Reckitt Benckiser Group Plc

Reckitt Benckiser Group Plc (LON: RB.) is leading consumer health, hygiene and homegroup that manufactures and markets household, toiletry and health care products.

Recent News
On 27th February 2020, Reckitt Benckiser announced that it would invest 2 billion pounds over a period of 3 years as a part of a strategic review to stimulate growth. The investment is expected to help the company to generate sales to mid-single-digit and 7-9% of earnings per share growth.

Financial Highlights – Financial Year 2019 (31^st December 2019, GBP, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, driven by an increase in the performance of health and hygiene home businesses, the company’s revenue increased to GBP 12,846 million versus GBP 12,597 million in FY2018. Due to an increase in operating expenses and impairment expenses for the period, the group reported an operating loss of GBP 1,954 million in FY2019 versus an operating profit of GBP 3,058 million in FY2018. The net loss (continuing and discontinued operations) stood at GBP 3,670 million in FY2019 versus net income (continuing and discontinued operations) stood at GBP 2,179 million in FY 2018.

Share Price Performance

Daily Chart as of February 27^th, 2020, before the market close (Source: Thomson Reuters)

Reckitt Benckiser Group Plc shares were trading at GBX 6,245.00 at the time of writing before the market close (at 11:24 AM GMT) on 27^th February 2020 and up by 2.39% versus the previous day closing price. Stock's 52 weeks High is GBX 6,744.00 and Low is GBX 5,510.00.

From the technical standpoint, 3 days, 9 days and 14 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology

*Peers: Creightons Plc, British American Tobacco Plc, Tate & Lyle Plc, Diageo Plc and Unilever Plc.

Reckitt Benckiser Group Plc V/S FTSE-100 Index – 1 Year

(Source: Thomson Reuters)
 
In the last 1 years, Reckitt Benckiser Group Plc share price has delivered positive 8.23 per cent return as compared to negative 2.90 per cent return of FTSE 100 index, which shows that the stock has overperformed as compared with the index during the last year. The shares of the company have delivered a positive return of 1.93 per cent in the last quarter.

Growth Catalysts
The group has operations inmultiple geographic locations, which help then to reduce the impact of risk related to regulations and political nature. The group’s balance sheet remained strong, with a decent level of cash conversion.

Conclusion
The group has shown a decline in the financial performance in financial year 2019. The company’s revenue has increased, while the bottom-line performance has declined for the period. The financial year 2020, would be a year of transition for the RB group, which will result in accelerated growth and will maximise shareholder’s growth in the long run. The company’s recent decision to invest 2 billion pounds would result in stimulating growth in financial performance.

Based on the above rationale and supported by valuation done using the above method, we have given a "BUY" recommendation at the current price of GBX 5,800.00 (as on 27^th February 2020, before the market close at 8:10 AM GMT) with single-digit upside potential based on 19.56x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 

Imperial Brands Plc

Imperial Brands Plc (LON: IMB) is a fast-moving consumer business, with operational interest in a variety of fine cut and smokeless tobaccos, cigarettes, papers and cigars.

Recent News
On 27^th February 2020, Imperial Brands announced the recent appointment of Stefan Bomhard as group’s Chief Executive Officer and would be joining the business from 1^st July 2020.

AGM Update (as on 5th February 2020)
On 5^th February 2020, Imperial Brands released an update for AGM. Tobacco trading for the current update stays in line with anticipations, with a weighting to the second half as earlier guided. Led by the weaker than anticipated consumer demand for vapour and the United States FDA’s ban on certain flavours of cartridge-based vapour devices, the company anticipate full-year constant currency Group net revenue to be at a similar level to the previous year and adjusted earnings per share (EPS) to marginally decrease from the previous year. On a constant currency basis, the adjusted EPS for the first half is expected to be down by 10%, driven by the phasing of inventory write-downs.

Share Price Performance

Daily Chart as of February 27^th, 2020, before the market close (Source: Thomson Reuters)

Imperial Brands Plc shares were trading at GBX 1,659.60 at the time of writing before the market close (at 8:39 AM GMT) on 27^th February 2020 and down by 1.80% versus the previous day closing price. Stock's 52 weeks High is GBX 2,673.00 and Low is GBX 1,636.58.

