Reckitt Benckiser Group PLC

Reckitt Benckiser Group PLC (LON: RKT) is an FTSE-100 index listed Company, which develops, produces, acquires, and distributes consumer products. RKT’s brands fall into three categories – Hygiene, Health and Nutrition.

Rationale for Valuation – SELL at GBX 6,334.00

• Unfavorable Working Capital Movement: RKT had shown a significant reduction in free cash flow from £1,902 million at the end of H1 FY20 to £520 million for H1 FY21 because of unfavorable working capital movements.
• Turnaround into Net Loss: The Company slipped into net loss during H1 FY21, while it had reported a substantial bottom-line profitability for H1 FY20.
• Profit Booking Opportunity: RKT came very close to the 52 weeks high and target levels mentioned in the last coverage. Thus, it is a decent opportunity for the investors to book profit at current levels.
• Unfavorable Technical Indicators: From a technical standpoint, 14-day RSI (~62.79) is in the overbought territory, while the stock price is hovering close to the upper standard deviation of the Bollinger Bands.

Key Risks

• Federal Reserve Meeting Minutes: The recent Federal Reserve meeting minutes indicated an earlier and faster rate hike. Thus, it could adversely impact the global Equities.
• Other Significant Risk: RKT is exposed to uncertainties related to product safety, supply chain disruption, destructive cyber-attacks, missed growth opportunities arising with digital channels, strict product safety regulations, and global competition laws.

Q3 FY21 Trading Update (as on 23 September 2021)

 (Source: Company Website)

• Net Revenue: During Q3 FY21, RKT reported a decline of 6.8% in net revenue, since like-for-like (LFL) growth of 3.3% was offset by a negative net M&A impact of 5.0%.
• Brand & Channel Growth: It delivered growth across business units, geographic regions, and brands across the portfolio.          

One Year Share Price Chart

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

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion 

The Company had shown a significant year-on-year decline in top-line revenue during H1 FY21 and Q3 FY21. Moreover, the Company had reported a net loss during H1 FY21. Nonetheless, the stock price surged gradually and came close to the 52-weeks high. Thus, it would be prudent for the clients to book profit at the current levels amid sluggish UK macroeconomic outlook. The stock made a 52-week Low and High of GBX 5,367.00 and GBX 6,816.00, respectively.

Based on the decline in free cash flow, weak profitability, and unfavourable valuation conducted above, we have given a “SELL” stance on Reckitt Benckiser Group PLC at the current market price of GBX 6,334.00 (as on 07 January 2022 at 08:26 AM GMT).

Currys PLC

Currys PLC (LON: CURY) is an FTSE 250 index listed omnichannel retailer of technology products and services.

CURY will pay an interim dividend of 0.10 pence per share on 21 January 2022, while the ex-dividend date was 30 December 2021.

Investment Rationale for Valuation – Sell at GBX 122.28

• Decline in Free Cash Flow: The Company had shown a significant reduction in free cash flow from £499 million at the end of H1 FY21 to £185 million for H1 FY22.
• Weak Liquidity: CURY’s current ratio of 0.79x remained lower than the industry median of 1.01x during H1 FY22.
• Unfavorable Industry Dynamics: According to the Confederation of British Industry, the UK retail sales demonstrated a slowdown in December 2021 amid Omicron fears.
• Technical Indicators: From a technical standpoint, CURY is hovering around the upper Bollinger band, indicating a bearish price pattern. Furthermore, the 14-days RSI of ~68.98 approaches overbought territory and indicates a correction in the stock price.

Key Risks

• UK GDP: The UK economy witnessed a slowdown as the GDP grew quarter-on-quarter by around 1.30% during Q3 2021, which remained merely lower-than-expected growth of around 1.50%.
• Supply Chain Issues: The disrupted supply chain and change in demand patterns due to the COVID-19 crisis can further impact revenue and profitability.

H1 FY22 Financial Highlights (for the six months ended 30 October 2021, as on 15 December 2021)

 (Source: Company Website)

• Marginal Decline in Revenue: During H1 FY22, revenue was around 2% down year-on-year.
• Balance Sheet: CURY ended H1 FY22 with a net cash of £250 million against £269 million at the end of H1 FY21

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

Conclusion

The Company’s profitability margins, and liquidity ratios underperformed when compared with respective industry median during H1 FY22. Moreover, CURY may show a sizeable correction in the stock price because of several factors such as rising inflation, disappointing UK GDP figures, and ongoing fears regarding the Omicron variant of coronavirus. Thus, it would be prudent for the clients to book profit at the current levels on this Company. The stock made a 52-week low and high of GBX 105.90 and GBX 159.20, respectively.

Based on the decent profit-booking opportunity, weak industry dynamics, and unfavorable valuation as done using the above method, we have given a “SELL” recommendation on Currys PLC at the current market price of GBX 122.28 (as on 07 January 2022 at 08:15 AM GMT).

Alpha FX Group PLC

Alpha FX Group PLC is an FTSE AIM 100 index listed company, engaged in providing alternative banking solutions and FX (“foreign exchange”) risk management to international corporates and institutions.

AFX will provide a detailed trading update for the financial year ending 31 December 2021 in late January 2022.

AFX had paid an interim dividend of 3.00 pence per share on 08 October 2021, while the ex-dividend date was 09 September 2021.

Investment Rationale for Valuation – Sell at GBX 2,333.00

• Increased Cost: The increased hiring in both Front and Back Office across all divisions had resulted in increased cost during FY21. Hence, it would adversely impact the bottom-line profitability.
• Low Dividend Yield: The dividend yield of AFX remained significantly lower than the Investment Banking & Brokerage Services industry as of 30 November 2021.
• Overstretched Valuations: The Company’s stock is trading very close to the 52-week high, illustrating the overstretched levels. Thus, it would be a reasonable profit booking opportunity for the clients.
• Technical Indicators: From a technical standpoint, AFX is hovering around the upper Bollinger band, indicating a bearish price pattern. Furthermore, the 14-days RSI of ~71.28 approaches overbought territory and indicates a correction in the stock price.

Key Risks

• Federal Reserve Meeting Minutes: The recent Federal Reserve meeting minutes indicated an earlier and faster rate hike. Thus, it could adversely impact the global Equities.
• Omicron Variant: The Government-led restrictions under Plan B because of an increasing number of Covid-19 cases in the UK may adversely impact the UK Equities.

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021, as of 01 September 2021)

  (Source: Company result)

• Top-Line Business: The accelerated recovery in the client activity post lockdown and strong growth across all divisions led to a 90% increase in the total revenue to £34.2 million during H1 FY21.
• Profitability: The profit before tax jumped by around 225% to £15.3 million during H1 FY21.
• Balance Sheet: AFX remained well capitalised and debt-free, with net assets of more than £98 million and £67 million of own free cash on the balance sheet.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

Conclusion

The surprise rise in interest rates by the Bank of England and record Covid-19 cases in the UK may create pressure on the growth trajectory. Furthermore, the stock price surged recently and approached the 52 weeks high. Thus, it would be prudent for the clients to book profit at the current levels on this Company. The stock made a 52-week low and high of GBX 1,240.00 and GBX 2,340.00, respectively.

Based on the higher cost expectations for FY21, technical indicators, and unfavorable valuation conducted above, we have given a “SELL” recommendation on Alpha FX Group PLC at the current market price of GBX 2,333.00 (as on 07 January 2022 at 08:30 AM GMT).

*All forecasted figures and Peer information have been taken from REFINITIV.

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

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

Disclaimer

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