J Sainsbury PLC: Sustainable Business Model with Over 90,000 Products Available for Customers

J Sainsbury Plc (LON: SBRY) is a British chain of supermarkets. The group is involved in grocery-related retailing and retail banking with interests in property as well.

The group will release its preliminary results on 30th April 2020.
Recent News
On 23^rd April 2020, the company’s customers have collectively donated more than 1.5 million pounds to Comic Relief and Children in Need in the last two weeks, all of which will be matched pound for pound by the group’s bringing the total raised so far to 3.1 million pounds.

The company has launched Volunteer Shopping Cards on 20^th April 2020, which will help the customers who cannot shop for themselves.

Q3 FY2020 Trading Update – Reflecting Robust Grocery Performance and Online Growth
The company witnessed strong online growth and decent grocery performance as it created one multi-brand with the multi-channel business.The company’s sales from grocery business went up by 0.4 per cent, while the groceries online sales went up by 7.3 per cent for the period. The company’s clothing business witnessed a growth of 4.4 per cent for the period. The sales from General Merchandise declined by 3.9 per cent for the Q3 of the financial year 2020. The total sales from online business went up by 5 per cent for the quarter. The company’s total retail sales (excluding fuel) declined by 0.7 per cent, and sales (excluding fuel) on a like-for-like basis declined by 0.7 per cent for the period.

Share Price Performance
 
Daily Chart as at April-24-20, before the market closed (Source: Thomson Reuters)

J Sainsbury PLC’s shares were trading at GBX 200.40 before the market close (at 11:30 AM GMT) on 24^th April 2020 and were up by 0.78% versus the previous day closing price. Stock 52 weeks High and Low are GBX 237.19 /GBX 171.19.

Valuation Metrics

(Source: LSE)

As on 31st March 2020, the EV/EBITDA, and Price to Book multiples of the SBRY were around 4.0x, and 0.6x, which were lower as compared to the industry multiples. It reflects, shares are undervalued against its peers.

Growth Catalysts - Reflecting Good Scenario, with Introducing New Value Brands
The progressive efforts towards cost-cutting have led to a surge in efficiencies. This, coupled with the group's focus on synergies from Argos, has resulted in strong financial performance.The company has generated healthy momentum across all the business.In the financial year 2020, the company will enhance 450 supermarkets stores and 200 conveniences. SBRY has also introduced 123 new value brand products.

Conclusion
On year on year basis, client satisfaction has significantly increased. The consumer outlook stays uncertain in the Retail market segment, and the company also stay highly competitive. Keeping up to date with the trend, the company is increasingly pushing the business into the online marketplace, which has been growing at an impressive pace. In light of COVID-19, the difficult situation has led people to rush for their grocery shopping, and people are buying food products in higher quantity to stockpile goods in case situation deteriorates further. Moreover, the grocery, clothing and general merchandise markets remained very competitive and marketing-centred industry with straining on the margins. This has led to a spike in demand for food retailer offerings and for those who supply value-added products to the UK food retailers and food production services. In the current crisis, the food producer companies are performing well, due to continuous food supply as essential.

Based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 197.50 (as on 24th April 2020, before the market close at 8:00 AM).

IG Group Holdings PLC: Leading Provider of CFDs worldwide, and Operates in 16 Countries

IG Group Holdings PLC (LON: IGG) is a financial services company, which provides fast and flexible access to the financial markets to traders through its platform and applications.

On 4^th June 2020, the company will release its Q4 FY20 market update. The company will also announce its Annual Results on 21^st July 2020.

Trading Update – Reflecting Prolonged Period of Volatility
On 24^th April 2020,the company provided a trading update in the view of the Q4 of its financial year ending 31 May 2020. In the first 36 trading days of the 61 in the fourth quarter of 2020, the revenue is expected to be approximately £173 million, while revenue was £139.8 million in Q3 FY20 and £249.9 million in H1 FY20. In the month of March and April 2020, there is a high level of volatility that has continued in the market. The group has increased the number of active clients and continued to see high levels of client trading activity. IGG has more than 22,500 new OTC leveraged clients that have traded in the first 36 trading days of Q4 against the previous quarter (Q3 FY20: 36,000 new OTC leveraged clients). The company’s financial position stays decent. Further, the Company has committed 5 million pounds from its FY20 profit before tax to the IG Brighter Future Fund to enhance the educational opportunities.

Share Price Performance

Daily Chart as at April-24-20, before the market closed (Source: Thomson Reuters)

IG Group Holdings PLC’s shares were trading at GBX 740.3939 before the market close (at 10:15 AM GMT) on 24^th April 2020 and were up by 0.60% versus the previous day closing price. Stock 52 weeks High and Low are GBX 777.00 /GBX 467.40.

Valuation Methodology
 
 
 
Valuation Metrics

(Source: LSE)

As on 31st March 2020, the Price to Earnings, EV/EBITDA, and Price to Book multiples of the IGG were around 16.1x, 10.8x and 3.0x, which were higher as compared to the industry multiples. It reflects, shares are overvalued against its peers.

Key Risks
The Group faces client credit risk, counterparty credit risk, liquidity risk and capital adequacy risk. The company faces operational risks, including those arising through technology, people, process and external events. IG operates in a dynamic competitive environment, and its revenue is dependent on the number of active customers and the level of their activity.

Conclusion
In any period, the revenue is wedged by the level of financial market volatility. In light of COVID-19 pandemic, it has successfully executed its comprehensive business continuity plan. Excluding variable remuneration, Operating expenses are now projected to surge by approximately £40 million to £300 million in FY20. The further surge in costs reflects the high levels of client activity in the fourth quarter and the impact of the growth in the active client base as well as an increase in the provision for bad and doubtful debts. While the company is not expected to be directly impacted by the impending Brexit, as the exchange rate adjusts to the new market conditions, the company can experience increased volatility in the sterling gold price, which can affect the security of pledge and the revenues from scrap operations. The sharp Coronavirus (COVID-19) induced market correction beginning in late February 2020 has formed a level of uncertainty as to the guidance of 2020. Currently, the group is trading near the 52-week High, raising doubts at its upside potential at the current price level.

Keeping in mind the risks faced by the company, investors are recommended to keep a “WATCH” on the stock at the current price of GBX 774.50 (as on 24^th April 2020, before the market close at 8:05 AM), while we look for any upcoming catalysts.
 
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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