Inchcape Plc

Inchcape Plc (INCH) is a London, United Kingdom-based automotive retailer and distributor. The group functions in around 32 national markets. The company’s business is differentiated in three segments: Distribution, Retail and Central. The Distribution segment comprises of geographical regions, such as the United Kingdom and Europe, Asia, Australasia, and Emerging Markets. The Retail segment comprises of geographical regions, such as the United Kingdom and Europe, Australasia, and Emerging Markets.

Recent News
On 10th October 2019, Inchcape announced the agreement of selling its IFS business (Inchcape Fleet Solutions) to Toyota (Toyota Fleet Mobility GmbH) for £100 million of cash consideration.

Financial Highlights – H1 Financial Year 2019 (30th June 2019, £, million)

(Source: Interim Report, Company Website)

For the first half of the financial year 2019, the company’s reported revenue rose by 2.4 per cent to £4,725 million as compared with the H1 financial year 2018 of £4,614 million, while on a constant currency basis, revenue surged by 2.7 per cent, due to the growth in the emerging markets. The operating profit before exceptional items declined by 10.4 per cent to £179.8 million in H1 FY2019 against the £200.6 million in H1 FY2018. On a constant currency basis, operating profit before exceptional items reduced by 11.1 per cent. Reported profit before tax stood at £153.7 million in H1 FY2019, a decrease of 3.3 per cent as compared to £158.9 million in H1 FY2018. On a constant currency basis, profit before tax (before exceptional items) declined by 12.8 per cent to £156.3 million in H1 FY2019 from £177.2 million in H1 FY2018, due to the challenging retail trading environment and impact on margins. Free cash flow reduced by 63 per cent to £25 million in H1 FY2019 from £67.5 million in H1 FY2018.

Share Price Performance

Daily Chart as at November-04-19, before the market closed (Source: Thomson Reuters)

On 4th November 2019,  Inchcape Plc shares were trading at GBX 634.50 at the time of writing before the market close (at 10:43 AM GMT), up by 1.12 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 681.00/GBX 516.00.

Valuation Methodology

*Peers: Connect Group Plc, Headlam Group Plc, UP Global Sourcing Holdings Plc, Kingfisher Plc and Lookers Plc.

Conclusion
The company’s overall financial performance remained decent with improvement in the top-line and the bottom-line financial performance. But the company’s operating profit and profit before tax have declined, which questions the operational performance of the company. In UK & Australia, the company had disposed of 10 loss generating sites, generating a cash flow of £34 million.

Many of the company’s markets have weakened for the period. The company’s operations are impacted by the AUD/JPY currency headwind. The company had faced challenges in the Chilean market. The company’s operations are impacted by the ongoing uncertainty created over the Brexit, as it would disturb the supply chain.

The company is focused on controlling costs and improving efficiency through Ignite initiatives. Cash generation remains the main focus of the company, and the company expects its cash conversion in line with the set guidance, supported by a declined level of capex versus last year data.

Based on the above factors and supported by valuation done using the above method, we have given a “Watch” recommendation at the current price of GBX 636 (as on 4^th November 2019, before the market close at 9:30 AM GMT) with support from few catalysts needs to be evaluated at a later stage.
 

Halfords Group Plc

Halfords Group PLC (HFD) is a Worcestershire, United Kingdom-headquartered 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 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.

Trading Update
In the 20-week period to 16 August 2019, like-for-like revenue of the group decreased by 3.2 per cent, with Autocentres rising by 1.1 per cent and Retail declining by 3.9 per cent, though online sales grew strongly at +8.4 per cent year-on-year and B2B sales delivered strong double-digit year-on-year growth. Through improved service penetration and the introduction of new weCheck and cycle care services, service-related sales delivered positive year-on-year growth, and costs have been tightly controlled across the business. The group recorded an improved gross margin across Motoring, Cycling and Autocentres. As weaker big-ticket discretionary mainstream cycling offset strong growth in electric bikes and kids cycling and due to exceptionally warm and dry summer last year, Retail Cycling sales declined in line with expectations by 1.1 per cent.

Financial Highlights – Financial Year 2019 (29th March 2019, £, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 29^th March 2019, reported group revenue stood at £1,138.6 million, which was up by 0.3 per cent and rose by 1.1 per cent on a like-for-like basis.  The company reported an increase in the Autocentres gross margin of 50 basis points to 68.0 per cent and an increase in the Retail gross margin of 60 basis points to 48.0 per cent, helping the company to record gross profit of £579.0 million in FY2019 versus £570.2 million in FY 2018.  As total operating costs before non-underlying items, increased to £516.8 million in FY2019 as against £495.6 million in FY2018, the group’s underlying EBITDA decreased by 10.3 per cent to £98.2 million in FY2019 (FY 2018: £109.5 million) and underlying profit before tax for the year was down by 17.9 per cent at £58.8 million in FY2019 (FY 2018: £71.6 million).

Share Price Performance

Daily Chart as at November-04-19, before the market closed (Source: Thomson Reuters)

On 4th November 2019, Halfords Group Plc shares were trading at GBX 153.40 at the time of writing before the market close (at 12:17 PM GMT), down by 0.13 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 325.20/GBX 152.10.

Valuation Methodology

*Peers: N Brown Group Plc, McColl’s Retail Group Plc and Marks and Spencer Group Plc.

Conclusion
The company anticipates FY20 underlying profit before tax to be within the range of £50 million to £55 million, and it remains focused on improving gross margins and managing the cost base and will 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 can 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 can be materially impacted by changes in the value of sterling or the British economy.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 153.60 (as on 1^st November 2019), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and peer information have been taken from Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.