Kingfisher Plc (KGF)       

London Stock Exchange-traded Kingfisher Plc, which was incorporated in 1982, with operational interest in the supply of home improvement products and services through a network of retail stores and online channels. As on November 24, 1982, shares of the of Kingfisher Plc were admitted to the main market of the London Stock Exchange. Templeton Global Advisors Ltd., Mondrian Investment Partners Ltd. and The Vanguard Group, Inc. are the major institutional investors in the group. (Source: Thomson Reuters).

Recent Update
In the exchange filing made by the group as on October 09, 2019, the group reported the appointment of Bernard Bot as Chief Financial Officer (CFO) of the group. He took charge as on October 21, 2019, and on the same date, he was appointed to the Board of Directors and became a member of the Group's Executive team.

Financial Highlights – H1FY20 (period ended on July 31, 2019)

Source: Company filing.

During the first half under consideration, the group's sales slumped by 1.4% on a reported basis, 0.9% on a constant currency basis and 1.8% on a like-for-like (LFL) basis to £5,997m. However, gross margin expanded by 60bps on a constant and reported basis as well.

Underlying pre-tax profit plummeted by 6.4% to £353m from £377m reported a year ago, while, adjusted pre-tax profit climbed 3.7% to £337m from £325m reported in the same period of the previous financial year, respectively.

Underlying basic earnings per share reduced by 3.9% to 12.3p from 12.8p a year ago. However, despite a slump in the underlying basic earnings per share, the dividend declared by the group for the six-months ended on July 31, 2019, was remained flat at 3.33p. The group’s net debt at the end of H1FY20 declined to £2,384m.

Stock Performance
 
Daily Price Chart (as on November 04, 2019), before the market close. (Source: Thomson Reuters).

Shares of the KGF have plummeted more than 20% on a YoY basis and declined by approximately 4.39% in the past three months, respectively. While writing its shares (before the market close at 11:26 AM GMT), its shares traded 4.0 points or 1.91% higher against the previous close at GBX 213.1. In the year-over period, its shares have registered a 52w high of GBX 268.20 and a 52w low of GBX 185.90, respectively.

Valuation Methodology


Conclusion
The group’s performance was lacklustre during the first half of the FY20. Also, the group’s long-term debt to equity ratio at the end of H1FY20 was substantially higher at 37.9% against the industry average LT Debt to Equity ratio of 7.17%, which reflects higher balance sheet risk to the group. Due to higher debt contribution in the capital structure, the group’s return on equity is considerably lower at 2.48% against the industry average of 6.46% respectively.

Despite recorded poor financials, its shares were commanding a higher valuation, particularly in terms of Price-to-Earnings ratio, which was at 27.94x against the industry average price-to-earnings ratio of 23.36x, respectively.

However, a technical indicator is moving positively in the stock with the Moving Average Convergence Divergence is rising, with 12-day Exponential Moving Average (EMA) quoted above the 26-day EMA, and at the current price, the share was traded marginally above its short-term and long-term support level of 30-day and 200-day simple moving average prices.

Therefore, on the basis of above discussion and valuation done using the above methodology, we have given a “Watch” recommendation at the current price of GBX 213.1 (as on November 04, 2019, before the market closed), while we look for any upcoming catalysts in the near term.

Smurfit Kappa Group Plc (SKG)
 

London Stock Exchange-traded Smurfit Kappa Group Plc is a provider of paper packaging solutions. The group mainly focus on manufacturing, distributing and marketing of corrugated containerboards, containers and other paper-based packaging goods. As on March 20, 2007, its shares were admitted to the main market of the London Stock Exchange and its stock is a constituent of the UK’s broader FTSE 100 index.

Trading Update - 9M FY19 (period ended as on September 30, 2019)
During the nine-months under consideration, the group's revenue recorded a growth of 3% to €6,850m, EBITDA surged 11% to €1,257m, and EBITDA margin expanded 140bps against the comparable period to 18.3% respectively.

In Europe, its corrugated box witnessed a volume spurt of 4% on a YoY basis or approximately 2% organically. Also, the corrugated box was broadly in line with the management's expectations. In the Americas, volume grew by 2% organically with EBITDA, and EBITDA margin continued to record an improvement on YoY basis. 

In September 2019, the group issued €750m bond at a coupon rate of 1.5% with 8-year maturity, which was a lower average interest rate for the group.

Financial Highlights: H1FY19 (period ended as on June 30, 2019)

Source: Company filings

During the first-half under consideration, the group's revenue surged by 4% to €4,622m, and EBITDA spurt by 17% to €847m from €724m a year-ago, driven by European business EBITDA which grew by 19.3% from 17.3% reported in the comparable previous period, and the Americas business EBITDA surged by 17.1% against 15.2% recorded a year before period, respectively.

The group's EBITDA margin improved to 18.3% from 16.4% in H1FY18 which reflects the resilience of the Group’s integrated model, the benefits of capital spend programme, volume growth, higher corrugated pricing, lower recovered fibre costs and the impact of IFRS 16, Leases.

Basic Earnings Per Share expanded by 8% to 140.6 cents from 124.5 cents reported in the same period of the previous financial year. Free cash flow surged by 8% to €159m. The return on capital employed improved by 60bps to 18.7% and Net Debt surged substantially to €3,751m from €2,871m reported at the end of H1FY18.

Stock Performance
 
Daily Price Chart (as on November 04, 2019), before the market close. (Source: Thomson Reuters).

Shares of SKG had delivered a price return of approximately 7% on a YoY basis and up by around 27% on a YTD basis respectively. While writing (before the market close at 01:48 PM GMT), shares of SKG traded 70 points or 2.66% higher at GBX 2,705.

Conclusion
The group reported decent trading update for the nine-months ended as on September 30, 2019 driven by decent performance in Europe and in the Americas as well.

Despite a decent price surge it recorded in the past couple of months, its shares were still trading at a discounted valuation in terms of Price-to-Cash flow against the industry peers, as SKG’s Price-to-Cash Flow ratio stood at 27.26x against the industry average P/CF ratio of 29.04x, respectively.

Also, at the current trading level, its shares traded well above its short-term as well as long-term support levels of 30-day, 50-day and 200-day simple moving average prices, a bullish signal and carrying the significant potential to move up further from the current trading level. The Moving Average Convergence Divergence is also rising, with 12-day EMA quoted well above the 26-day EMA, and both 12-day and 26-day EMAs are rising. However, the 14-day and 9-day Relative Strength Index of the stock were hovering in overbought territory, and at the current level, the stock was quoting above its upper Bollinger Band®, which indicates some correction could take place in near-term.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 2,636.0 as on 1^st November 2019.
 
*All forecasted figures have been taken from Thomson Reuters.

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