SSE Plc

SSE Plc (SSE) is a Perth, United Kingdom-headquartered integrated energy utility company, with operations and investments across the UK and Ireland, including regulated electricity networks and renewable sources of energy.

Financial Highlights – Financial Year 2019 (31st March 2019, £, million)

(Source: Annual Report, Company Website)
 
For the financial year ending 31st March 2019, driven by poor performance by the wholesale business, the company’s revenue declined by 73 per cent to £7,331.6 million as against £27,250.4 million in FY2018. The company’s total gross profit stood at £1,545 million in FY2019 versus £2,276.8 million in FY2018. The company’s underlying operating profit (continuing operations) in FY2019 was at £979.5 million versus £1,400.2 million in FY2018. The company’s reported operating profit (continuing operations) in FY2019 was at £1,692.2 million versus £1,157.4 million in FY2018. The company’s adjusted PBT (profit before tax) stood at £725.7 million in FY2019 and declined by 38 per cent. 

The company’s reported PBT (profit before tax) was at £1,370.6 million in FY2019 versus £864.4 million in FY2018. The company’s statutory PAT (profit after tax) from continuing and discontinued operations was at £1,455.7 million in FY2019 versus £920.1 million in FY2018. The company’s Underlying earnings per share were at 67.1 pence per share and declined by 32 per cent.

Share Price Performance

Daily Chart as at October-23-19, before the market closed (Source: Thomson Reuters)

On 23rd October 2019, SSE Plc shares were trading at GBX 1,319.00 at the time of writing before the market close (at 9:54 AM GMT), up by 0.04 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,331.00/GBX 997.80.

Valuation Methodology

*Peers: Pennon Group Plc, Drax Group Plc, Severn Trent Plc, National Grid Plc and United Utilities Group Plc.

Conclusion
On an adjusted basis, the company’s financial performance has declined in the financial year 2019. Both the top-line and the bottom-line performance has declined for the period. The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it widens the political uncertainty. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations. Moreover, the company is trading near the 52-week high, raising doubts at its upside potential at current prices. A diversified and complementary generation portfolio allows the company to safeguard itself from market volatility, create sustainable returns and secure monetary benefits from renewable schemes; and enables it achieving the overall earnings and maximise returns.

Based on the above valuation, we recommend investors to keep a "Watch" on the stock at the current price of GBX 1,319 (as on 23rd October 2019, before the market close), with support from few catalysts needs to be evaluated at a later stage.

Travis Perkins Plc

Travis Perkins PLC (TPK) is a Northampton, United Kingdom-based largest distributor of building materials in the UK. The group serves the building, construction, and home improvement markets through more than 2,000 branches, stores and sites around the country. It has been in the industry for over 200 years and now operates over 20 businesses. 

Trading Update Q3
On 22 October 2019, Travis Perkins announced its trading update for the third quarter. Despite challenging market conditions, the company’s Merchanting businesses outperformed for the period. The company had seen outstanding growth in its Toolstation UK business and acquired a controlling share of Toolstation in Europe. Due to uncertainty in the market, the company paused divestment in its Plumbing & Heating Business.
 
Financial Highlights – H1 Financial Year 2019 (30^th June 2019, £, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, driven by growth in the volume for the period, the company’s revenue was up by 6.9 per cent to £2,771 million as against £2,591 million in H1 FY2018. The company’s adjusted operating profit stood at £195 million in H1 FY2019 versus an adjusted operating profit of £170 million in H1 FY2018, an increase of 14.7 per cent for the period. The company’s reported operating profit stood at £64 million in H1 FY2019 versus an operating loss of £104 million in H1 FY2018. The company’s PAT (Profit after tax) stood at £12 million in H1 FY2019 versus a LAT (Loss after tax) of £148 million in H1 FY2018. The adjusted earnings per share stood at 50.1 pence in H1 FY2019 versus adjusted earnings per share of 41.8 pence in H1 FY2018. The basic earnings per share stood at 6.90 pence in H1 FY2019 versus a basic loss per share of 57.2 pence in H1 FY2018. The company’s dividend per share remained flat at 15.5 pence for the period.

Share Price Performance

Daily Chart as at October-23-19, before the market closed (Source: Thomson Reuters)

On 23rd October 2019, Travis Perkins Plc shares were trading at GBX 1,479.00 at the time of writing before the market close (at 9:54 AM GMT), down by 0.67 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,550.50/GBX 979.60.

Valuation Methodology

*Peers: Ferguson Plc, SIG Plc, Howden Joinery Group Plc, Grafton Group Plc and Berkeley Group Holdings Plc.

Conclusion
The group is focused on using its scale advantage to improve returns and growing organically by investing in more compelling customer propositions. The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it widens the political uncertainty. The company’s operations can be disrupted due to the threat of increased macro-economic challenges. Though the company reported strong fundamentals and has a positive long-term prospect, uncertainty in the medium term continues. 

Keeping in mind the risks faced by the company, and supported by valuation done using the above method, we have given a “WATCH” recommendation at the closing price of GBX 1,489.00 (as on 22 October 2019), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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