Investec PLC

London, United Kingdom-based Investec Plc (INVP) is a specialist bank and asset manager group. It offers a range of financial products and services to a selective client base. It primarily operates in the UK and Europe, Asia-Pacific and Southern Africa, employing more than 10,500 people worldwide. Globally, assets under management (AuM) stood at £167.2 billion.

Financial Highlights (for the six months ended 30 September 2019)

(Source: Interim Results, Company Filings, LSE)
For the first half of 2020, the company’s adjusted operating profit decreased by 1.7% to £373.6 millionas compared with the corresponding period of the last year. The adjusted basic earnings per share declined by 4% (down 1.4% at neutral currency) to 28.9 pence in H1 FY20 against the 30.1 pence in H1 FY19, while basic earnings per share were reported at 24.7 pence.
Asset Management generated robust net inflows of £3.2 billion, which, together with reassuring markets, increased adjusted operating profit by 6.3% and increased average assets under management (AUM). On 30^th September 2019, the third-party assets under management rose by 6.4% to £177.9 billionas compared to the previous period (March 2019: £167.2 billion), while on a neutral currency basis, it was up by 6.2%. The core loans and advances surged by 2% to £25.4 billion at the end of September 2019against the prior period (March 2019: £24.9 billion).
The company maintained a sound capital position with a CET1 ratio of 11.6% for Investec Limited (FIRB approach) and 10.7% for Investec plc(standardised approach).  Leverage ratios are strong and stay comfortably ahead of the company's target of 6%. On 30^th September 2019, the net asset value per share surged by 3.3% (increase by 2.5% at neutral currency) to 448.3 pence, and net tangible asset value per share rose by 4% to 401.5 pence, due to an increase in retained earnings.
In H1 FY2020, the return on equity (ROE) stood at 13.1%(H1 FY19: 14.2%). The company declared an interim dividend per share of 11 pence and remained the same against the same period of last year.
Share Price Performance

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

On 21st November 2019, Investec PLC shares were trading at GBX 423.80 at the time of writing before the market close (at 9:43 AM GMT), down by 2.12% against the previous day closing price. Stock's 52 weeks High and Low are GBX 523.60/GBX 391.90. The company's stock beta was 1.14, reflecting the higher volatility as compared to the benchmark index.

Conclusion
UK economy has faced both domestic (Brexit), and international headwinds (trade, industrial slowdown). South Africa has also faced international headwinds, whilst domestic issues associated with the labour strikes, load shedding and concerns over the sovereign rating have weighed on the growth.

In the second half of 2020, the company plans to conclude the demerger of the Asset Management business and deliver the benefits of focus and simplicity.In spite of the challenging economic environment, the company stay committed to revenue growth, cost containment, and enhancing long-term shareholder returns.

The customer franchise businesses have made strong growth as evidenced by robust net inflows and progress in assets under management, customer deposits, and loan book. The company is well-positioned for a long-term sustainable growth, with the deep and growing client franchises; differentiated propositions to private and corporate clients; well capitalised, lower leverage with strong liquidity; generates capital to support growth ambitions and distributions to shareholders. The Bank and Wealth division stays fully committed to delivering its financial year 2022 targets.

Based on the decent fundamentals we have given a “Hold” recommendation at the current price of GBX 423.80 (as on 21st November 2019, before the market close).

AO World PLC

Bolton, United Kingdom-based AO World PLC (AO) is an online white goods and electricals retailer which provides products via its in-house logistics business and few selected third parties. The company’s operations are differentiated in two segments, namely the United Kingdom and Europe.

On 9^th June 2020, the company will announce the preliminary results for the twelve months ended 31^st March 2020.

Financial Highlights (for the six months ended 30 September 2019)
For the current period, the company’s total revenue surged by 16.3% to £470.1 millionas compared with the corresponding period of the last year, while on a like-for-like basis, excluding revenues from AO Mobile, it was up by 3.2%. The increase in revenue driven by the total UK revenue was up by 20.3% but a decrease of 3.4% in Europe revenue. On a pre-IFRS 16 basis, the company’s adjusted EBITDA losses surged to £6.2 million in H1 FY20against the £5.4 million in H1 FY19. Statutory Group operating losses stood at £10.6 million in H1 FY20 and remained the same against the same period of last year. Basic loss per share for the first half of 2020 was 1.01 pence, which includes foreign exchange (Forex) gains from inter-group funding. Reversing such Forex gains gives an adjusted loss of 1.98 pence per share.

On 30^th September 2019, the company’s cash stood at £23.4 million,a decrease from the previous period data. The net debt on 30 September 2019 stood at £12 million.

Share Price Performance

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

On 21st November 2019, AO World PLC shares were trading at GBX 86.30 at the time of writing before the market close (at 10:43 AM GMT), up by 4.10% against the previous day closing price. Stock's 52 weeks High and Low are GBX 136.60/GBX 56.70. The company's stock beta was negative 0.21, reflecting the inverse volatility as compared to the benchmark index.

Conclusion
In the first half of the financial year 2020, there has been a huge amount of change and transition, due to which the company have been making investments and confident that they will payback in the new financial year. Cashflow is a crucial focus for the business and is driven by growth and profit performance. The company is entering the peak trading period and fully focused on driving profitable progress, but there will be some macro-economic uncertainty and the potential effect of Brexit. The company also released the closure of the Netherlands operations. The company ecosystem of complementary products and services continues to strengthen, with the belief that these can be leveraged to underpin future progress and profitability in the United Kingdom.

Additionally, the debt has increased over the year to fund the acquisition, while less progress has been made in terms of the ongoing cash requirements, negatively impacting the finances and limiting the long-term growth. Overall, the group has been expanding into new territories as a key part of its strategy; it has faced challenges in Europe over the past year, particularly with product margin.

Based on the headwinds faced by the company, we have given a “WATCH" recommendation at the current price of GBX 86.3 (as on 21 November 2019, before the market close), while we look for any upcoming catalysts.

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