Auto Trader Group PLC

Auto Trader Group Plc (AUTO) specializes in the digital automotive marketplace. The company provides products and services to retailers and home traders to support their online activities. It offers vehicle advertisement on its Websites for individuals; and display advertising on its Websites for advertising agencies and retailers, as well as insurance and loan financing products to consumers.

Financial Highlights (H1 FY2019, £ million)

(Source: Interim Report, Company Website)

The group’s total reported revenue surged by 7 per cent to £176.8 million as compared to £165 million in H1 2018, due to an increase in trade and manufacturer & agency business. Operating profit climbed by 10 per cent to £120.6 million against £109.9 million in H1 FY18. The operating profit margin surged to 68 per cent. Profit before taxation increased by 9 per cent to £114.5 million as compared with the H1 2018 data of £105.3m. The basic earnings per share rose by 12 per cent to 9.78 pence as compared to 8.71 pence in H1 2018. For H1 2019, the management board declared an interim dividend per share of 2.1 pence.

Share Price Performance

Daily Chart as at May-29-19, before the market closed (Source: Thomson Reuters) 

On 29^th May 2019, at the time of writing (before the market close, GMT 8:45 AM), AUTO shares were trading at GBX 596.60, down by 0.33 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 601.40/GBX 349.30. The company’s stock beta was 0.36, reflecting the lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
Recently, the company had announced a board shake-up following the retirement of chief executive Trevor Mather after six years at the helm of the UK’s digital automotive marketplace. Mr Nathan Coe, the present CFO and COO, will become the CEO (designated from May-01-19). The group will be facing macro headwinds due to Brexit uncertainties in the near term. Other risks elements include higher IT sector valuation and competition from other online vertical/horizontal players. The effect of weak investment markets is a potential headwind for the company in 2019. The company had shown good financial performance in the current half-yearly result, and most of the revenue was generated from its trade business.

The company is facing fierce competition from its competitors and is impacted by economic and political instability. Risk also includes an improving cyclical backdrop and over-delivery on the product. Based on the above valuation and risks associated with the operations of the company, we recommend investors to keep a cautious “Watch” on the stock at the closing price of GBX 598.60 (as on 28^th May 2019), and support from future growth catalysts needs to be evaluated at a subsequent stage.
 

Galliford Try PLC

The UK based Galliford Try Plc (GFRD) is engaged in the business of housebuilding, regeneration and construction. Its areas of operation are categorised into segments like Linden Homes, Galliford Try and Morrison Construction. Its shares trade on the London Stock Exchange, and it's a constituent of FTSE 250 index.

Trading Update (as on 21^st May 2019)
Management has completed its strategic review and had decided to focus on its core strengths in Building, Water and Highways. The restructured division’s annual revenue is expected to reduce to £1.3bn by FY21. In addition, the division is looking to generate £15m of cost savings over this time frame. The group reports that Linden is enjoying stable market conditions with a sales rate of 0.68x since January 1, 2019 (2018: 0.71x) on average sales outlets of 79 (2018: 84). Driven by this, the division’s total sales carried forward stood at £1.1bn, down from £1.2bn in the prior year. Partnerships have seen strong growth and with the strong pipeline in the near term, the market opportunity remains positive across all tenures.

Financial Highlights (H1 FY2019, £ million)

(Source: Interim Presentation, Company Website)

Reported pre-exceptional revenue stood at £1,418 million (taking into account share of the joint venture but excluded revenue from part-exchange) and witnessed a decline of 5% on a year-on-year basis. The company reported a pre-exceptional profit of £94.0 mn (was in line with management estimates). Revenue from Linden Homes stood at £392.1 mn against revenue of £436.8 mn during the corresponding period of the previous financial year. Private average selling price decreased by 5% to £352k in H1 FY19 as compared with £370k reported last year. Revenue from Partnership & Regeneration rose by 27% to £284.9 mn against revenue of £223.5 mn during the corresponding period of the previous financial year. Revenue from construction segment witnessed a decline of 13% to £718.4 million. Construction of Aberdeen Western Peripheral Route is now completed and incurred an exceptional cost of £26 mn from completion delays.

The board of Galliford Try Plc has announced an interim dividend of 23.0 pence per share for H1 FY19 as compared with the interim dividend of 28.0 pence announced during H1 FY18. For H1 FY19, Net Debt stood at £40.1 mn and declined by 52.8% as compared with Net Debt of £84.9 mn during H1 FY18.

Share Price Performance

Daily Chart as at May-29-19, before the market closed (Source: Thomson Reuters) 

On 29^th May 2019, at the time of writing (before the market close, GMT 8:45 AM), GFRD shares were trading at GBX 586.60, up by 5.12 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 1,117.00/GBX 499.60. The company’s stock beta was 0.93, reflecting slightly lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
The company had shown resilient trading in the core businesses and has entered the second half of FY19 with strong foundations, supported by a strong balance sheet and increased focus on high-quality earnings which will drive future margins. Their residential development builds a robust premise in more uncertain markets. The company is significantly exposed to the Brexit deal and any hard Brexit will have a significant impact on its Linden Homes segment.
Based on the above rationale and valuation done using above method we have given a “Speculative Buy” recommendation at the closing of GBX 558 (as on May 28, 2019) with an indicative low double-digit upside potential based on 1.08x NTM Peers Average Price-to-Book Value (approx.) on FY19E book value per share (approx.).
 
*All forecasted figures and peer information have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report as on (May-29-2019).

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