ahead of the expectations, with revenue growth supported by a recovery in the Distribution business. It expands its distribution footprint with Daimler in Guatemala and JLR in Indonesia. Further, in FY21, it expects material growth in profits, with an improvement in operating margin. However, the pandemic situation presents continued uncertainty. The business is also exposed to steep competition and price war. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impacts of the UK exit from the European Union. The stock made a 52-week low and high of GBX 400.20 and GBX 833.50, respectively.

Based on the uncertain outlook and economic downturn, we have given a “Sell” recommendation on Inchcape at the current price of GBX 798.50 (as on 4 June 2021 at 8:00 AM GMT+1), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

Metal Tiger Plc

Metal Tiger Plc (LON: MTR) is a financial services Company, which is providing business and financial support to Companies to expand the value of natural resource interest.

On 30 June 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Sell at GBX 33.00

• In FY20, the profitability was lower than the previous year.
• Trading near a 52-week high, while on a trailing 12 months, Price/Earnings multiple of MTR is currently higher than the corresponding multiple of the Investment Holding Companies industry, reflecting overstretched valuations.
• The industry outlook seems dim in the short-term.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 82.10 level), which means the stock price could decline in the short term.

Key Risks

• Political uncertainties and macroeconomics headwinds may continue to impact the current business environment and investors sentiments.
• Risks related to the environment and climate change could hamper the operations of the Company.
• Liquidity and interest rate risks could affect the financials of the Company.
• The macro factors continued to impact operational performance adversely and resulted in an increased risk.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 20 May 2021)

(Source: Company Website)

• The Company has shown a significant increase in the activity of the Equity Investments division.
• The profitability for the period was down, due to net loss on the investment.
• Net current assets at the year-end stood at £21.1million.
• The Company announced an investment of C$1 million into Camino Minerals Corporation.

One Year Share Price Chart

 (Research Done by the Kalkine Group)

Conclusion

Metal Tiger had received conditional approval for a secondary listing on the ASX (Australian Stock Exchange) and also investing in various mining exploration companies, which will expand the Company's profile, price discovery in its shares will be more convenient, and will provide access to the new potential investors. It will also improve the deal flow in Australia. It has secured an equity derivative collar financing facility against Sandfire shareholding from a global investment bank, which will further strengthen the financial position. However, the Company witnessed a decline in financial performance in FY20. As the Company is investing in multiple geographies, the profits can be impacted negatively due to foreign exchange rate fluctuations. Currently, the stock is trading near its 52-week high, suggesting that the upside potential might be limited. Therefore, it is advisable to book profit as of now, considering global headwinds persisting currently due to the pandemic and the impact of the UK exit from the European Union.  The stock made a 52-week low and high of GBX 18.50 and GBX 34.50, respectively.

Based on the uncertain outlook and economic downturn, we have given a “Sell” recommendation on Metal Tiger at the current price of GBX 33.00 (as on 4 June 2021 at 8:00 AM GMT+1), while we will look forward to reinvesting at the right time when the due corrections are being done, and we have more clarity regarding the profitability and guidance.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

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

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

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