Falanx Group Ltd

United Kingdom-based Falanx Group Limited (FLX) offers cyber defense and intelligence services. The operations of the group are differentiated in four core operating segments, namely Resilience, Cyber, Intelligence, and others. The company’s business divisions consist of Falanx Intelligence and Falanx Cyber Defence. The company provides services to several global clients, with oil and gas companies, insurance, defense, technology, financial services, airlines, utilities, and many other international companies. The company manages in more than six geographical areas, including the United States, the United Kingdom, Australasia, Middle East, Europe, and other countries.

Financial Highlights (FY2019, £)

(Source: Annual Results, Company Website)

In the financial year 2019, the company’s reported revenue surged to £5.2 millionas compared with the financial year 2018 of £3.02 million, due to useful contribution from acquisitions and increase in new customer base. Gross margin surged to 44 per cent against the 31 per cent in FY18, due to favourable mix and robust services utilisation. Adjusted EBITDA loss decreased by 25 per cent to £1.2 millionas compared to £1.6 million in FY18. Reported EBITDA loss of £1.9 million, a decrease from the previous year data. Future contracted revenues stood at £3.2 millionagainst the £2.3 million in FY18. Deferred income for the year 2019 was £1.1 millionversus £0.7 million in FY18. Debt-free with cash balances of £2.4 million in FY19 against the £0.9 million in FY18 following successful institutional share subscription in November 2018. Loss per share declined by 53 per cent to 0.58 pence as compared with the financial year 2018 loss per share of 1.24 pence. Shareholder’s funds stood at £7.6 million in FY19versus £5.3 million in FY18. Customer base increased by over 10 per cent to 400 in FY19. The company had a fruitful distribution of cloud security service through the in-house developed Cloud Application Security Broker (CASB) capability.

Share Price Performance

Daily Chart as at September-20-19, before the market closed (Source: Thomson Reuters)

On 20th September 2019, Falanx Group Ltd shares were trading at GBX 1.64 at the time of writing before the market close (at 11:30 AM GMT), up by 17.14% against the previous day closing price. Stock's 52 weeks High and Low are GBX 4.25/GBX 1.25. The company’s stock beta was 3.13, reflecting the higher movement of the stock as compared to the benchmark index.

Conclusion
The company made several operational improvements this year and a revived emphasis on channelling the efforts in the direction of the most lucrative sales prospects.The company had seen robust organic growth over the main regions of the business and saw the progress in the current fiscal year.

The group’s board has set out its plan of driving top-line increaseand decreasing costs. In the near-term, the sales pipeline will increase with improved cybersecurity offering.

Although the company’s revenue rose in the financial year ending 2019,the profitability margins have remained stagnant or declined. The company’s bottom-line performance has remained in the negative zone for the current period. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.
On the basis of above rationale, we recommend investors to keep a “Watch” on the stock at the current price of GBX 1.64 (as on 20th September 2019, before the market close), while we look for any upcoming catalysts.

Safestyle UK PLC

United Kingdom-based Safestyle UK Plc (SFE) is involved in the business of retailing and manufacturing PVCu. The company is dealing in windows and doors PVCu to the homeowner replacement market. The company was incorporated in the year 1992 and has become the UK’s largest company in window and door replacement market. The company carried over 59,500 installations and manufactured over 265,000 frames in the year 2017.

Financial Highlights (H1 FY2019, £million)

(Source: Interim Report, Company Website)

In the first half of 2019, the company’s revenue increased by 6.4 per cent to £64.41 millionas compared with the corresponding period of the last year, due to the surged average frame price, partly offset by marginally higher consumer finance subsidy costs and lower volumes. Gross profit surged by 14.2 per cent to £16.64 millionagainst the £14.57 million in H1 FY18, driven by the surge in revenue along with decreased costs over access solutions, commissions, and installation?related materials. While gross margin increased by 177bps to 25.8 per cent as compared to 24.1 per cent in H1 FY18. Underlying loss before taxation decreased by 75.7 per cent to £0.83 millionagainst the loss of £3.41 million in H1 FY18. Reported loss before taxation stood at £2.48 million against the loss of £5.65 million in H1 FY18. Basic loss per share decreased by 50.9 per cent to 2.8 pence against the loss of 5.7 pence in H1 FY18. Net Debt/ cash was negative £0.64 million in H1 FY19versus positive £4.58 million in H1 FY18. In the current period, net cash inflow was £1.2 million (H1 FY18: outflow of £6.4 million).

Share Price Performance

Daily Chart as at September-20-19, before the market closed (Source: Thomson Reuters)

On 20th September 2019, Safestyle UK PLC shares were trading at GBX 54.24 at the time of writing before the market close (at 12:30 PM GMT), up by 0.25% against the previous day closing price. Stock's 52 weeks High and Low are GBX 97.64/GBX 37.70. The company’s stock beta was negative 0.38, reflecting the negative movement of the stock as compared to the benchmark index.

Conclusion
The company continues to improve its operational key performance indicators (KPIs) and margins as compared with the previous year and has delivered good growth in H1 FY19.The company anticipates an additional surge in profitability in Q3 and Q4 of the financial year 2019. The company anticipates a slight underlying loss before taxation of £0.5 million for the financial year 2019.

The company announced that its forecasted profits would be below the current expectations due to a surge in legal expenses and labour cost.

The company operates in a competitive marketand is exposed to the UK’s economic performance. The company operates in an industry with low barriers to entry and exit for new competitors, which can disrupt the market locally.

The company’s operations are impacted by the uncertainty created by the Brexit, which will affect the company’s supply chain and increase input costs. The company operates in a highly regulated market and with breach of regulations, the business could face financial or existential consequences.

Keeping in mind the risks faced by the company, investors are recommended to keep a “Avoid” on the stock at the current price of GBX 54.24 (as on 20^th September 2019, before the market close), while we look for any upcoming catalysts.

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