From the technical standpoint, 3 days, 9 days and 14 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

 
Valuation Methodology

*Peers: British American Tobacco Plc, Reckitt Benckiser Group Plc, Britvic Plc and Associated British Foods Plc.

Valuation Metrics
 

(Source: LSE)
 
As on 31st January 2020, the EV/EBITDA multiple of the Imperial Brands Plc’s was 9.1x, which was lower as compared with the Tobacco industry of 10.7x, reflecting that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
The company based on its strong and agile business model is amongst the market-leading brands in the market. The group’s balance sheet remained strong, with a decent level of cash conversion.

Conclusion
The company expect stronger cash delivery in 2021. Also, the group’s robust tobacco business recorded high margin sales growth and is well-established to handover a profitable growth in the years to come. The group is transforming into a leaner and more agile business as it adapts to a changing operating environment. The group is expected to continue to exploit opportunities in the tobacco arena, where it seeks to deliver high margin sales growth through a focus on its longstanding brand and market priorities. 

Based on the above rationale and supported by valuation done using the above method, we have given a "BUY" recommendation at the current price of GBX 1,658.20 (as on 27^th February 2020, before the market close at 8:30 AM GMT) with single-digit upside potential based on 6.90x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.)

DCC Plc

DCC Plc (LON: DCC) is a Dublin, Ireland-based prominent global sales, marketing and support services company, which emphasizes on growth and performance. 

Recent News
On 24th February 2020,DCC announced the selection of Mr Tufan Erginbilgic. Mr Erginbilgic will hold the responsibilities of Director non-executive, Remuneration Committee member and Nomination and Governance Committee member effective from 6^th April 2020.

On 24th February 2020,DCC announced that its CFO (Chief Financial Officer), Fergal O'Dwyer decided to step down from his position. Kevin Lucey, Capital Markets head, will succeed Fergal after AGM conclusion on 17^th July 2020.

Trading Update for the Q3 & FY2020 period
On 4^th February 2020, DCC released an update for the trading period for Q3 and FY2020 ending 31^st December 2019 and 31^st March 2020, respectively. The company delivered in Q3 FY2020 a good trading performance and group’s operating profit was in line with anticipations in the third quarter of 2020.In recent years,the company has improved substantially. Presently, it has substantial operations across twenty countries, with market-leading positions in all of its divisions. The company based on normal weather conditionsexpect its performance in the FY2020 to remain good and will witness growth in operating profit.

Share Price Performance

Daily Chart as of February 27^th, 2020, before the market close (Source: Thomson Reuters)

DCC Plc shares were trading at GBX 5,622.00 at the time of writing before the market close (at 10:45 AM GMT) on 27^th February 2020 and down by 1.78% versus the previous day closing price. Stock's 52 weeks High is GBX 7,548.00 and Low is GBX 5,618.00.

From the technical standpoint, 9 days, 14 days and 30 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology

Peers: Bunzl Plc, Aggreko Plc, Ashtead Group Plc and Intertek Group Plc.

DCC Plc V/S FTSE-100 Index – 5 Year

(Source: Thomson Reuters)
 
In the last 5 years, DCC Plc share price has delivered positive 45.22 per cent return as compared to negative 0.38 per cent return of FTSE 100 index, which shows that the stock has overperformed as compared with the index during the last year.
 
Growth Catalysts
 
The company has strong financial disciplines which helped the company to have a robust and effective balance sheet with good infrastructure to support rapid growth. The company is looking forward to organic growth through acquisitions and strategic partnerships.
 
Conclusion
As per the third quarter of 2020, the company has been on-track and is performing in line with set anticipations. The business hasreported decent results, with all divisions recording good profit growth and the group’s operating profit was well ahead of the previous year.  The market ishighly fragmented, innovative, and reflected decent growth in the United States. In recent years, the company’ssubstantial development has resulted in the group having the opportunities, capability, and platforms to build the DCC into an international leader in its selected sectors.

