Greencore Group PLC – Operating with Strong Financial and Business Model
Greencore Group PLC (LON: GNC) manufactures, distributes and markets convenience foods and ingredients. The Company currently operates across two segments: Convenience Foods and Ingredients & Property.

On 28^th July 2020, the Company will release its Q3 Results.
Financial Highlights (H1 FY20) - Freshtime Performed Well and Stable Underlying Cashflow Trends

(Source: Interim Presentation, Company Website)

On 19^th May 2020, the Group provided the interim results for the 26 weeks ending 27 March 2020,along with the updates on its response to the COVID-19 pandemic. Overall results reflect H1 profitability and cashflow in line with the plan until mid-March; comprehensive and rapid response to COVID-19; conserving balance sheet strength; planning with customers to build back the business. Group revenue increased by 1.6% to £712.7 million in H1 FY20as compared with the corresponding period of the last year (H1 FY19: £701.4 million), while pro forma revenue reported a growth of 0.1%. The adjusted operating profit reduced by 14.3% to £38.3 million (H1 FY19: £44.7 million) and adjusted EPS stood at 5.8 pence in the first half of 2020 (H1 FY: 6.4 pence). Including exceptional finance charge, the Group’s profit before taxation for H1 FY20 rose to £27.3 million from £5.7 million in H1 FY19, driven by higher finance costs in the previous period, partially offset the decrease in operating profit during H1 FY20.Revenue and profitability negatively impacted by the outbreak of COVID-19, especially in food to go categories. Excluding lease liabilities, the net debt stood at £311.1 million at 27th March 2020, with net debt to EBITDA ratio of 2.1x. On 27^th March 2020, the undrawn committed facilities and total cash stood at £267.5 million with covenant waivers agreed for bank facilities.

Share Price Performance

1-Year Chart as at May-21-2020, before the market close (Source: Refinitiv, Thomson Reuters) 

On 21^st May 2020, before the market close (at 8:07 AM GMT+1), Greencore Group PLC’s shares were trading at GBX 136.20 and were down by 1.59 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 282.20/GBX 83.40.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings and EV/EBITDA multiples of the GNC were 7.8x and 7.9x, respectively and the same multiples were lower as compared with the Food Producers industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
In H1 FY20, the Group delivered a 4.0% pro forma growth in other convenience categories. Greencore Group’s medium-term financial ambitions are for mid-teen ROIC (Return on Invested Capital), for mid-single-digit organic revenue growth, the conversion of half of its Adjusted EBITDA to Free Cash Flow and high single-digit Adjusted EPS growth.

Conclusion
The Group has started the year in line with its expectations.In the light of COVID-19 disruption, the Company has taken several actions to ensure that GNC is well-positioned to build back the business. As per the ongoing level of uncertainty, the Group’s financial guidance for the financial year 2020 was suspended on 30 March 2020. GNC has a strong balance sheet and improved Free Cash Flow which would benefit the medium terms goals of the Group. The business is focusing on its organic and inorganic investment and its strategic objectives. The Company is well placed in the diverse, attractive and growing UK food market. The Group is focusing on its growth, customer relevance and a distinctive way of working across the business. Greencore Group prospects are looking good, and it’s a good opportunity to invest for the long term. Recently, the Group had appointed Emma Hynes as Chief Financial Officer and Executive Director, which would benefit the financial performance in the near term.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 136.10 (as on 21^st May 2020, before the market close at 8:16 AM GMT+1) with lower double-digit upside potential based on 12.43x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Equiniti Group PLC - Growth Sustained in a Challenging Operating Environment

Equiniti Group Plc is a provider of financial services, which uses its technology platforms to serve organisations in diverse sectors across the world.

On 30^th July 2020, the Company will release its Interim Results of 2020.

Update (as on 15^th April 2020) - Strong and Resilient Diversified Business

The Group announced an update on its trading statement for the period since 31 December 2019 to date and the impact which the COVID-19 outbreak had on the business. In the current trading, the Company has a resilient business model, with enduring relationships with large listed corporates and Government, and a high degree of recurring revenue. In all the EQN’s key markets, the leadership positions are likely to be sustained with a return to organic growth, the prospects of the clients, and market sentiment.

From the perspective of the unprecedented crisis, the Group is taking back its previous guidance for the financial year 2020. For the rest of the financial year 2020, the Board has decided that no acquisitions are contemplated. EQN has decided not to pay any dividend until the situation stabilises. During the unprecedented crisis, the key objective of the company is to protect the safety and welfare of the Group's employees.

Share Price Performance

1-Year Chart as at May-21-2020, before the market close (Source: Refinitiv, Thomson Reuters) 

On 21^st May 2020, before the market close (at 8:45 AM GMT+1), Equiniti Group PLC’s shares were trading at GBX 139 and were down by 1.28 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 238.20/GBX 136.40.

Momentum oscillator RSI 14 days is reading above 30 levels on the chart with positive crossover on the cards as it is reflecting oversold position for the stock and upside bump can be triggered in the near term.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price/Earnings, EV/EBITDA and Price/Book multiples of the EQN were 20.3x, 7.4x and 1.2x, respectively and the same multiples were lower as compared with the Support Services industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The Group has a robust financial position and taking several major actions, considering the evolving COVID-19 situation. Whilst the long-term scenarios of EQN stay unchanged, the reduced interest rates, combination of depressed capital markets, and the unprecedented crisis brought by Coronavirus create unavoidable headwinds in the near-term.

The Group reported a well-managed balance sheet with significant headroom in its committed facilities of around GBP 150 million and net debt to underlying EBITDA ratio of 2.5x as at 31 December 2019.

Over the course of 4 years (FY15 - FY19), the company’s revenue surged from GBP 369 million in FY15 to GBP 555.70 million in FY19. Compounded annual growth rate (CAGR) stood at 10.78 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 137.60 (as on 21^st May 2020, before the market close at 8:12 AM GMT+1), with lower double-digit upside potential, based on 10.93x NTM Price/Earnings multiple (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.

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