Gateley Holdings Plc

Gateley Holdings Plc (GTLY) is a Support Services company, providing legal and non-legal services. The company’s operations are divided into five reportable segments being Banking and Financial Services, Corporate, Business Services, Employees, Pensions and Benefits and Property.

Recent Update
On 17th October 2019, Gateley Holdings announced the signing of a five-year market agreement with its partners. The agreement places certain limitations on the sale of the company’s ordinary shares.

Financial Highlights – Financial Year 2019 (30^th April 2019, GBP, thousand)

(Source: Annual Report, Company Website)

For the financial year ending 30th April 2019, the company’s revenue surged by 20.2 per cent to £103.5 million as against £86.1 million in FY2018. The increase in the revenue was driven by growth in core legal revenues and acquisition done for the period. The adjusted EBITDA was up by 15.7 per cent from £16.5 million in FY2018 to £19.1 million in FY2019. The operating profit for FY2019 stood at £15.8 million versus £14.8 million in FY2018. The company’s PBT (profit before tax) surged by 8.9 per cent to £15.9 million in FY2019 from £14.6 million in FY2018. The company’s PAT (profit after tax) surged by 10.6 per cent to £13 million in FY2019 from £11.8 million in FY2018. The basic earnings per share increased by 7.3 per cent from 11.03 pence in FY2018 to 11.83 pence in FY2019. The adjusted diluted earnings per share increased by 17.8 per cent from 11.16 pence in FY2018 to 13.15 pence in FY2019. The company proposed a final dividend of 5.4 pence in FY2019 versus 4.8 pence in FY2018.

Share Price Performance

Daily Chart as at October-29-19, before the market closed (Source: Thomson Reuters)

On 29th October 2019, Gateley Holdings Plc shares were trading at GBX 161.59 at the time of writing before the market close (at 11:57 AM GMT) and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 177.50/GBX 118.40.

Valuation Methodology
 
*Peers: Ince Group Plc, RBG Holdings Plc, Knights Group Holdings Plc and DWF Group Plc.

Conclusion
The company had shown good financial performance for the financial year 2019. Both the top-line and the bottom-line performance have improved for the period.

The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it would disturb the business, in particular in the event of an unfavourable outcome in respect of any final agreements between the UK and EU. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations.

The key risks include the regulatory and political risk, cybercrime and information security, competitive landscape, delivery of IT strategy, talent engagement and retention, programme optimisation, and compliance risk.

Based on the above rationale and valuation as done above, we recommend investors to keep a "Watch" on the stock at the current price of GBX 161.59 (as on 29th October 2019, before the market close), with support from few catalysts needs to be evaluated at a later stage.
 

Surface Transforms Plc

Surface Transforms Plc (SCE) is a manufacturer and developer of carbon-ceramic products for the brakes market. The company is focused on manufacturing, selling, and designing carbon fibre components. The company engineers, manufacture and develop carbon-ceramic brake products. The company also focuses on the recognition of new products and applications for carbon fibre bolstered ceramic non-friction and friction materials.
Financial Highlights – Financial Year 2019 (31^st May 2019, £, thousand)

(Source: Annual Report, Company Website)

In the financial year ending 31^st May 2019, the company’s revenue decreased by £361 thousand to £1,002 thousand as compared to the previous year data, driven by the delay in SOP (start of production) of the OEM (original equipment manufacturer) customers (namely OEM 6) hypercar, volatility of demand from aftermarket distributors and delayed SOP and production glitches at three of the group’s near OEM customers. During the current year, gross margin reduced to 61.6 per cent against the 67.4 per cent in FY18, due to a reduction in volumes of development components and near-OEM sales mix. In FY2019, LBITDA (including tax credit and excluding share-based payments and non-recurring staff costs) surged to £1,564 thousand against the £1,382 thousand in FY18. Research costs rose to £2,074 thousand as compared to £2,002 thousand in FY2018, which had been partly offset by a surged R&D tax credit of £921 thousand. Loss after taxation for the year 2019 stood at £2,059 thousand, an increase from the last year data. Loss per share stood at 1.64 pence in FY19 versus the loss of 1.66 pence in FY18.

Share Price Performance

Daily Chart as at October-29-19, before the market closed (Source: Thomson Reuters)

On 29th October 2019, Surface Transforms Plc shares were trading at GBX 24.50 at the time of writing before the market close (at 12:25 PM GMT) and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 27.75/GBX 8.25.

Conclusion
As in prior years, the main risk faced by the group is reflected to be the speed at which the clients and potential clients embrace the new carbon-ceramic product technology. The group has exposure to exchange risk; however, this is partly mitigated with natural hedging activities.

In terms of uncertainties, product sales are still anticipated to increase with future OEM projections now backed by contracts. Sales growth is anticipated to be moderate in the retrofit market through a surge in the number of distributors and the group’s board anticipates ongoing growth with OEM clients.

The company’s top-line performance and bottom-line performance have declined for the current period. The company is still in its development phase. The company will be impacted by the uncertainties created by the ongoing Brexit, as it will impact the company’s supply chain. As the company operates in multiple locations globally, its activities and operational performance can be impacted negatively due to regulation & compliance risk.
Considering the risks associated with the company’s operations and weak financial performance, we believe that investors can “Avoid” the stock at the current price of GBX 24.50 (as on 29th October 2019, before the market close).
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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