This report is an updated version of the report published on 29^th April 2022 at 08:22 AM GMT+1.

Phoenix Group Holdings PLC

Phoenix Group Holdings PLC (LON: PHNX) is an FTSE 100 listed entity that is engaged in insurance services. It is also engaged in the long-term savings and retirement business.  

Investment Rationale for Valuation – Buy at GBX 604.40

• Resilient Performance: The Group reported resilient performance during FY21 with record cash generation, which exceeded its target range. Assets under administration grew to £310 billion as of 31 December 2021, from £307 billion in the prior year-end period.
• Dividend: Based on the decent performance, the Board recommended a final dividend of 24.8 pence per share in FY21. This includes its first-ever organic dividend increase of 3%.
• Synergy from Acquisitions: The company’s cash generation during FY21 included £400 million owing to integration from acquisitions across Standard Life and ReAssure.
• Technical Indicator: The price of the stock is hovering near the lower Bollinger band with a 14-day RSI level of ~41.24.  

Key Risks

• Volatile Macro Scenario: The present macro scenario has been very volatile owing to political tensions and global inflationary pressure, which is expected to keep the equity markets under stress in FY22.
• Market Risk: The Group is prone to the risks of adverse market movements which can impact the company’s capital, solvency, profitability and liquidity position, fees earned on assets held, etc.

Financial Highlights (for the year ended 31 December 2021, as of 14 March 2022)

(Source: Company Website)

• Cash Generation: The Group clocked a record cash generation of £1,717 million in FY21, against the target range of £1.5 billion-to-£1.6 billion for the year.
• Strong Balance Sheet: Th company has maintained a decent balance sheet with a Solvency II Surplus of £5.3 billion as of 31 December 2021

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: Few peers considered are Direct Line Insurance Group PLC, Aviva PLC and Beazley PLC.

*All selected peers are LSE-listed Companies from the Financials sector.  

Conclusion

The management seems to be positive on delivering both organic as well as inorganic growth going forward, driven by a clear and differentiated strategy making use of important market trends.  

Based on the strong cash generation, decent solvency, organic growth and support from the valuation as done using the above method, we have given a “Buy” recommendation on Phoenix Group Holdings PLC at the closing market price of GBX 604.40 (as of 28 April 2022) with lower double-digit upside potential based on 9.31x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Dr. Martens PLC

Dr. Martens PLC (LON: DOCS) is an FTSE 250 listed UK-based leading footwear brand. The Company has a diverse range of product categories such as Originals, Fusion, Kids, Casual and Accessories.

On 1 June 2022, DOCS expects to release its FY22 results.

Investment Rationale – Buy at GBX 210.40

• Strong Channel Performance: The ecommerce revenue performance remained robust, while Q3 retail revenue was also accelerated. At the end of Q3 FY22, the Company had 158 own stores globally.
• Promising Prospects: DOCS witnessed a strong business during Q3 FY22 as it was a busy trading period for the DTC segment. The Company’s Direct to Consumer ("DTC") revenue grew 33% year on year during Q3 FY22. Moreover, the Company remained confident in achieving market expectations for the first full year as a listed business
• UK GDP Recovered: According to the Office for National Statistics, the UK GDP grew by 0.8% in month-on-month terms in January 2022 after a 0.2% decline in December 2021.
• Favourable Industry Dynamics: British retail sales rebounded in January 2022 as it witnessed a growth of around 1.9% during January 2022 after demonstrating a drop of almost 4% in December 2021.
• Technical Indicator: From a technical standpoint, the momentum oscillator, 14-day RSI (~37.05) is hovering close to the oversold position, while the stock price is trading around the lower Bollinger Band.

Risk Assessments

• Macroeconomic Risks: Soaring energy prices in the UK has significant hit the consumer spending and led to rapid decline in sales volume for Retailers.
• Emerging Risk: The ongoing Covid-19 restriction in China can disrupt the supply chain further, impacting stock availability.

Trading Statement (for the three months ended 31 December 2021, as of 27 January 2022)

 (Source: Company Filings)

• Solid Operational Progress: The Company had strengthened its presence with the opening of 11 new own stores during Q3 FY22. On a YTD basis, the Company had opened 24 new stores.
• Increase in Revenue: The Company had posted revenue of £307.0 million in Q3 FY22, up by 11% year on year.
• Robust Recovery in Retail: The Company’s eCommerce had developed substantially in tandem with a solid retail recovery, resulting in a better DTC mix of 64% in Q3 FY22.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

*Peers: JD Sports Fashion PLC, Burberry Group PLC, and Dunelm Group PLC.

*All selected peers are LSE-Listed Companies from the Consumer Discretionary sector.  

Conclusion

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on strong Q3 FY22 trading update, rebounded UK Retail sales, favourable technical indicators, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Dr. Martens PLC at the closing market price of GBX 210.40 (as on 28 March 2022), with lower double-digit upside potential based on 13.03x Price/NTM Earnings per share (approx.) on FY23E earnings per share (approx.).

Paragon Banking Group PLC

Paragon Banking Group PLC (LON: PAG) is an FTSE 250 listed bank and its products include mortgages for landlords and loans for business customers.  

Investment Rationale for Valuation – Buy at GBX 492.80

• Decent Fundamentals: The Group posted decent results during Q1FY22, with results being in line with Board expectations. New lending during the quarter grew by 35.7% to £708.0 million, from £521.8 million in the previous corresponding quarter.
• Strong Lending Growth: The company clocked impressive lending growth during FY21, with mortgage advances up by 29.4% to £1.63 billion. Commercial lending also grew by 22.9% to £0.97 billion during the year.
• Share Buyback: The management has announced a share buyback of up to £50 million in 2022, over and above the remaining £2.2 million from the 2021 buyback.
• Technical Indicator: The price of the stock is hovering near the lower Bollinger band with a 14-day RSI level of ~46.33.

Key Risks

• Default Risk: The Group is prone to the risk of default from its customers, and this risk may be aggravated by an uncertain macro scenario fuelled by rising interest rates and inflation.
• Solvency Risk: The company is exposed to solvency risk and has to maintain sufficient amounts of liquidity to address the concern.  

Financial Highlights (for the year ended 30 September 2021, as of 07 December 2021)

(Source: Company Website)

• Growth in NII: The company reported a considerable increase in net interest income (NII) to £310.5 million in FY21, compared to £278.1 million in FY20.
• Increased Bottomline: Net profits stood at £164.5 million in FY21, reflecting a significant jump from £91.3 million in FY20
• Q1FY22 Performance: The Group posted new business inflows during the period and reported an increase in balance sheet loans by 7.7% to £13.7 billion in the twelve months to 31 December 2021.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Few peers considered are Close Brothers Group PLC, Natwest Group PLC and Lendinvest PLC.

*All selected peers are LSE-listed Companies from the Financials sector.  

Conclusion

The company has maintained the growth momentum in Q1FY22 and delivered an improvement in margins and capital strength. 

Based on the impressive performance, expansion in the balance sheet, improvement in margins and support from the valuation as done using the above method, we have given a “Buy” recommendation on Paragon Banking Group PLC at the closing market price of GBX 492.80 (as of 28 April 2022) with lower double-digit upside potential based on 8.70x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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