Based on decent fundamental prospects and support from valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 5,592.00 (as on 27th February 2020, before the market close at 8:32 AM GMT) with single-digit upside potential based on 16.85x NTM P/E (approx.) on FY20E earnings per share (approx.).

Drax Group Plc

Drax Group Plc (LON: DRX) is an electricity company which is mainly focused on providing low-cost energy. 

Financial Highlights – Financial Year 2019 (31^st December 2019, GBP, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st December 2019, driven by an increase in the revenue from generation business, the company’s revenue increased to GBP 4,713.4 million versus GBP 4,229 million in FY2018. The adjusted EBITDA stood at GBP 409.8 million in FY2019 versus GBP 249.6 million in FY2018. The group’s operating profit was at GBP 62 million in FY2019 versus GBP 59.9 million in FY2018. The profit attributable to shareholders stood at GBP 0.5 million in FY2019 versus GBP 20.2 million in FY2018.

Share Price Performance

Daily Chart as of February 27^th, 2020, before the market close (Source: Thomson Reuters)

Drax Group Plc shares were trading at GBX 266.20 at the time of writing before the market close (at 12:23 PM GMT) on 27^th February 2020 and up by 2.46% versus the previous day closing price. Stock's 52 weeks High is GBX 390.20 and Low is GBX 247.80.

From the technical standpoint, 9 days, 14 days and 30 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology

*Peers: Centrica Plc, ABO Wind AG, ContourGlobal Plc and SSE Plc.

Valuation Metrics


 (Source: LSE)
 
As on 31st January 2020, the EV/EBITDA and Price/Cash Flow multiples of the Drax Group Plc’s was 4.7x and 3.5x, which was lower as compared with the Electricity industry of 14.6x and 10.9x, respectively, reflecting that the company is trading at a lower multiple as compared to its peers.
 
Growth Catalysts
 
The company is actively looking forward to investment opportunities for growth in its core businesses. The company is following renewable, low carbon and flexible approach to deliver higher operational growth with high-quality earnings. Drax Group is looking forward to expanding its generation portfolio and system support services provisions for the period.
Conclusion
The goal by the United Kingdom to achieve net-zero carbon emissions by 2050 will give a leg-up to the operations of the group as it believes sustainable biomass has a long-term critical role to play. Moreover, it seeks to ensure its biomass power generation remains viable in the long term by supplying more of its own biomass, which will also cut costs and reduce supply chain risks, with greater scope for operational leverage and cost reduction. Drax is targeting five million tonnes of self-supply capacity by 2027 and plans to supply 80 per cent of its biomass from its sources. The company’s prospects look good, and it could be an attractive opportunity to invest in the long term.
Based on the above rationale and supported by valuation done using the above method, we have given a "BUY" recommendation at the current price of GBX 257.80 (as on 27^th February 2020, before the market close at 8:20 AM GMT) with single-digit upside potential based on 8.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 

Cairn Energy Plc

Cairn Energy Plc (LON: CNE) is a UK based independent oil and gas production and exploration company.

Recent News
On 17th February 2020, Cairn Energy announced that Eni reported oil discovery in mid-deep water in the Sureste Basin based Saasken Exploration Prospect. The Cairn through wholly-owned subsidiary has 15 per cent working interest in the project.

Financial Highlights – H1 Financial Year 2019 (30^th June 2019, USD, million)
 In the first half of the financial year 2019, the group’s revenue surged to $270.3 million as against $182.4 million in H1 FY18. The increase in revenue was driven by an increase in the sale of oil for the period. For the first half of 2019, the company’s revenue from production surged to $257.1 million as compared with the corresponding period of the last year.  The company’s reported PAT (Profit after tax) attributable to shareholders stood at $66.5 million in H1 FY19 against LAT (loss after-tax) of $500.5 million in H1 FY18. The company’s basic earnings per share for H1 FY19 was at 11.44 cents versus a basic loss per share of 86.20 cents in H1 FY18. 

