Victoria PLC

Established in 1895, Victoria PLC (LON: VCP) manufactures and distributes innovative flooring products. It also provides a diverse range of ceramic tiles, carpet, artificial grass, flooring underlay and flooring accessories.

VCP expects to report H1 FY22 results in November 2021.

Investment Rationale – SPECULATIVE BUY at GBX 937.00

• The British housing market has grown more than expected in August 2021, reflecting that supply and labour constraints are holding back. The increase in construction activity shall also boost the demand for Victoria’s products.
• Victoria’s supply chain is highly diversified, and it has a strong balance sheet to navigate through the short-term risk and uncertainty.
• The Company looks confident of generating significant shareholders’ return, following the completion of five further earnings-enhancing acquisitions at very attractive valuations in FY22 so far.
• The outlook for the existing business seems encouraging as growing residential spending on flooring, home price appreciation, and continued growth in residential renovation shall support the demand.
• Since FY16, gross margin and EBITDA margin have remained above the industry median of 27.4% and 12.4%, respectively.
• From a technical standpoint, the momentum oscillator RSI (~25.89) in the oversold zone, while the stock price is trading around the lower Bollinger Band.

Key Risks

• British public borrowing has fallen in August 2021 due to a rise in debt interest payments as inflation picked up. It can impact the consumers’ spending power.
• VCP’s ceramics business has been witnessing inflation in raw material prices and facing significant disruption to the supply chain.
• VCP operates in mature and highly competitive markets, which faces pricing and margins pressure.
• The economic slowdown can impact the consumers’ spending power, while the equity market is already facing significant volatilities.

AGM Statement: On 7 September 2021, Victoria PLC affirmed that:

• The trading continued to be robust as consumers kept investing in new homes. Moreover, the commercial demand for flooring is also recovering.
• Given the inflationary pressure, VCP took prompt actions to maintain operating margins.
• The year-to-date revenues were 70% ahead of the same period the previous year.

Operational Highlights (for the year ended 3 April 2021, as on 20 July 2021)

 (Source: Company Website)

• Despite challenging operational conditions due to the pandemic, Victoria delivered growth in revenue and underlying profit before tax in FY21 vs FY20.
• The subdued economic outlook has impacted consumer confidence. Moreover, the labour shortage and inflationary market conditions can impact the Company's margins.
• The Company ended FY21 with a leverage of 3.1x, following the underlying free cash flow generation of £38.8 million.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

 Conclusion 

VCP has already invested nearly £160 million in FY22 through acquisitions, which shall add approximately £27 million to the Group EBITDA. Moreover, the shareholders can expect further acquisitions as the Company is in active discussions for additional high-quality opportunities to grow the business. On 23 June 2021, Victoria announced the acquisition of Cali Bamboo Holdings Inc, which shall strengthen its existing North American distribution business. In a nutshell, Victoria is well positioned to manage this short-term risk and uncertainty since it enjoys comparatively low operational gearing across its businesses, holds a secure supply chain, having wide-spread manufacturing locations, and sufficient liquid reserves to pursue upcoming growth opportunities. The stock made a 52-week High and Low of GBX 1,204.75 and GBX 291.50, respectively. 

Based on the strong balance sheet, solid cash generation, promising industry fundamentals, revenue, and profit growth, with support from the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Victoria PLC at the current market price of GBX 937.00 (as on 23 September 2021, at 11:20 GMT+1), with lower double-digit upside potential based on 33.90x Price/NTM Earnings (approx.) on FY22E Earnings Per Share (approx.).

Anglo Asian Mining PLC

Anglo Asian Mining PLC (LON: AAZ) is a FTSE AIM All-Share quoted Company, which is engaged in the production of gold, copper, and silver in Central Asia with a broad portfolio of production and exploration assets in Azerbaijan.

Investment Rationale – SPECULATIVE BUY at GBX 116.01

• A potential collapse of Evergrande Group, surging global inflation, mixed economic data, and early tapering of quantitative easing program can support the gold prices in the short-term.
• AAZ established significant exploration progress in H1 FY21 and reported encouraging results for the Zafar deposit.
• On the back of the solid production in Q2 FY21, AAZ has reiterated the full-year production forecast. AAZ remained on track to achieve its FY21 production guidance of 48,000 ounces to 54,000 ounces of gold and 2,500 tonnes to 2,800 tonnes of copper.
• Despite all headwinds, the Company continued its operation and significantly strengthened its balance sheet while still paying dividends to shareholders.
• From a technical standpoint, 14-day RSI (~29.17) is in the oversold territory, while the stock price is trading below the lower Bollinger Band.
• Since FY18, gross margin and EBITDA margin have remained above the industry median of 35.2% and 14.5%, respectively.

Risk Assessments

• The possible debt crisis with the default of China's real estate developer, Evergrande Group, can keep the copper prices under pressure in the short term, as metals are widely used in construction activity.
• The sluggishness in gold prices due to US dollar strengthening and uncertain demand outlook can impact the Company’s financial condition.
• It is exposed to financial risk with fluctuations in gold price and exchange rates.
• Furthermore, the unavailability of adequate working capital can impact regular revenue and cash flow.
• The Global Covid-19 pandemic could result in the suspension of operations and increase labour absenteeism.

Recent News

H1 FY21 Geological Exploration Activities: On 24 August 2021, AAZ unveiled that it is progressing well with the final mineral resource estimation for Zafar, which expects to be completed by the end of FY21. Following the completion of extensive desk study work, the Company commenced planned fieldwork at Gosha.

H1 F21 Production and Operations review (for the six months ended 30 June 2021, as on 14 July 2021)

 (Source: Company Website)

• At the end of H1 FY21, the cash position increased to US$36.6 million against US$22.9 million on 31 March 2021.
• During Q2 FY21, the Company produced 16,740 gold equivalent ounces (GEOs) against 14,301 GEOs in Q2 FY20.
• The copper production also increased from 648 tonnes in Q2 FY20 to 695 tonnes in Q2 FY21.
• On 30 June 2021, unsold inventory valued was at US$7.8 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

In Q2 FY21, AAZ reported increased cash, increased copper and gold production, and made progress on the exploration of the new Zafar deposit. Moreover, Zafar's maiden Mineral Resource estimates reported promising results, underpinning long-term production growth. On 16 August 2021, AAZ reported that the Zafar deposit completed 8.5 million tonnes of mineralisation with an average grade of 0.60%. Moreover, FY20 ended with a peace treaty between Azerbaijan and Armenia with support from international peacekeepers. Furthermore, the joint venture with Conroy Gold and Natural Resources PLC shall expand the jurisdiction for the Company's business. Furthermore, the robust cash generation is the best part of the AAZ's financial profile, which shall also support the continuity of dividend payments. The stock made a 52 week High and Low of GBX 181.80 and GBX 102.01, respectively.

Based on the solid production in Q2 FY21, promising gold price environment, sound profitability, industry leading dividend returns, we have given a “SPECULATIVE BUY” recommendation on Anglo Asian Mining PLC at the current market price of GBX 116.01 (as on 23 September 2021, at 8:25 AM GMT+1).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.