Unilever Plc – Sustainable Business Model with Consistent Growth Rate Trajectory

Unilever Plc (LON: ULVR) is a FTSE 100 listed Company, which is engaged in fast-moving consumer goods business. On 22 October 2020, the Company will release the Q3 FY20 results.

Half-Yearly FY20 Update (as on 23 July 2020)


(Source: Company Website)

The underlying sales for H1 FY20 declined by 0.1% as the price growth of 0.2% was offset by the volume decline of 0.3%, against the same period last year. The underlying earnings per share were up by 6.4% (vs H1 FY19) after the negative currency impact. As the Company had been taking cash preservatives, free cash flow was also increased by €1.3 billion from H1 FY19 to €2.9 billion in H1 FY20. Given the decent results, the quarterly dividend was maintained at €0.4104 per share.

Share Price Performance


1-Year Chart as of 31 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Unilever PLC’s shares were trading at GBX 4,601.00 on 31 July 2020 (before the market close at 11:05 AM GMT+1), down by 1.12% against the last day closing price. Stock 52 week High and Low were GBX 5,333.00 and GBX 3,583.50, respectively.

From the technical standpoint, shares were trading above the short-term support level of 50-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

The Covid-19 pandemic may have a significant negative impact in the short and medium-term on the business due to change in the consumer behaviour, exchange rates fluctuations, supply chain disruptions, and declining demand for personal care products.

Valuation Methodology



Conclusion

In FY20, the Company will continue to achieve volume-led competitive growth to deliver profitability for maximizing shareholder value. Moreover, the Company’s recent acquisition for Horlicks and Boost shall enhance the presence in healthy nutrition market. Overall, ULVR has a strong cash and liquidity position. The business is delivering superior long-term financial performance through the sustainable business model.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 4,593.59 (as on 31 July 2020, before the market close at 10:56 AM GMT+1), with lower double-digit upside potential based on 24x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

GlaxoSmithKline Plc – Maintains a Good Momentum with Decent Fundamental Growth Story

GlaxoSmithKline Plc (LON: GSK) is a FTSE 100 listed multinational Healthcare Company. On 28 October 2020, the Company will announce the Q3 FY2020 results.

Recent News

On 29 July 2020, Sanofi SA and the Group (GSK) stated that they have reached an agreement, subject to final contract, with the UK government for the supply of up to 60 million doses of a Covid-19 vaccine.

Q2 FY2020 Trading Update (for the three months ended 30 June 2020, as on 29 July 2020)


(Source: Company Website)

The revenue for the second quarter decreased by 2% (on AER basis) to £7.62 billion, but quarterly profit before tax more than doubled to £2.64 billion. In the first half of 2020, the Group’s revenue increased by 8% to £16.71 billion (against the same period last year). In Q2 FY20, the total EPS increased to 45.5 pence (Q2 FY19: 19.5 pence), reflecting profit on disposal of Horlicks and other Consumer Healthcare brands.

Share Price Performance


1-Year Chart as of 31 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

GlaxoSmithKline PLC’s shares were trading at GBX 1,533.00 on 31 July 2020 (before the market close at 11:00 AM GMT+1), up by 0.25% against the last day closing price. Stock 52 week High and Low were GBX 1,857.00 and GBX 1,328.19, respectively.

From the technical standpoint, 90-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

The stringent regulatory policies and societal expectations regarding the safety, quality and efficacy may put substantial pressure over the profitability. Moreover, the healthcare industry is rapidly changing with the digital landscape and entrants of new players, which can lead to an increase in the pricing pressure.

Valuation Methodology

Conclusion

Overall, the Group is maintaining good momentum on the strategic priorities, and the fundamentals of GSK’s business stay strong. Also, the Company is seeing good underlying demand for the major products. Looking ahead, Glaxo maintained the guidance of annual adjusted earnings per share falling between 1% to 4% at constant currency. The Group believes that adjuvanted vaccine candidate has the potential to play a significant role in fighting against COVID-19 mayhem, both in the UK and around the world. Furthermore, the Company has shown an increase in financial performance in the first half of 2020. Also, first phase studies (multiple collaboration) are already initiated by Medicago and Clover Pharmaceuticals to develop adjuvanted vaccines.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 1,520 (as on 31 July 2020, before the market close at 8:02 AM GMT+1), with lower double-digit upside potential based on 15.10x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

United Utilities Group Plc – Operating with Strong Underlying Performance and Maintaining Healthy Liquidity

United Utilities Group Plc (LON: UU) manages electricity distribution, water distribution and wastewater network in the North West region of England. On 24 September 2020, the Company will announce the pre-closing update.

Recent News

On 17 July 2020, the Group announced the appointment of Kath Cates as a Non-Executive Director as well as a member of remuneration & nomination committees, effective 1 September 2020.

Financial Highlights (for the year ended 31 March 2020)


(Source: Company Website)

In the financial year ending 31 March 2020, the Group’s revenue increased by £41 million to £1,859.3 million as against £1,818.5 million in FY2019, largely reflecting the allowed regulatory revenue changes. The underlying PBT (profit before tax) stood at £492 million in FY2020 versus an underlying PBT (profit before tax) of £460.3 million in FY2019. The total dividend per share stood at 42.60 pence in FY2020, an increase from the last year (2019: 41.28 pence).

