GlaxoSmithKline Plc - Renowned Global Health Care Group with Sound Business Model

GlaxoSmithKline Plc (LON: GSK) is a multinational healthcare company, which operates with three global businesses that manufacture and conduct research on products related to pharmaceutical, consumer healthcare and vaccines.

Recent News
On 19^th June 2020, GlaxoSmithKline announced that FDA (US Food and Drug Administration) organised a meeting of ODAC (Oncologic Drugs Advisory Committee) to review supporting data for belantamab mafodotin to treat patients with refractory relapsed or multiple myeloma.

Financial Highlights – Improved Financial Performance for Q1 FY2020 (31^st March 2020)

(Source: Quarterly Report, Company Website) 
 
In the first quarter of the financial year 2020, driven by an increase in the revenue from Pharmaceuticals, Vaccines and Consumer Healthcare businesses for the period, the revenue increased by 19 per cent to GBP 9,090 million as against GBP 7,661 million for Q1 FY2019. The Operating profit increased by 41 per cent to GBP 2,014 million in Q1 FY2020 from GBP 1,428 million in Q1 FY2019, reflecting an increase in the revenue for the period. The adjusted operating profit stood at GBP 2,675 million for the period, reflecting an increase of 24 per cent. The Group’s PBT (profit before tax) and PAT (profit after tax) increased by 42 per cent and 70 per cent, respectively, to GBP 1,835 million and GBP 1,679 million, respectively.

Share Price Performance

Daily Chart as of June 26^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

GlaxoSmithKline Plc shares were closed at GBX 1,647.00 on 26^th June 2020. Stock 52 week High and Low were GBX 1,857.00and GBX 1,328.19, respectively.

From the technical standpoint, shares were trading well above the short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology
 

Risk Analysis
Global political uncertainty regarding trade policy also poses a risk for the Group, including protectionist measures and regulation or legislation in local markets. The Group’s business could have a negative impact from the Coronavirus outbreak.

Conclusion
The Company has shown an increase in financial performance in the first quarter of the financial year 2020. Both the top-line and the bottom-line performance accelerated with improved profitability margins for the period. GSK has developed a strong pipeline of opportunity from its producing assets and is making an investment in those assets to fetch higher returns in the long-term. The Group has a wide range of tools and applications to support research related to the Coronavirus and is working in combination with multiple organisations, which can prove to be a gamechanger in the near term.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the closing price of GBX 1,647 (as on 26^th June 2020), with single-digit upside potential based on 15.30x Price/Earnings (approx.) on FY20E earnings per share (approx.).

BT Group PLC – Creating Capacity for Value-Enhancing Investments for Sustainable Growth

BT Group PLC is a FTSE 100 Company, which provides communication and connectivity services. It provides services related to broadband, fixed-voice, mobile and TV to the consumers in the United Kingdom.

Upcoming Event: The Company will release the first-quarter results on 31^st July 2020.

Recent News:
24th March 2020:The BT Group entered exclusive negotiation to sale the domestic operations in France to Computacenter. The transaction is subject to the approval of the French Government and consultation.

Financial Highlights of FY20 (for the full year to 31 March 2020)

(Source: Company Website)

As per the annual report released on 21^st May 2020, the Company reported a slight decline in top-line and bottom-line items of the income statement and the major highlights were - revenue fell by 2 per cent (compared to FY19), primarily driven by the decrease in legacy products, the impact of regulations, lower margin business; the profit before tax stood at GBP 2,353 million, which was affected by COVID-19 related provision; adjusted EBITDA fell 3 per cent (compared to FY19) due to lower revenue and investments. Further, the Groups’ operating net cash inflow surged by 47 per cent to GBP 6,271 million in FY20 from GBP 4,256 million in FY19. The capital expenditure stood at GBP 3,960 million in FY20 versus GBP 3,963 million in FY19. The net debt surged to GBP 17,969 million in FY20 versus GBP 11,035 million in FY2019. Considering the challenging scenario, the Company suspended the final dividend.

Share Price Performance

Daily Chart as of 26^th June 2020, after the market close (Source: Refinitiv, Thomson Reuters)

BT Group PLC’s shares closed trading at GBX 114.55 on 26^th June 2020, down by 2.59% versus the previous day closing price. Stock 52-week High and Low were GBX 212.25 and GBX 98.39, respectively.

