Whitbread PLC – Operating with Decent Financial Position and Strong Operational Performance

Whitbread PLC (LON: WTB) is a Dunstable, the United Kingdom-headquartered hotel operator in the country, which is the owner and operator of Premier Inn.

Recent News
On 26^th May 2020, the Company has secured planning permission to rebuild the Cribbs Causeway Premier Inn. This will be bringing an enhanced hotel and restaurant back to the popular Bristol location.

Financial Highlights (for the 52 weeks to 27^th February 2020)

(Source: Preliminary Results, Company Website)

Overall results reflected a resilient financial performance, in line with expectations; improved H2 trading driven by commercial initiatives; strong balance sheet.Despite continued weak market conditions, the statutory revenue increased by 1.1% to £2,072 million in FY20(FY19: £2,049 million), supported by a contribution from new capacity. The statutory profit before tax surged by 28.4% to £280 million and statutory profit for the year rose by 23.2% to £218 million in FY19. The Group has delivered a strong balance sheet, with cash on deposits of £503 million, lease adjusted leverage / FFO of 2.6x, undrawn RCF of £950 million at the balance sheet date, and currently £600 million limit available under the CCFF (UK Government’s Covid Corporate Financing Facility) scheme.

Share Price Performance

Daily Chart as at June-01-20, before the market closed (Source: Refinitiv, Thomson Reuters)

On 1^st June 2020, before the market close (at 8:30 AM GMT+1), WTB’s shares were trading at GBX 2,547 and were up by 0.75 per cent versus the previous day closing price.  Stock 52 weeks High and Low are GBX 4,462.28 /GBX 1,551.14.

Valuation Methodology


Conclusion
The current period performance was in line with anticipations with commercial initiatives driving an improved H2 performance.The Group has taken effective actions in response to the Coronavirus pandemic. The Company has agreed to a range of covenant waivers and improved the liquidity position, while the business is also well-positioned to return to strength. The Rights Issue to raise GBP 1 billion will enhance the performance as well as drive attractive returns on investment in the long-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 2,528 (as on 29^th May 2020), with lower double-digit upside potential based on 14.02x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).

SSP Group PLC– Operating with Strong Balance Sheet and Liquidity Position

SSP Group PLC (LON: SSPG) is a FTSE 250 listed operator of food and beverage outlet with operations in 35 countries.

Recent News
On 1^st April 2020: The Group received access to Covid Corporate Financing Facility (CCFF), which would strengthen the Group’s liquidity position.

On 25^th March 2020: The Group completed the equity placing to raise nearly £216 million in gross proceeds.

COVID-19 Trading (25^th March 2020)
For the six months ending 31^st March 2020, the Group was expecting revenue to decline around 3 per cent on constant currency basis and like-for-like sales to fall by 8 per cent. The Group was further expecting to end H1 2020 with £180 million - £200 million in cash and undrawn committed facilities with leverage of about 2.4x net debt / EBITDA (last 12 months). To contain the impact of COVID-19, the Group took several steps to cut costs such as temporary closure of units, headcount reduction, capital expenditure to reduce to nearly £10 million in H2 2020, suspended share buyback plan, also cancelled plan for dividend payment for H1 2020.

Share Price Performance
 
Daily Chart as on 1^st June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

SSP Group PLC’s shares were trading at GBX 289.4 on 1^st June 2020 (before the market close at 8.36 AM GMT+1), up by 3.73% against the last day closing price. Stock's 52 weeks High is GBX 725.00 and Low is GBX 136.80.

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

Valuation Methodology
 

Valuation Metrics
 
(Source: LSE)

As on 30^th April 2020, Price/Sales multiple of the SSP Group PLC was 0.5x which was lower as compared with the Travel & Leisure industry. Hence, it is indicating that the Company is trading at a lower multiple against its peers.

Growth Catalysts
The stock is trading close to 52-week low, reflecting its upside potential. The trading multiples are undervalued compared to its peers.