 Share Price Performance
 

Daily Chart as of February 27^th, 2020, before the market close (Source: Thomson Reuters)

Cairn Energy Plc shares were trading at GBX 143.60 at the time of writing before the market close (at 12:57 PM GMT) on 27^th February 2020 and down by 4.39% versus the previous day closing price. Stock's 52 weeks High is GBX 216.80 and Low is GBX 141.20.

From the technical standpoint, 9 days, 14 days and 30 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology

Peers: Diversified Gas & Oil Plc, Premier Oil Plc, Tullow Oil Plc and Energean Oil & Gas Plc.

Growth Catalysts
The company’s robust cash flow generation, active portfolio management and year-end net cash provided financial flexibility for continued strategic delivery across the balanced portfolio.

Conclusion
The company has recordeddecent financial performance for the first half of the financial year 2019. The company has showngood top-line and the bottom-line performance for the period. In the current operational update, Cairn shows a good increase in production. It also looks forward to the results of theexploration drilling programme in Mexico. The sale of the Norwegian business through two attractively priced transactions demonstrates the company's continued focus on capital discipline and monetisation.

Based on the above rationale and supported by valuation done using the above method, we have given a "BUY" recommendation at the current price of GBX 141.20 (as on 27^th February 2020, before the market close at 1:14 PM GMT) with lower double digit upside potential based on 16.80x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).

 

Joules Group Plc

Joules Group Plc (LON: JOUL) is a Market Harborough, the United Kingdom-based company. The company’s business is differentiated in three segments: Retail, Wholesale and Other. 

Financial Highlights – H1 Financial Year 2020 (24th November 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, the company’s revenue stood at £111.6 million, a decrease of 1.4 per cent versus £113.1 million in H1 FY2019. In the current period, the active customers surged by 8 per cent to 1.4 million. The company’sgross margin was in line with the previous year at 54.8 per cent. In the retail segments, the gross margin surged by 50bps to 60.8 per cent in the current period, with benefit from exchange rate hedging and disciplined management of promotions. The group proposed an interim dividend per share of 0.77 pence versus 0.75 pence in H1 FY2019.

Share Price Performance 

Daily Chart as of February 27^th, 2020, before the market close (Source: Thomson Reuters)

Joules Group Plc shares were trading at GBX 137.00 at the time of writing before the market close (at 1:45 PM GMT) on 27^th February 2020 and down by 4.20% versus the previous day closing price. Stock's 52 weeks High is GBX 317.00 and Low is GBX 136.

From the technical standpoint, 3 days, 9 days, 14 days and 30 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.
 
Valuation Methodology
 

*Peers: Boohoo Group Plc, Fuller Smith & Turner Plc, Ted Baker Plc and Superdry Plc.
 
Valuation Metrics

(Source: LSE)
 
As on 31st January 2020, the Price/Earnings multiples and EV/EBITDA of the Joules Group Plc’s was 16.4x and 7.5x, which were lower as compared with the General Retailer industry of 36.00x and 7.9x, respectively, reflecting that the company is trading at a lower multiple as compared to its peers.
 
Growth Catalysts
 
The company is making tactical developments to the supply chain operations in the US and UK. The company has unique products and distinctive brand much loved by the consumers. The group’s integrated and flexible 'Total Retail' model, will help the company to service evolving customer behaviours and provide a platform for continued international growth and product extension.
 
Conclusion
 
In spite of the challenges facing the retail sector in the United Kingdom market, the company stays well on-track to continue to provide against its tactical growth aims. The company expect non-recurring costs from these initiatives in the financial year 2020 and the first half of 2021, with continuing cost efficiencies from the financial year 2022 onwards. In the current period, the company has a customer proposition in order to support long-term sustainable growth and invested further in the infrastructure. The company is improving the underlying processes and also has a robust consumer demand which persists to exist for the Joules brand.
 
Based on the decent prospects, and supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 136.00 (as on 27^th February 2020, before the market close, GMT 11:26 AM) with a single digit-upside potential based on 19.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.). 
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.Currency exchange rate taken for 1 USD = 0.77582 GBP.

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