The Vitec Group Plc (LON: VTC)

The Vitec Group Plc is an industrial engineering company engaged in the business of providing image capture and content creation solutions. Its areas of operation are categorised into three segments, i.e. Imaging Solutions, Production Solutions and Creative Solutions. As on December-18-1972, shares of the LSE: VTC were admitted to the main market of the London Stock Exchange. Alantra EQMC Asset Management SGIIC SA, Aberforth Partners LLP, and Hargreave Hale Ltd. are some of the major institutional investors in the company. (Source: Thomson Reuters).

Trading Update: Full-year FY19
The group has made strategic progress in 2019 and achieved several operational milestones. During the year under consideration, the group's Imaging Solutions has adapted successfully to an e-commerce business model, Production Solutions is expected to record underlying profit growth on a YoY basis, and the group’s Creative Solutions has launched 4K wireless video products for the cine market.

However, on a full-year basis, its financial performance was impacted by specific one-off events - retail de-stocking in Imaging Solutions; trading recovery at SmallHD below the expectations (after the fire held in April 2018) and no further receipt of the insurance income.

As a result of these two one-off events, Vitec’s   Pre-tax Profit is expected to be in between £47m to £50m, with December, which is considered to be an important trading month.

The group expects net debt at the end of FY19 to be broadly flat against the previous financial year.

Financial Highlights: H1FY19 (ended as on June 30, 2019)

Source: Co. filings.

During the first half of FY19, the group’s revenue improved marginally on a reported basis to £184.2m against £183.3m reported in the corresponding period of the previous financial year. However, on a constant currency basis, Vitec’s revenue slumped by 2.2% on a YoY basis. Adjusted operating profit improved by 1.2% to £25.8m and adj. operating margin improved 10bps to 14.0%.

Although, on a statutory basis, operating profit slumped by 8.7% on a YoY basis, with operating margin slipped 100bps to 10.3%.

Driven by higher interest expenses post-acquisition of Amimon as expected by the management, the group’s adjusted Pre-tax Profit slumped 4.1% to £23.5m against £24.5m recorded in the same period of the previous financial year. Adjusted basic earnings per share surged 1% to 39.9p, and statutory basic earnings per share slumped 29.3% to 27.0p/share.

Stock Performance
 
Daily Price Chart (as on November 29, 2019), before the market close. (Source: Thomson Reuters).

Shares of VTC plummeted more than 20% in a month-ago period and plummeted approximately 14% in the past 5-trading sessions. Its shares plummeted sharply post the group reported its trading update for the FY19, as on November 27, 2019.

While writing (before the market close, at 01:06 PM GMT), shares of VTC traded 15 points or 1.5% higher at GBX 1,019.0 and registered a trend reversal on the daily price chart.  Shares of the VTC registered a 52w high of GBX 1,335.0 and a low of GBX 960.0.

Conclusion
However, the full-year outlook for FY19 is moderate as the group's financial performance was impacted because of two one-off events, First, retail de-stocking in Imaging Solutions has been unusually severe. Second, there is below expectation trading recovery at SmallHD, after the fire in April 2018 and the ending of receipt of insurance income.

However, the group expects to deliver better performance in the FY20. Also, on the daily price chart, its shares were hovering in a sell zone, but a trend reversal has been observed on the daily price and the shares are expected to move up gradually.

The group has a decent fundamental story with decent EBITDA and Net Margin metrics reported. Also, the group has consistently delivered positive Return on Equity over the past several years. However, the Debt level is relatively higher in the company against the peer group.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 1,000.0 (as on November 28, 2019).

Reach Plc (RCH)

Reach PLC (LON:RCH) is a West Sussex, United Kingdom-headquartered largest commercial national and regional news publisher in the country, with market-leading regional titles including the Birmingham Mail, Liverpool Echo, Manchester Evening News, and influential and iconic brands such as the Daily Mirror, Daily Express, Sunday People. The operations are differentiated in three operating segments: Print, Digital and Other.

Trading Update: FY19 (ending as on December 29, 2019)
During the five months ended 24 November 2019, the group’s revenue on a like-for-like basis, slumped by 4.4%, an improvement on the 6.6% LFL basis decline in the corresponding period of the previous financial year. Within like-for-like revenue, Print plummeted by 7.3%, and Digital increased by 14.0%, with the prior year comparable period showing a fall of 8.2% and an increase of 9.3% respectively.

As earlier forecasted, the group has made good progress with a number of digital initiatives over the second half of the FY19. This has provided the confidence to the group for further extending the group’s network of digital regional brands into new territories, with at least seven new 'Live' launches planned for 2020 and recruited approximately 50 journalists.

Cash generation continued strongly during the period, and its balance sheet remains robust. In light of this favourable ongoing performance, the group now estimate to show a net positive cash balance at the end of the FY19.

Stock Performance
 
Daily Price Chart (as on November 29, 2019), before the market close. (Source: Thomson Reuters).

Shares of RCH delivered a negative return of approximately 14% in a month period and down by around 8% in the past five trading sessions. However, despite this fall down, its YoY return stood at 33% and on a YTD basis, the stock was up by 27%, respectively.

While writing (before the market close, at 02:02 PM GMT), shares of RCH traded 9.8 points or 11.74% higher at GBX 93.18 and registered a trend reversal on the daily price chart.  Shares of the RCH registered a 52w high of GBX 104.60 and a low of GBX 54.0.

Conclusion
The group reported moderate trading update and remained confident that the full-year performance of the group will meet expectations.

Also, its shares registered a strong reversal trend on the daily price chart, with 14-day Relative Strength Index started hovering into neutral from an oversold position in the daytime. After taking support at negative 3x deviation from its 20-day simple moving price, its shares registered a strong pull-back in the November 29, trading session, which is expected to continue in near-term as well. Also, the Moving Average Convergence Divergence line started moving towards the 9-day EMA signal line, a positive technical indicator.

Therefore, based on the above-discussed trend, we have given a “Hold” recommendation at the closing price of GBX 83.50 (as on November 28, 2019).

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