Halfords Group Plc (LON: HFD)

Business Overview
Halfords Group Plc is a UK based retailer of motoring, cycling and leisure products and services, with leading market shares in some areas whilst also having significant headroom to grow further. Through Halfords Autocentres, it is also one of the leading independent operators in the vehicle, servicing, maintenance and repairs in the country, which seeks to use technological advancements for effective delivery through investments in the most up-to-date equipment and technology. The operations of the company are differentiated in two segments, namely retail and autocentres.

Recent News
On 7^th November 2019, the company announced the acquisition of McConechy's Tyre Service Limited, one of the largest independent garage chains in the UK, which would support the growth of its services proposition and provide customers with motoring services across garages, retail stores and mobile vans.

Financial Highlights – H1 Financial year 2020 (27th September 2019, GBP, million)

(Source: Interim Report, Company Website)

The company’s revenue decreased by 2.9 per cent to GBP 582.7 million in the first half of the fiscal year 2020 as compared to GBP 599.9 million in H1 FY 2019 due to tough market conditions. Group’s gross profit declined by 1.6 per cent to GBP 291.7 million (H1 FY 2019: GBP 296.3 million). Driven by improved customer shopping experience and more focused promotions leading to better cycling margins and buying efficiencies across the group, gross margin improved by 70bps versus the prior year. Group’s underlying EBITDA pre-IFRS 16 decreased by 9.8 per cent to GBP 44.9 million (H1 FY 2019: GBP 49.8 million), reflecting a rigorous cost control programme. Underlying profit before tax before IFRS 16 for the period was down 15.1 per cent at GBP 25.9 million (H1 FY 2019: £30.5 million), while group’s profit before tax was GBP 27.5 million (H1 FY 2019: GBP 28.2 million) after non-underlying items and including IFRS 16. The company declared a dividend of 6.18 pence per share in H1 FY2020 (H1 FY 2019: 6.18 pence).

Share Price Performance

Daily Chart as on 13^thJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 13^th, 2020, Halfords Group Plc shares were trading at GBX 147.32 at the time of writing before the market close (at 8:05 AM GMT), up by 3.75 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 261.20/GBX 141.20. The stock price has given negative 31.15 per cent returns during the previous year.

Valuation Methodology

*Peers: Works co uk Plc, Card Factory Plc, N Brown Group Plc and Dixons Carphone Plc

Conclusion
The company anticipates FY20 underlying profit before tax to be within the range of GBP 50 million to GBP 55 million, and it remains focused on improving gross margins and managing the cost base and would continue to invest in these areas in the second half actively. However, big-ticket discretionary purchases are under pressure as the uncertain economic environment remains due to ongoing risk, together with the weaker consumer confidence. Brexit could materially lower profits or lead to organisational strain due to the change in the cost of doing business or the way in which operations are run. The profitability of the company or revenue could be materially impacted by changes in the value of sterling or the British economy. Inflation and employment costs could lead to underlying operating cost growth in FY20, and it expects underlying sales growth to be muted in the next year, while extremely mild weather conditions have impacted motoring, and consumer confidence remains fragile.

Based on the valuation and factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current price of GBX 147.89 (as on 13th January 2020, before the market close at 8.15 AM GMT), with support from few catalysts needs to be evaluated at a later stage. 

Richland Resources Ltd (LON: RLD)

Business Overview
Richland Resources Ltd operates in the development of mines, and sale of coloured gemstone. The company is engaged in the mining and marketing of coloured gemstones. The company is into Mining and Online sales. In recent times, the company focuses on the development of its mining unit at its Capricorn Sapphire mine site in Australia. The company's online sales platform is www.richlandgemstones.com.

Recent News
On 13^th January 2020, the company announced that it had raised approximately £150,000 through a placing of 105,000,000 new common shares of US$0.0003 each in the capital of the company with certain new investors at an issue price of 0.10 pence per Placing Share and a subscription for a further 45,000,000 new Common Shares by a new investor also at the Issue Price.

Financial Highlights – H1 Financial year 2019 (30th June 2019, USD, Thousand)

(Source: Interim Report, Company Website)

The company’s operating profit for the period was US$93,000 compared to a loss of US$128,000 in H1 FY2018.  It was due to the Directors and senior management personnel have agreed to waive, in aggregate, US$452,559 of accrued fees due to them for periods from 1 June 2018 up to and including 30 June 2019. The company had net unrestricted cash available of US$0.01 million at the period end (including the Disposal Group classified as held for sale) compared to US$0.1 million as at the end of H1 2018. The company’s finance cost was US$310,000. The Loss for the period was US$394,000. The company’s basic and diluted loss per share from all operations was 0.07 cents as compared to a loss of 0.15 cents in the H1 FY2018.

Share Price Performance

Daily Chart as on 13^thJanuary 2020, before the market closed (Source: Thomson Reuters)

On January 13^th, 2020, Richland Resources Ltd shares were trading at GBX 0.113 at the time of writing before the market close (at 8:10 AM GMT), down by 27.45 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 0.45/GBX 0.045. The stock price has given negative 12.84 per cent returns during the previous year.

Conclusion
The company’s financial performance was disappointing during the first half of the fiscal year 2019. It was unable to achieve sustainable profitability at an operational level for its Capricorn Sapphire operation leading to its expected disposal at a loss. The company was unable to raise funds to re-finance Capricorn Sapphire, and had to sell Capricorn Sapphire. The Directors and senior management team of the company had to waive off their fees which was due to them and the company is hoping that the fee waivers and fee conversions in 2018 and 2019 would help the company to recover. The company’s ability to meet production, timing and cost estimates for its properties cannot be assured. Furthermore, the business of mining is subject to a variety of risks such as actual production and cost varying from estimated future production, cash cost and capital costs. Other than this company is facing currency risk, fluctuations in the foreign exchange market could affect the profitability of the company.

Based on the risk factors as highlighted above, we recommend investors to “AVOID” taking fresh positions in the stock at the closing price of GBX 0.145 (as on 10th January 2020).
 
 *All forecasted figures and peer information have been taken from Thomson Reuters.

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