Barratt Developments Plc

Barratt Developments Plc (LON: BDEV) is an FTSE 100 listed Company, which is engaged in acquiring and developing land. It is also involved in the designing and construction of residential property developments.

Investment Highlights – Barratt Developments Plc – Hold at GBX 535.60

• The Company has a strong forward sale trajectory with improved sales rate, which will further boost the balance sheet and liquidity position.
• As per valuation metrics, EV/Sales and Price/Book Value multiples of the Barratt Developments Plc are currently lower as compared to the corresponding multiples of the Homebuilding & Construction Supplies industry. It reflects, shares are undervalued as compared to the industry.
• In the six months, the Company has delivered a substantial return of ~ 28.41% and delivered higher returns compared to the benchmark Index (FTSE-100 Index).
• From the technical standpoint, shares were trading well above the short-term support level of 20-day (GBX 495.00) simple moving average prices, which reflects an uptrend in the stock.

Key Risks

• The Company’s operational performance could be hampered due to climate change as it may result in project delay or can lead to transition risk.
• The projects completions could be delayed due to the complex regulatory environment.

Update on Trading Performance (released on 14 October 2020)

• The Company continue to see strong customer demand for new high-quality homes, with a 20.8% increase in sales rate.
• The Company is operating from 340 active outlets and launched 33 new developments, to boost the expected recovery of completion volumes.
• The home completions delivered surged by 24% as compared to last year data. The total forward sales stood at 15,135 homes with £3,647.6 million value as on 11 October 2020.
• BDEV has a well-positioned balance sheet with a robust liquidity position. The Construction activity stood in line with planned output for FY2021.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company witnessed a strong customer demand and improved total forward sales as on 11 October 2020. BDEV is focused on rebuilding completion volumes and targeting a ROCE of 25% in the medium-term. Based on the market conditions, the Company expects to complete 14,500-15,000 homes construction by FY2021, while leading the industry in service and quality. The management expects the market to remain uncertain but is confident that a strong balance sheet and disciplined approach will bring flexibility and resilience to tackle the challenges. The stock made a 52-week low and high of GBX 349.40 and GBX 889.20, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for Barratt Developments Plc at the current price of GBX 535.60 (as on 14 October 2020, before the market close at 8:10 AM GMT+1) and will recommend fresh buying at the right time.

 

ASOS Plc

ASOS Plc (LON: ASC) is a UK listed fashion retailer, operating globally with around 800 brands.

Investment Highlights – ASOS Plc – Buy at GBX 4,754.00

• The Company has shown solid growth in the UK, EU, ROW and the US, along with higher customer base.
• As per valuation metrics, EV/Sales, EV/EBITDA and Price/Book Value multiples of the ASOS Plc are currently lower as compared to the corresponding multiples of the Diversified Retail industry. It reflects, shares are undervalued as compared to the industry.
• In the six months, the Company delivered a significant return of ~ 115.28% and delivered higher returns compared to the benchmark Index (FTSE-AIM Index).
• From the technical standpoint, 14-day RSI is in oversold zone and supporting an upside move (around 35 level), which means the stock price could increase in the short term.

Key Risks

• The Company’s profitability is impacted by weak consumer confidence and declining disposable income.
• The Company is also facing an intense competition which can put pressure over margins and expected growth might not be achieved.

Financial & Operational Highlights – FY2020 (31 August 2020) released on 14 October 2020

(Source: Annual Report, Company Website)

 

• For the financial year 2020, driven by strong growth across multiple locations and increased customer base, the revenue surged by 19%.
• Driven by favourable return rates, the profitability for the period improved, with solid cash generation.
• The Company showed operational resilience and agility across the supply chain and warehousing, despite the covid-19 crisis.
• ASOS managed to reduce non-strategic cost substantially, which resulted in sustainable improvements to profitability.

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 strong financial performance in the financial year 2020. Both the top-line and the bottom-line performance improved, with higher profitability margins. The Company expects to continue to deliver improved underlying profit. Despite the short-term uncertainty, ASOS is well-positioned to capture the global opportunity. The Company is focused on improving agility, resilience, capability and warehousing capacity while maintaining the social distancing. ASC is continuously making an investment in infrastructure and technology. The stock made a 52-week low and high of GBX 975.20 and GBX 5,548.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” recommendation on ASOS Plc at the current price of GBX 4,754.00 (as on 14 October 2020, before the market close at 1:45 PM GMT+1), with lower double-digit upside potential based on 48.40x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

 

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

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