Dr. Martens PLC

FTSE 250 listed, Dr. Martens PLC (LON: DOCS) manufactures footwear and durable boots. It operates through a diverse range of product categories, including Kids, Originals, Fusion, Casual, and Accessories.

Rationale for Valuation – SELL at GBX 425.60

• Profit Booking: DOCS has yielded over 10% return in the past five days and comfortably surpassed our previously recommended target price, and therefore, investors can liquidate their position with decent gains as per their risk-return profile.
• Macroeconomic Instabilities: British’s Company insolvencies hit pandemic highs in November 2021. Moreover, the increased costs, supply chain issues and rising Omicron COVID cases can exacerbate the situation.
• Technical Indicator: From a technical standpoint, 14-day RSI (~65.41) approaching the overbought zone, while the stock price has breached the upper Bollinger Band.
• Overvalued Multiples: On a forward 12-month basis, key valuation multiples – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book are overvalued than the median of the Consumer Cyclicals sector.

Key Risks

• Subdued Activity Level: The UK retail sales experiencing a sluggish growth due to the rising Omicron Covid-19 cases, shortage of key goods and doubts over consumer spending.
• Macroeconomic Uncertainties: The macroeconomic instabilities and inflationary concerns can impact the consumers’ disposable income and spending habits.

Financial Highlights (for the period ended 30 September 2021, as on 9 December 2021)

 (Source: Company Website)

• Robust Trading Momentum: During H1 FY22, revenue and profit before tax jumped by 16% and 46% year-on-year, respectively.
• Dividend: It recommended an interim dividend of 1.22 pence, equating to a 25% earnings payout ratio.
• Guidance: From FY23 and over the medium-term, DOCS anticipates mid-teens revenue growth.

One Year Share Price Chart

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

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

Despite the recent gains, DOCS has shown a significant downtrend in the past year. The ecommerce trends have remained positive; however, rising uncertainties with Omicron variant, falling shoppers’ footfall, supply chain snags, inflationary pressure and subdued disposal income can dent the growth trajectory. Therefore, it is prudent to take advantage of recent gains and escape the uncertainties. The stock made a 52-week High and Low of GBX 521.60 and GBX 355.60, respectively.

Based on the recent gains, overbought technical stance, uncertain macroeconomic outlook, and unfavourable valuation done using the above method, we have given a “SELL” recommendation on Dr. Martens PLC at the current market price of GBX 425.60 (as on 30 December 2021, at 8:15 AM GMT).

Keller Group PLC

Keller Group PLC (LON: KLR) is a FTSE All-Share listed geotechnical specialist contractor, specialized in pilling, earth retention, grouting, and monitoring.

KLR expects to announce its full year results for 2021 on 8 March 2022.

Rationale for Valuation – SELL at GBX 996.00

• Profit Booking: KLR has yielded over 41.67% return in the past year and has comfortably breached our previously recommended target price. Therefore, investors can liquidate their position with decent gains as per their risk-return profile.
• Business Uncertainty: Acute inflationary pressure and supply chain concerns can last even further with concerns related to the Omicron variant.
• Technical Indicator: From a technical standpoint, 14-day RSI (~64.74) indicates an overbought scenario, while the stock price has breached the upper Bollinger Band.
• Overvalued Multiples: On a forward 12-month basis –EV/EBITDA, Price/Earnings, Price/Cash Flow and Price/Book are quite higher than the average of the Construction & Engineering industry.

Key Risks

• House Prices Slowdown: The asking price for the UK homes slipped in November 2021 as the market entered its usual lull ahead of the Christmas holidays.
• Omicron Variant: The Government-led restrictions under Plan B due to the increasing number of Covid-19 cases in the UK may adversely impact the UK Equities. Moreover, it can exacerbate supply chain difficulties.

Trading Update (for the period ended 31 October 2021, as on 18 November 2021)    

• Operational Recovery: Keller has emerged well from pandemic-led impact, and thus, FY21’s performance is expected to be in line with market expectations.
• Order Book: There is good visibility on sales as the order book remained at a record level of circa £1.2 billion.
• Growth Prospects: The demand in residential sector remained robust, while the Company progressed well with the integration of RECON Services.

One Year Share Price Chart

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

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

Conclusion

As KLR stock has given a decent rally in the past year and now approaching close to its 52-week high. Therefore, it is giving an opportunity to book profit with decent gains. Meanwhile, the arrival and sustained impact of the Covid-19 with the Omicron variant can pose various challenges across the globe. Furthermore, there is a softer outlook for consumer spending amid soaring energy prices and moderating outlook for the UK economy, which can dent the overstretched position of the stock. Therefore, it is prudent to liquidate the position at the current level. The stock made a 52-week High and Low of GBX 1,043.60 and GBX 660.78, respectively.

Based on the decent gains, overvalued multiples, overbought technical stance, inflation, resource availability issues, and unfavourable valuation done using the above method, we have given a “SELL” recommendation on Keller Group PLC at the current market price of GBX 996.00 (as on 30 December 2021, at 8:10 AM GMT).  

*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).

*All forecasted figures and Industry 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.

Disclaimer

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. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

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. 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 does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does 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 intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.