Share Price Performance


1-Year Chart as of 31 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

United Utilities Group Plc’s shares were trading at GBX 897.40 on 31 July 2020 (before the market close at 11:10 AM GMT+1), down by 0.49% against the last day closing price. Stock 52 week High and Low were GBX 1,068.50 and GBX 743.00, respectively.

From the technical standpoint, shares were trading slightly above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

The potential change in the political environment and regulatory frameworks, failure to meet all legal and regulatory obligations and inability to provide appropriate resources could negatively impact the operational and financial performance.  The Group operations may be impacted due to the Covid-19 mayhem and changing market dynamics in the near term.

Valuation Methodology



Conclusion

The Group has a strong financial position to tackle the impact of Covid-19 pandemic. On Underlying basis, the Company has shown an improvement in financial performance for FY20. The Group is focusing on innovation and sustained investments, to deliver against a challenging set of performance targets, while also protecting and enhancing the environment and supporting the local communities. Also, UU provides excellent customer satisfaction in the water sector.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 896.80 (as on 31 July 2020, before the market close at 11:30 AM GMT+1), with lower double-digit upside potential based on 8.20x Price/NTM Cash Flow (approx.) on FY21E cash flow per share (approx.).

Severn Trent Plc – Operating with Strong Balance Sheet

Severn Trent Plc (LON: SVT) is amongst the 10 largest water and sewerage regulated companies in England and Wales. On 26 November 2020, the Company will announce the half-year results.

Trading Update (as reported on 15 July 2020)

The Group stated that the first-quarter performance has been in line with anticipations and the Company continues to expect trading for the financial year 2021 to be consistent with the previous guidance. The Group has already contracted 80% of the year one capital programme under the AMP7 plan and stays on track to invest £430 million to £510 million this year in infrastructure. The balance sheet stays strong with committed facilities of £1.1 billion.

Share Price Performance


1-Year Chart as of 31 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Severn Trent Plc’s shares were trading at GBX 2,457.00 on 31 July 2020 (before the market close at 11:15 AM GMT+1), up by 0.99% against the last day closing price. Stock 52 week High and Low were GBX 2,716.00 and GBX 1,949.00, respectively.

From the technical standpoint, shares were trading above the short-term support level of 100-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

The significant economic turbulence could impact the ability to attract new clients in the affected industries like retail. Covid-19 is adversely affecting the sales activity and demand due to reduced roaming and suspension of sports events.

Valuation Methodology
 


Conclusion

The Company has been encouraged by cash collections broadly in line with the corresponding period a year ago. The Group stayed confident of a net positive outcome on Customer ODIs and made a strong start to the year 2020. Also, the Company has good financial resilience to manage the impact of the COVID-19 outbreak. SVT has a proven track record of paying consistent dividends.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 2,448.26 (as on 31 July 2020, before the market close at 8:05 AM GMT+1), with high single-digit upside potential based on 9.50x Price/NTM Cash Flow (approx.) on FY21E cash flow per share (approx.).

Pennon Group Plc – Decent Financial Performance Unveiled in FY2020

Pennon Group Plc (LON: PNN) is a FTSE 100-listed Environmental Infrastructure Company, which provides services related to waste management, water & wastewater, and water retail services. On 25 September 2020, the Company will release the trading statement.

Financial Highlights (for the year ended 31 March 2020)


(Source: Company Website)

Led by a decline in revenue from water business and non-household retail business, the revenue from continuing operations and Viridor declined by 6% to £1,390 million in FY20 (FY2019: £1,478 million). The underlying PBT (profit before tax) from continuing operations and Viridor stood at £288 million in FY2020 (FY2019: £280 million), reflecting an increase of 2.6% and underlying PBT (profit before tax) from continuing operations declined by 4.5% to £183 million in FY2020 (FY2019: £192 million). The capital investment stood at £339 million in the financial year 2020 (FY2019: £396 million).

Share Price Performance


1-Year Chart as of 31 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Pennon Group Plc’s shares were trading at GBX 1,060.50 on 31 July 2020 (before the market close at 11:30 AM GMT+1), up by 0.76% against the last day closing price. Stock 52 week High and Low were GBX 1,210.50 and GBX 695.20, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

The revenues generated by recycling and energy businesses can be affected by a decrease in the power prices, reduced global demand for recycled commodities and continued austerity measures undertaken by the local authority.Moreover, the unfavourable economic conditions can lead to a non-recovery of customer debt and change in the commodity prices.

Valuation Methodology



Conclusion
The Group witnessed a solid operational and financial performance in FY2020. It is also on-track with robust liquidity and funding capabilities to weather the existing uncertainty due to Coronavirus. Furthermore, the Group has created a substantial headroom with net cash proceeds of around £3.7 billion (from the sale of Viridor business) for pursuing growth opportunities. Overall, it is well-positioned to deliver sustained growth despite domestic uncertainties.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current market price of GBX 1,058.60 (as on 31 July 2020, before the market close at 11:40 AM GMT+1), with single-digit upside potential based on 14.40x Price/NTM Cash Flow (approx.) on FY21E cash flow per share (approx.). 
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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