Conclusion
During the financial year 2019, the Group reported a growth in both top-line and bottom-line items of the income statement. In FY20, the trading is certainly impacted by COVID-19; however, the Group has a substantial amount of liquidity through recent equity placing and access to CCFF facility, to navigate the uncertain short-term period. Further, the Group has taken several cost-cutting measures to stay resilient. In the long run, the business shall create a significant value of shareholders through their proven strategies in the past.

The Group reported a compounded annual growth rate of 11.12 per cent in revenue over the past four years (FY2015 – FY2019), as revenue increased to GBP 2,794.60 million in FY2019 from GBP 1,832.90 million in FY2015.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing market price of GBX 279.00 (as on 29th May 2020) with lower double-digit upside potential based 1.46x Peer NTM EV/Sales (approx.) on FY20E Sales (approx.).

Rank Group PLC – Performing Resiliently with Decent Growth in Digital Business

Rank Group PLC (LON: RNK) is a FTSE 250 listed Company engaged in gaming services. It operates in Great Britain, Belgium, and Spain. It is engaged in casino table games, live casino, slot machine games, sports betting.

Trading Statement (for the third quarter ended 31^st March 2020)
 
(Source: Company Website)

As on 20^th April 2020, the Group released its Q3 FY20 trading statement and reported a 5% increase in revenue compared to Q3 FY19. The digital business delivered strong growth during the quarter and hence, the net gaming revenue (NGR) grew 27% for Grosvenor Digital and 20% Mecca Digital in Q3 FY20 compared to Q3 FY19. The Group also reported a benefit of business rates holidays and UK Government's Coronavirus Job Retention Scheme to manage government operations during the pandemic. Regarding the liquidity, the Company reported £166m in cash and facilities at 31^st March 2020.

Share Price Performance
 
Daily Chart as on 1^st June 2020, before the market closed (Source: Refinitiv, Thomson Reuters)

Rank Group PLC’s shares were trading at GBX 153.00 on 1^st June 2020 (before the market close at 8.50 AM GMT+1), up by 6.84% against the last day closing price. Stock's 52 weeks High is GBX 328.79 and Low is GBX 78.20.

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

Valuation Methodology
 

Valuation Metrics
 
(Source: LSE)

As on 30^th April 2020, Price/Book multiple of the Rank Group PLC was 1.6x which was lower as compared with the Travel & Leisure industry. Hence, it is indicating that the Company is trading at a lower multiple against its peers.

Growth Catalysts
The digital business has been performing resiliently during the pandemic and even delivered growth in the third quarter of 2020.

Conclusion
The Company performance during the third quarter of 2020 was in line with expectation. To mitigate the impact of COVID-19 disruption, the executive and non-executive directors taken voluntary deduction of 20% in pay while the Company has topped up with the UK Government's Coronavirus Job Retention Scheme. Even in the worst scenario if all venues remain closed, the Group expect to end the financial year 2020 with underlying operating profit to be in the range of £48m to £58m (after IFRS 16).Hence, the Group is confident about its abilities to meet all bank covenants. The Group has a robust financial position to weather the short-term uncertainties and emerge strongly in the long run.
Based on the decent prospects which are supported by valuation done using the above method, we have given a “Buy” recommendation at the closing market price of GBX 143.20 (as on 29th May 2020) with lower double-digit upside potential based 13.00x Peers NTM Average Price/Earnings (approx.) on FY20E Earnings Per Share (approx.).

Fuller Smith & Turner PLC – Operating with a Healthy Balance Sheet and Significant Liquidity Headroom

Fuller Smith & Turner Plc (LON: FSTA) is in the premium pubs and hotels business. The company's operations are differentiated in three operating segments: Managed Pubs and Hotels, The Fuller's Beer Company, and Tenanted Inns.

COVID-19 Update (as on 1^st June 2020)
The Company provided an update in light of COVID-19 during the existing temporary closure of its Managed and Tenanted pubs and hotels. The Group was well-positioned, with significant liquidity headroom and a healthy balance sheet. Under the COVID Corporate Financing Facility (CCFF), the FSTA’s Board has approved the issue of commercial paper for a total consideration of GBP 100 million, which will put Fuller's in a strong position and enable the Company to leave the majority of its GBP 155 million RCF (revolving credit facilities) undrawn.

