ITM Power Plc

ITM Power Plc (LON: ITM) is engaged in manufacturing of integrated hydrogen energy solutions to enhance the utilisation of renewable energy. The group was incorporated in 2001, and on June 11, 2004, its shares got admitted to the Alternative Investment Market of the London Stock Exchange for trading.

Financial Highlights – Financial Year 2019 (30^th April 2019, GBP, thousand)

(Source: Annual Report, Company Website)
 
For the financial year ending 30^th April 2019, driven by an increase in the sales and grant income for the period, the company’s revenue stood at GBP 4,589 thousand versus GBP 3,283 thousand in FY2018. Due to an increase in the direct costs for the period,the company reported a gross loss of GBP 1,166 thousand in FY2019 versus a gross loss of GBP 155 thousand in FY2018. The operating loss for the period stood at GBP 9,347 thousand in FY2019 versus an operating loss of GBP 6,494 thousand in FY2018. The LBT (loss before tax) for the period stood at GBP 9,318 thousand in the financial year 2019 versus an LBT (loss before tax) of GBP 6,476 thousand in FY2018. The LAT (loss after tax) for the period stood at GBP 9,451 thousand in the financial year 2019 versus a LAT (loss after tax) of GBP 6,116 thousand in FY2018. The basic and diluted loss per share stood at 2.9 pence in the financial year 2019 versus a basic and diluted loss per share of 2.1 pence in the financial year 2018. The company’s cash balances declined to GBP 5,173 thousand in the financial year 2019 versus GBP 20,403 thousand in FY2018.

Share Price Performance

Daily Chart as of  January 3^rd, 2020, before the market close (Source: Thomson Reuters)

ITM Power Plc shares were trading at GBX 77.91 at the time of writing before the market close (at 12:37 PM GMT) on 3^rd January 2020 and were down by 3.81% versus the previous day closing price. Stock's 52 weeks High is GBX 81.64 and Low is GBX 18.44.

Conclusion
Despite the moderate performance of the group during the Financial Year 2019, the Company has attained adequate commercial success before existing competitors or new entrants. Also, there could be a risk that the Company may face working capital and cash flow challenges associated, with receipts often large and intermittent, both for sales contracts but particularly for grants. The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors. Moreover,the company is trading on the higher side, raising doubts at its upside potential at current prices. The company’s EV/Sales multiple is significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Based on the above rationale, we have given an “Avoid” recommendation at the current price of GBX 81.64 (as on 3^rd January 2020, before the market closed at 8:05 AM GMT).

Trifast Plc

Trifast Plc (LON: TRI) is a United Kingdom-based company and leading global specialist in the manufacturing, distribution, and engineering of high-quality industrial fastenings to key international assembly industries. The company employs 1,300 people and operations of the group are differentiated in two operating segments, namely Distribution and Manufacturing. The key sectors are Automotive, Electronics and technology, and Domestic appliances.

Recent News
On 19th November 2019, Trifast announced its Chairman and Director, Malcolm Diamond MBE would be retiring from his position on 31st March 2020.

Financial Highlights – H1 Financial Year 2020 (30^th September 2019, GBP, thousand)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, due to the challenging macroeconomic environment, the company’s revenue declined by 2.7 per cent on CER (Constant Exchange Rate) and 1.8 per cent on AER (Actual Exchange Rate) to GBP 103,107 thousand versus GBP 104,981 thousand in H1 FY2019. The company’s gross profit stood at GBP 29,646 thousand in H1 FY2020 versus GBP 31,654 thousand in H1 FY2019. Due to a decline in the total administrative expenses for the period, the company’s operating profit increased from GBP 8,322 thousand in H1 FY2019 to GBP 8,429 thousand in H1 FY2020. The PBT (Profit before tax) stood at GBP 7,923 thousand in H1 FY2020 versus a PBT (Profit before tax) of GBP 8,002 thousand in H1 FY2019. The PAT (Profit after tax) stood at GBP 5,985 thousand in H1 FY2020 versus a PAT (Profit after tax) of GBP 5,915 thousand in H1 FY2019. The company’s basic earnings per share stood at 4.92 pence in H1 FY2020 versus 4.93 pence in H1 FY2019. The company’s diluted earnings per share remained flat at 4.82 pence in the first half of the financial year 2020.  

Share Price Performance

Daily Chart as of  January 3^rd, 2020, before the market close (Source: Thomson Reuters)

Trifast Plc shares were trading at GBX 182.60 at the time of writing before the market close (at 1:30 PM GMT) on 3^rd January 2020 and were up by 0.88% versus the previous day closing price. Stock's 52 weeks High is GBX 242.00 and Low is GBX 149.00.

Valuation Methodology

*Peers: Vitec Group Plc, Discoverie Group Plc and Chemring Group Plc.

Conclusion
The cross-functional Brexit team which has been in place for the last three years has completed its contingency planning.  In the short-term, the company presently consider that both the financial and operational effectiveness of any Brexit scenario will be manageable. Although, the longer-term implications for the broader UK economy are less easy to predict. Despite the short-term end market weaknesses and macroeconomic uncertainty, the decent long-term fundamentals of the business model and strategy stay unchanged. The ongoing trade war between the US and China has impacted the company’s performance. The macro and political uncertainty will reduce the revenue in the upcoming year. The company’s P/CF multiple is significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Therefore, based on the weak fundamentals of the company, we have given an “Avoid” recommendation at the current price of GBX 184 (as on 3^rd January 2020, before the market close at 10:00 AM GMT).

*All forecasted figures and peers have been taken from Thomson Reuters.

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