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

Valuation Methodology
 

Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the EV/EBITDA and Price/Book multiples of the BT Group PLC were 4.0x and 0.8x, respectively, and the corresponding multiple were lower than the Fixed Line Telecommunications

industry, reflecting that the Company is undervalued.

Risk Analysis
Covid-19 is adversely affecting the sales activity and demand due to reduced roaming and suspension of sports events. Moreover, the significant economic turbulence could impact the ability to attract new clients in the affected industries like retail. Also, changing political conditions can impact investor confidence and future strategy.

Conclusion
Given the uncertainties imposed by Covid-19, the Group could not quantify the guidance for FY21. Moreover, it has decided to retain the dividend and leverage the saved cash for long-term prospects. However, the overall performance for FY20 was in line with the manage expectation. Moreover, the simplification programme is expected to generate GBP 2 billion of annualised savings over the next five years. Furthermore, the Group has been investing in full-fibre broadband technology and getting prepared for future demand, which holds the potential for a long and bright prospect for the Company. Also, the growth in new services and products reflects the future potential for revenue and profitability. The Group has a long-term transformational place in place to simplify systems and processes, which shall bring efficiency in future and therefore, improve margins.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 114.55 (as on 26^th June 2020) with lower double-digit upside potential based 6.62x NTM Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

Severn Trent Plc - Decent Operational Performance and Strong Balance Sheet

Severn Trent Plc (LON: SVT) is amongst the 10 largest water and sewerage regulated companies in England and Wales. The company is focused on providing high-quality services to both households and business customers.

Financial Highlights for the period FY2020 (31st March 2020)

(Source: Annual Report, Company website)
 
For the financial year ending 31st March 2020, the group’s turnover for FY20 increased by GBP 76 million or 4.3 per cent to GBP 1,844 million as compared with GBP 1,767 million in FY2019. Reported PBIT (profit before interest and tax) stood at GBP 568 million, a growth of GBP 5 million (0.9 per cent) against GBP 563 million in FY2019. The adjusted basic earnings per share surged by 0.1 per cent to 146 pence in FY2020. The Board has recommended a final ordinary dividend per share of 60.05 pence for FY2020 versus 56.02 pence in FY2019. This gives a total ordinary dividend per share for the year of 100.08 pence (FY19: 93.37 pence).

Share Price Performance

Daily Chart as of June 26^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

Severn Trent Plc shares were closed at GBX 2,466.00 on 26^th June 2020. Stock 52 week High and Low were GBX 2,716.00and GBX 1,921.00, respectively.

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

Valuation Methodology
 

Risk Analysis
The Group operations are likely to get affected negatively due to uncertainty COVID-19 as it will result in uncertain political and economic climate for short to medium term.

Conclusion
The Group reported decent financial results in FY2020. The business stays robust, and SVT has made further growth against the things that really matter to the clients with supply interruptions, water quality, and leakage complaints all improving. The Company has good financial resilience to manage the impact of the COVID-19 outbreak. The Company has a proven track record of paying consistent dividends. Further, SVT has consistently delivered ROE of above 15 per cent over the past five years.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the closing price of GBX 2,466.00 (as on 26^th June 2020), with single-digit upside potential based on 24.00x Price/Earnings (approx.) on FY21E earnings per share (approx.).

Medica Group Plc - Market Leader in the Provision of Teleradiology Services

Medica Group Plc (LON: MGP) is a Health Care Equipment & Service company providing teleradiology services. The company presently offer three services to hospital radiology departments which includes Routine plain film (Routine PF), Routine cross-sectional (Routine CS) and NightHawk.

Recent News
On 1^st June 2020, Medica Group announced the issuing of 168,536 shares at 0.2 pence per share in the Company’s capital.