Share Price Performance

Daily Chart as at June-01-20, before the market closed (Source: Refinitiv, Thomson Reuters)

On 1^st June 2020, before the market close (at 8:40 AM GMT+1), FSTA’s shares were trading at GBX 705 and were down by 0.14 per cent versus the previous day closing price.  Stock 52 weeks High and Low are GBX 1,120 /GBX 604.

Valuation Methodology


Conclusion
The Company has an excellent relationship with its lending banks.The Group has taken several actions to reduce costs such as a voluntary pay reduction by Exec and Board members, placing 96% of the workforce in furlough, minimising outgoings across the business, suspending all non-essential capital spend, etc. FSTA based on a strong pipeline of opportunities is looking forward to achieving its long-term mission. However, future growth looks promising as the company is one of the decent players in the premium pubs and hotels business.

Based on the decent prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 705 (as on 1^st June 2020, before the market close at 8:05 AM GMT+1), with lower double-digit upside potential based on 20.5x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

DP Eurasia NV
DP EURASIA N.V. (LON: DPEU) is a Netherlands-based company, which is an exclusive master franchisee of the Domino’s Pizza brand in Russia, Georgia, Turkey, and Azerbaijan. The Company is the 5th largest master franchisee of the Domino’s Pizza brand, which is owned by Domino’s Pizza Inc.

COVID-19 Update (as on 22^nd April 2020)
Currently, the Group’s Turkish stores are working with an exception for 54 stores that were shut down. In Russia, except for 26 stores that were shut down, all other stores continue to provide delivery and take-away services. The stores were shut down due to the Government restriction with respect to COVID-19. On a like-for-like basis, the Turkey system sales increased by 23.5 per cent in Pre-COVID and decreased by 12.2 per cent in Post-COVID, while in Russia, system sales decreased by 10.2 per cent in Pre-COVID and tumbled 31.2 per cent in Post-COVID outbreak. The Company continues to have a robust liquidity position. The Group also witnessed a strong balance sheet. DP Eurasia had access to cash at hand and additional borrowing capacity available from Turkish banks.

Share Price Performance
 
1-Year Chart as at June-01-2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 1^st June 2020, before the market close (at 8:50 AM GMT+1), DP Eurasia NV’s shares were trading at GBX 39.60 and were up by 2.59 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 364.60/GBX 118.90.

Momentum oscillator RSI 14 days on the chart is reflecting an oversold position for the stock and upside bump can be triggered in the near term.

Valuation Methodology
 

Valuation Metrics

(Source: LSE)

As on 30^th April 2020, the Price to Sales multiple of DPEU was 0.5x and the same multiple was lower as compared with the Travel & Leisure industry. It is reflecting that the company is trading at a lower multiple as compared to its peers.

Conclusion
The Company has generated decent momentum across all the regions. Although, the financial results have become stable, the performance of the global business stays disappointing due to COVID-19 outbreak. The Company is facing emerging headwinds and cost pressures. Regarding coronavirus (Covid-19), the situation remains fluid, and the company is taking the necessary precautions for the wellbeing of all the stakeholders. Presently, the whole world is facing the biggest slowdown in productivity. With resilient sustainable business model and strong balance sheet, the company has delivered a decent trading and operational performance. Among the premium businesses listed on the LSE, DPEU shares are the decent outperformer amid COVID-19 pandemic. Despite a solid price return amid bearish market trend, the company is offering a lucrative return to the shareholders. The Group is taking certain additional cost-cutting measures. From the above scenario, the company’s prospects look good, and it could be an attractive opportunity to invest in the long term.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing market price of GBX 38.60 (as on 29th May 2020) with lower double-digit upside potential based on 0.70x NTM EV/Sales (approx.) on FY20E Sales (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
* The “Buy or Speculative Buy” recommendation is valid for the current price as covered in the report as on 1^st June 2020.

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