Finablr PLC

Finablr PLC (FIN) is an Abu Dhabi, United Arab Emirates-headquartered global platform for payments and foreign exchange solutions serving consumers and businesses in over 170 countries, which is underpinned by agile and scalable technology and combines robust operating capabilities, including sophisticated treasury, customisable rule engine and payments processing infrastructure. The company is able to achieve significant economies and efficiencies of scale as all of its segments are powered by a common integrated platform. The operations are differentiated in three operating segments, namely B2B & Payment Technology Solutions, Consumer Foreign Exchange Solutions and Cross-Border Payments & Consumer Solutions.

Trading Update
During the 9 months to 30 September 2019, the company reported a strong continued momentum in B2B and Payment Technology Solutions segment, while adjusted income for 9M grew by 9% to $1,168 million and adjusted EBITDA of $182.31 million was up by 22.1%, with a margin of 15.6%. The company reported that each of our three segments delivered strongly during the period and total processed volumes (TPV) for 9M was reported at US$97.2 billion, up 13.5%.

Financial Highlights (H1 FY 2019, in $m)
 
(Source: Company Filings)

On the back of higher processed volumes and stable take rates across the platform, group’s adjusted income in H1 2019 grew by 9.1% to $742.2 million, while due to an increase in the foreign currency exchange gains and fee income, reported income increased by $42.7 million, or 6.2%, from $690.8 million in H1 2018 to $733.6 million in H1 2019. Driven by a mix shift reflecting the strong growth in B2B and Payment Technology Solutions and improved margins in all segments, group adjusted EBITDA was $103.3 million, up by 26.9%. Reported loss for the period rose to $30.5 million from $9.5 million in the prior year, while loss per share widened to $0.05 against a loss of $0.04 in H1 2018. Net debt was reported at $334.1 million, which was reduced by $230.9 million from 31 December 2018, and due to stable take rates across the platform, aggregate processed volume was $64.9 billion for H1 2019 (H1 2018 $56.7 billion).

Valuation Methodology 
Method:  EV/SalesApproach (NTM)


Share Price Commentary

Daily Chart as at 21-November-19, before the market closed (Source: Thomson Reuters)

On 21 November 2019, at the time of writing (before the market closed, GMT 10:13 am), FIN shares were trading at GBX 179.4, down by 2.39% against the previous day’s closing price. Stock's 52 weeks High and Low are GBX 191.40/GBX 133.01. Total outstanding market capitalisation was around £1.29 billion.

Conclusion
Driven by continued double-digit growth in the B2B & Payment Technology Solutions and Cross-Border Payments & Consumer Solutions, the company is targeting high single-digit Group Adjusted Income growth over the medium term. With a leverage ratio remaining under 2.5x net debt to adjusted EBITDA, it is targeting capital expenditure to trend towards 3.0 to 4.0% of adjusted income, also targeting a Group Adjusted EBITDA margin of 20.0% in the medium term. However, the positive outlook by the company seems to be factored in by investors, as the company is trading near its 52-week high, indicating a limited upside potential. Moreover, the company operates in competitive markets which are subject to rapid technological changes, and its operations may be affected by global and regional economic, social and political changes, not least from the United Kingdom's potential exit from the European Union.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 183.8 (as on 20 November 2019), while we look for any upcoming catalysts in the near term.

N Brown Group PLC

N Brown Group PLC (BWNG) is a Manchester, United Kingdom-headquartered digital fashion retailer, which designs, sources and creates own-range and branded fashion and homewares and focuses on catering underserved customer groups, specifically size 20+ and age 50+, and operates a trusted family of retail brands, focused on fashion that fits. The company has an extensive range of products, predominantly homewares, footwear and clothing, and offers in-house ranges, such as Label J and Black Label, alongside international brands.
Financial Highlights (H1 2020, in £m)

 (Source: Company Filings)

Financial services revenue increased 2.9% to £150.6 million, and as a result of the continued managed decline of the legacy offline business, product revenue declined by 9.3% to $282.3 million, driving a fall of 5.4% in group revenue to £432.9 million. Because of a 190bps decline in the product gross margin rate to 51.5% but offset by an improvement in the financial services gross margin to 57.4%, group gross margin was 53.5%, down 70bps compared to H1 FY19. Adjusted EBITDA increased by 4.0% to £54.1 million and adjusted EBITDA margin increased by 110bps to 12.5% (H1 FY19: 11.4%). Statutory profit before tax was £18.8 million, representing a £45.9 million improvement on last year, representing lower exceptional costs and an improvement in unrealised FX, while adjusted profit before tax was £31.8 million, up 3.9% year on year as a result of the gross margin. The company declared an interim dividend of 2.83p per share, as statutory earnings per share was 4.95p (H1 FY19: loss of 9.14p) and adjusted earnings per share were 8.87p (H1 FY19 earnings per share: 8.37p).

Share Price Commentary

Daily Chart as at 21-November-19, before the market closed (Source: Thomson Reuters)

On 21 November 2019, at the time of writing (before the market closed, GMT 11:22 am), BWNG shares were trading at GBX 118.7, up by 2.26% against the previous day’s closing price. Stock's 52 weeks High and Low is GBX 153.00/GBX 81.65. The company's stock beta was 0.71, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £329.07 million, with a dividend yield of 6.15%.

Conclusion
Amid a tough macro environment faced by the group, the company started to implement its new strategy and make the required changes to its business model, including focusing on bringing down net debt, invest in the business and deliver shareholder returns by generating sustainable free cash flow and deliver profitable digital growth. The company would take a more targeted approach to marketing and customer recruitment and continue to improve its customer proposition, including maximising the UK core market before leveraging its international opportunity and has completely relaunched its social media strategy, with encouraging results in its initial days.

Based on the above rationale, we have given a "HOLD" recommendation at the closing price of GBX 115.4 (as on 20 November 2019).
 
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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