Reach Plc

Reach Plc (LON: RCH) is a West Sussex, United Kingdom-headquartered largest commercial national and regional news publisher in the country, with market-leading regional titles including the Birmingham Mail, Liverpool Echo, Manchester Evening News, and influential and iconic brands such as the Daily Mirror, Daily Express, Sunday People.

Trading Update
Reach announced its trading update from 1st July to 29th November 2019. During the five months ended 24 November 2019, the group’s revenue on a like-for-like basis, declined by 4.4 per cent. In the second half of the financial year 2019, the company made a number of digital initiatives as forecasted earlier and will help the company to expand its operations in new geographic locations. In FY2020, the company will recruit 50 journalists approximately and will have seven new 'Live' launches. The company’s balance sheet remained strong with robust cash generation for the period. In light of this favourable ongoing performance, the group now estimate to show a net positive cash balance at the end of the FY19. The company is confident in meeting the expected targets set for the full year.

Share Price Performance

Daily Chart as of February 6^th, 2020, before the market close (Source: Thomson Reuters)

Reach Plc shares were trading at GBX 156.60 at the time of writing before the market close (at 12:05 PM GMT) on 6^th February 2020 and were down by 1.14% versus the previous day closing price. Stock's 52 weeks High is GBX 162.22 and Low is GBX 55.00.

Valuation Methodology

*Peers: Bonhill Group Plc, Quarto Group Inc and Pearson Plc.

Conclusion
The company will remain in line to deliver the full-year 2019 revenue guidance. The performance in the financial year 2019 is expected to be impacted by the ongoing political and economic uncertainties and its impact on the demand for advertising.

In the media market, the company operates in a very dynamic environment. It is evolving and changing rapidly and becoming progressively competitive. The most significant risk is the likely impact on the wider advertising market. The company is increasingly exposed to foreign exchange risk for overseas operations.

An economic downturn could affect the demand TV Broadcasters, and the media is exposed to global political and economic events and trends, leading to a risk to business operations from external factors.  Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited.

Based on the headwinds faced by the group and supported by valuation done using the above method, we have given an "AVOID" recommendation at the current price of GBX 160.00 (as on 6^th February 2020, before the market close at 8:00 AM GMT).  

Foxtons Group Plc

 
Foxtons Group Plc (LON: FOXT) is one of the estate agencies based in London, UK. The company and its subsidiaries are engaged in the provision of services to the residential property market in the United Kingdom. The major area of operations are Sales, Lettings, and Mortgage broking.

Trading Update
On 30th January 2020, Foxtons Group released an update for full-year trading period ending 31st December 2019. The company’s revenue for the FY2019 is expected to be around GBP 107 million versus GBP 111.5 million in FY2018, reflecting a decline of 4 per cent. The company was able to increase its market share in difficult market conditions. Due to tenant fee ban of GBP 2.7 million, the letting revenue declined by 2 per cent to around GBP 66 million in FY2019 versus GBP 67 million in FY2018. The landlord’s revenue improved due to different improvements made in Lettings offer. Driven by the impact of political uncertainty on transaction volumes, the revenue from sales declined by 10 per cent to around GBP 33 million in FY2019 versus GBP 36 million in FY2018. Driven by growth in re-mortgages for the period, the Mortgage revenue went up by 3 per cent. In December, the company closed four underperforming branches and their territories are served by other branches. Reflecting strong revenue performance and cost control, the adjusted EBITDA (post-IFRS 16) is expected to be in between GBP 13 million to GBP 13.5 million, while the adjusted EBITDA (pre-IFRS) is expected to be in between GBP 2 million to GBP 2.5 million for the period. The cash balance in FY2019 is expected to be around GBP 15.5 million versus GBP 17.9 million in FY2018. The company will announce its full-year results on 28th February 2020.

Share Price Performance

Daily Chart as of February 6^th, 2020, before the market close (Source: Thomson Reuters)

Foxtons Group Plc shares were trading at GBX 87.00 at the time of writing before the market close (at 12:14 PM GMT) on 6^th February 2020 and were down by 3.55% versus the previous day closing price. Stock's 52 weeks High is GBX 92.50 and Low is GBX 47.90.

Valuation Methodology

*Peers: Countrywide Plc, Savills Plc, Persimmon Plc, Berkeley Group Holdings Plc and Belvoir Group Plc.

Conclusion
During the third quarter of the financial year 2019, the company’s financial performance was weak, and the London sales market is expected to deteriorate further. Tenant fee ban will impact the profitability of the company. Current political uncertainty could dampen the financial performance of the company. There are some principal risks which could impact the company’s growth and performance. Continuous high property price inflation could impact affordability which could affect the company’s revenue. The company’s performance could also be affected by the changes in government policy, such as an increase in stamp duty taxes. Another risk is the breach of compliance with the legal and regulatory environment, which could affect the company’s revenue. Cybersecurity risk could also impact the company’s profitability and overall performance of the company.   

Based on the factors as highlighted above, we have given an “Avoid” recommendation at the closing price of GBX 90.20 (as on 5^th February 2020).
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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