Pre AGM Business Update (20^th May 2020)
The Group is complying with the guidance of the government and is focused on the safety and health of its employees. The Company has enabled remote access for employees to ensure business continuity and support customers. MGP has started the FY2020 with string performance and continued same in January and February. In March, the operations were significantly impacted by the outbreak of covid-19. The trading in early April remained in-line with forecasts and activity declined by 95 per cent versus pre-Covid levels. The Group expect Nighthawk activity will continue to increase, while Routine activity will be taking a long time to return to normal levels. The Company has a strong cash position above GBP 20 million. The Group has been continuing to support its customers and implementing the strategy on operational excellence projects.

Share Price Performance

Daily Chart as of June 26^th, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

Medica Group Plc shares were closed at GBX 123.00 on 26^th June 2020. Stock 52 week High and Low were GBX 168.50and GBX 88.00, respectively.

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

Valuation Methodology
 

Risk Analysis
Failure in maintaining clinical quality could hamper the reputation of the company. Significant competition in the industry could affect the revenue and profitability of the company. Any disruption in technology could also affect the overall business of the company.

Conclusion
The Group has a robust balance sheet and is well-positioned to continue to deliver its high-quality service to assist the NHS during this time of unprecedented pressure on healthcare resources. Medica has a strong start to 2020, with trading and radiologist recruitment in line with Board expectations. However, COVID-19 pandemic is having a substantial impact on short-term revenue. The Company is focusing on optimising the business for future growth. It remains well-positioned in the fast-growing teleradiology market. The Company is investing in infrastructure and technology, which would support its future growth.

Based on the above factors and supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 123 (as on 26^th June 2020) with lower double-digit upside potential, based on 22.00x NTM Price/Earnings multiple (approx.) on FY20E earnings per share (approx.).

AdEPT Technology Group PLC – Chairman Bought Shares After Strong Financial Performance

AdEPT Technology Group PLC (LON: ADT) is a FTSE AIM All-Share Company, which is independently provides managed services for unified communications, information technology, voice solutions and connectivity.  The Company caters to the education, health, commercial and public sector.

Upcoming Event: The full-year results for FY20 are expected to be released in July 2020.

Recent News:
1^st June 2020: The Company’s Chairman, Ian Fishwick had purchased 36,488 ordinary shares in the Company at an average price of 219 pence per ordinary shares.

Trading and Coronavirus Update (for the year ended 31 March 2020)
As per the update on 2^nd April 2020, the Company affirmed that all the employees were providing support remotely and it witnessed 85% increase (compares to last few weeks) in call volumes. The Group stated in the latest update that the Government recognised the workforce of AdEPT as key workers since Telecommunications and IT support has become a '4th Utility Service' to keep Government, education and the economy going in the prevailing crisis. The turnover of the Company is nearly 45 per cent contributed through public sector while 55 per cent is contributed by the commercial sector. Further, the Group reported that Sales and EBITDA for FY20 were in line with expectations with an increase of 19% and 13%, respectively, against the previous year. The Cash position at 31st March 2020 was GBP 12 million, and net debt was GBP 28 million (GBP 3 million below the market expectation). Also, the Board had in the interest of cancelling the interim dividend in April to save GBP 1.2 million.

Share Price Performance

Daily Chart as of 26^th June 2020, after the market close (Source: Refinitiv, Thomson Reuters)

AdEPT Technology Group PLC’s shares closed trading at GBX 237.00 on 26^th June 2020, down by 3.27% versus the previous day closing price. Stock 52-week High and Low were GBX 380.00 and GBX 160.05, respectively.

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

Risk Analysis
The Company is anticipating reduced order volume in FY21 and significant shrink in the customer base. Moreover, the cessation of acquisition activities and minimizing capital expenditure plans can affect future growth.

Conclusion
The Company has witnessed another strong year of growth in FY20 along with geographic expansion into Yorkshire. Moreover, the acquisition (in April 2019) for Advanced Computer Systems has been fruitful, and the integration of ETS into the Doncaster office has gone well too. In order to minimize the financial impact of Covid-19, the Company is considering several options, including cancellation the dividends, pausing the acquisition activities, freezing the recruitment and pay. Given the uncertainties, the Board could not provide the financial guidance for FY21. Nevertheless, the Company is well-positioned to survive the economic challenges and shall emerge strongly in future.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 237.00 (as on 26^th June 2020).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

* The “Buy/Speculative Buy” recommendation is also valid for the current price as covered in the report as on 29th June 2020.

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