Tesco PLC

Tesco PLC (TSCO) is a British-based retail company and is one of the world's largest retailers of consumer goods. The group primarily operates as a grocery retailer but also provides insurance and retail banking services. Operations are primarily differentiated in two operating divisions: Retail, which includes retailing and associated activities, and Tesco Bank, which comprises of banking and insurance services.

Financial Highlights (FY2019, £million)

(Source: Annual Report, Company Website)

The company reported revenue (excluding VAT, including fuel) of £63,911 million for the Financial Year 2019as compared to £57,493 million in the financial year 2018. There was an increase of 11.2 per cent in the revenue based on the actual exchange rate, due to an increase in sales of UK & ROI segment of the company.

The company’s reported operating profit had increased significantly by 34 per cent based on AER to £2,206 million in FY19as compared to £1,646 million in FY18. The UK & ROI and Asia had contributed the majority of Operating profit with £1,537 million and £286 million respectively. The company’s statutory profit before tax was increased to £1,674 million in FY2019 as compared to £1,300 million in FY2018, up by 28.8 per cent based on AER basis as compared to the last year. The statutory basic earnings per share stood at 13.65 pence in FY2019 against 12.15 pence in FY2018. The statutory diluted earnings per share stood at 13.55 pence in FY2019 against 12.11 pence in FY2018.

The company’s dividend per share was increased by 92.3 per cent based on AER from 3.00 pence in FY2018 to 5.77 pence in FY2019.The company displayed the ability to generate cash flow of £2.5 billion from retail operations in FY2019. The net debt for FY2019 stood at £2.9 billion as compared to £2.6 billion in FY2018. The capital expenditure for the FY2019 remained flat at £1.1 billion.

Share Price Performance

Daily Chart as at May-31-19, after the market closed (Source: Thomson Reuters) 

On 31st May 2019, TSCO shares closed at GBX 226.40 and decreased by 0.484 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 266.80/GBX 187.05. The company’s stock beta stood at 1.21, reflecting higher volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
Tesco bank announced that it had stopped lending new mortgage and is exploring options to sell its existing portfolio. The bank is presently having a total lending balance of £3.7 billion and is serving more than 23,000 customers.
The company’s latest product “Meat & Veg” is set to target the customer base of 22 million all across Britain.The company is placing an increased focus on growth in free cash flow and earnings and continues to strengthen its balance sheet. The group has continuously improved the quality and value of service and offers.

The company remains on target to reach its medium-term aim of reducing cost by £1.5 billion; savings of £1.4 billion to date has been achieved. The group also seeks to improve its operating margins in between 3.5% and 4.0% by FY20 by improving the mix across geographies, channels and products. In the future, the intense competition, government regulations, increasing manpower costs and risks associated with suppliers could affect the company’s business performance.

Based on the decent growth prospects and supported by the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 226.40 (as on 31st May 2019) with single-digit upside potential based on 14.00x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 

NMC Health PLC

NMC Health Plc (NMC) was incorporated in the year 1975 and is the largest private healthcare company in the UAE. It provides healthcare services internationally with the United Arab Emirates (U.A.E.) and Spain being the major markets. The company has two business operations being Healthcare & Distribution and Services. The company is also involved in the distribution of medical equipment, pharmaceutical products, veterinary products, cosmetics, IT products and consumer products.

Financial Highlights (FY2018, US$ million)

(Source: Annual Report, Company Website)

In the Financial year 2018, NMC Health Plc’s reported revenue was $2,057.3 million in FY18, against $1,603.4 million in FY17. There was an increase of 28.3 per cent due to the introduction of mandatory health insurance policy in Dubai and all the divisions have shown significant growth as compared to the previous year. The EBITDA for the FY 2018 stood at $487.4 million as compared to $353.4 million in FY 2017. There was an increase of 37.9 per cent due to the accelerated revenue growth in the current financial year. EBITDA margin surged by 170 bps to 23.7 per cent as compared with the financial year 2017 data. The net profit for the year 2018 stood at $251.9 million as compared to $209.2 million in FY 2017, while adjusted profit was $283.5 million. The basic EPS for the FY 2018 stood at US$1.196 against US$0.910 in FY 2017. Adjusted EPS surged by 28.5 per cent to US$1.332 in FY 2018 as compared to US$1.036 in FY 2017.

Share Price Performance

Daily Chart as at May-31-19, after the market closed (Source: Thomson Reuters) 

On 31st May 2019, NMC shares closed at GBX 2,253 and decreased by 6.24 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 4,376/GBX 2,110. The company’s stock beta stood at 0.77, reflecting lower volatility of the stock as compared to the benchmark index.

Valuation Methodology


Conclusion
On 28^th May 2019, the company had finalised its NMC KSA joint venture contract with Hassana Investment Company. The company had shown significant growth in both the top line and bottom-line performance in the current financial year. NMC’s FY19 guidance is strong with revenue expected to grow by 22-24% YoY and EBITDA in between 18-20% YoY. Excluding the impact of acquisitions, revenues are expected to increase in between 12-13%. The company is targeting a year-end net debt/EBITDA ratio of 2.2-2.4x vs 3.1x in FY18.

The active management team and strategic positioning of the joint venture initiatives with GOSI-Hassana Investment company will provide growth opportunities to the company in near to medium outlook. The company through both organic and inorganic means can identify new potential markets. The group see many opportunities for leveraging growth and saying that the group views the future with considerable optimism.

Based on the decent growth prospects and supported by the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 2,253 (as on 31st May 2019) with low double-digit upside potential based on 19.20x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

*Currency exchange rate taken for 1 USD = 0.79 GBP.

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