Restore PLC

Restore PLC is a FTSE AIM 100 index listed Company, which provides document management and relocation services to offices and workplaces in the private and public sectors.

During FY20, RST did not propose any dividend and expected to reinstate dividends in FY21 with strong indications of recovery in the trading activity. 

Investment Rationale – Speculative Buy at GBX 372.50

• During the past four years (FY16 to FY20), revenue and gross profit have increased at a CAGR of nearly 9.01% and 12.59%, respectively.
• In terms of a technical indicator, 20-day SMA (362.35) is supporting the upside potential.
• RST sustained the strategic momentum with two acquisitions in technology recycling market.
• The growing pipeline of lucrative opportunities and strong market position underpins substantial room for further developments.

Risk Assessments

• Global political uncertainty regarding trade policy also poses a risk for the Group.
• In the short-term period, the market environment remains uncertain and volatile because of Covid-19 mayhem. The government restrictions have been impacting the activity level across the United Kingdom.
• Furthermore, the Company’s performance is subject to various other risks, including finance and liquidity risk, cyberattack risk, change in market dynamics, and loss of confidential customer records.

Recent News

8 March 2021: RST strengthened its capability for recycling Apple products by acquiring 100% interest in Bookyard Ltd.

Financial Highlights for the year ended 31 December 2020 (as on 18 March 2021)

(Source: Company Website)

• The short-term Covid-19 disruption in Q2 FY20 impacted the revenue, and thus, the total revenue for FY20 was 15% down against FY19.
• During FY20, the adjusted profit before tax and adjusted earnings per share plunged 35% each against FY19.
• The Company reported a 25% decline in net debt at the end of FY20.
• Overall, the strong bounce back in H2 FY20 remained the Company cash-generating and profitable.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

During the FY20, financial and operational performance remained resilient. Moreover, the acquisition of Computer Disposals Ltd shall generate revenue of nearly £8 million and EBIT of over £2 million per annum in the medium term. The performance in January and February of FY21 remained in line with expectations, trading at 90% of pre-Covid-19 levels. It is targeting organic growth across all business units by expanding market share, acquisition growth across, and margin expansion with cost efficiencies driving from economies of scale. The Group continued the solid momentum with a strong financial position and sound business model. Stock 52 week High and Low were GBX 430.00 and GBX 280.00, respectively.

Based on the decent growth prospects, business capabilities, improved activity level and the valuation done using the above method, we have given a “Speculative Buy” recommendation on Restore PLC at the current market price of GBX 372.50 (as on 26 March 2021, at 8:30 AM GMT) with lower double-digit upside potential based on 22.71x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Tungsten Corp PLC

Founded in 2000, Tungsten Corp PLC (LON: TUNG) is a London, United Kingdom Company, which is engaged in e-invoicing, purchase order services, and financing business.

Investment Highlights - Speculative Buy at GBX 28.29

• During H1 FY21, Tungsten continued the new business momentum with four new customer wins. Therefore, it anticipates reporting FY21 revenue in line with FY20.
• In terms of technical indicators, 14-day RSI (41.69) is supporting the upside potential.
• Over the past three years (H1 FY18 to H1 FY21), revenue has surged at a CAGR of ~4.13%.
• The Company has 93% of recurring revenue, which underpins the business resilience.

Key Risks

• Failure to win or retain customers could affect the revenue and profitability of the Company.
• The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Recent News

23 March 2021: Tungsten announced that its customer contributing 5% of revenues decided not to renew the contract. The transition would take 12 to 18 months, and thus, the Company is examining the impact on profits and revenue for FY22 and will provide the update accordingly.

Interim Results for the six months ended 31 October 2020 (as on 14 December 2020)

(Source: Company Website)

• During H1 FY21, Group revenue reduced by 1% to £18.0 million, while 93% of revenue was repeatable and recurring, compared to 94% in H1 FY20.
• Gross profit showed a decrease of £0.9 million from H1 FY20, primarily driven by a non-recurring bad debt collection of £0.5 million in H1 FY20, and a £0.2 million increase in set up costs of newly acquired Total AR and AP customers.
• The Company also reported five new business wins from large multinational corporations delivering a total contract value of £1.3 million and annual recurring revenue of £0.3 million.
• At the period end, net cash of £1 million was broadly in line with H1 FY20, with £2.0 million remaining undrawn and available under the RCF, which will mature in December 2023.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative

Conclusion

Tungsten continued invest in product capabilities and improved efficiencies. The net cash at the end of H1 FY21 was broadly in line with H1 FY20. Despite the challenging external environment, the Company’s trading performance in H1 FY21 has been resilient with a strong pipeline in place. TUNG has secured further new customer wins and a strategic partnership agreement to expand the product offering. The Company is making strong progress against the key strategic objectives. Overall, TUNG is well-positioned to take advantage of the expected recovery post-Covid-19 situation. The stock made a 52-week high and low of GBX 45.00 and GBX 22.10, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Tungsten Corp PLC at the current price of GBX 28.29 (as on 26 March 2021, at 8.27 AM GMT), with lower double-digit upside potential based on 1.16x EV/NTM Sales (approx.) on FY21E sales (approx.). 

*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

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