Funding Circle Holdings PLC

Funding Circle Holdings PLC (LON: FCH) is an international SME loan platform. The company assists SMEs to access finance that allows them to expand and grow by combining sophisticated data analytics, dedicated customer service, and cutting-edge technology.

On 6^th August 2020, the company will announce its 2020 Half Year Results.

Recent News
On 15^th April 2020, the company announced it had been approved by the U.S. Treasury and U.S. SBA (Small Business Administration) to originate PPP (Paycheck Protection Program) loans that are 100 per cent guaranteed by the SBA, which provides small businesses with forgivable loans up to $10 million to cover payroll costs, mortgage interest, rent, or utilities.

Financial Highlights for the Year Ended 31^st December 2019

(Source: Annual Report, Company Website)

Despite a challenging economic environment, the company’s revenue increased by 18% to £167.4 million in 2019(2018: £141.9 million), with LuM (Loans Under Management) up 19% to record £3.7 billion (2018: £3.1 billion). Adjusted EBITDA of negative £27.5 million (2018: negative £23.4 million) with 16% of loss margin (2018: 16%). Loss before taxation and exceptional costs stood at £49.9 million (2018: £45 million). Loss before taxation, including a non-cash exceptional write-down of £34.3 million of goodwill and intangible assets related to the Developing Markets, was reported at £84.2 million (2018: £50.9 million). The UK business represents 65 per cent of Group revenue. US business following a similar trajectory. The basic loss per share for 2019 increased by 24.4 pence as compared with the loss of 18.2 pence in 2018. In FY19, the free cash outflow stood at £49.4 million (2018 outflow: £40.9 million). Including a mix of short- and long-term investments and cash, the net assets stood at £319 million in FY19 (2018: £401.0 million).

Share Price Performance
 
Daily Chart as of April16^th, 2020, after the market closed (Source: Thomson Reuters)

On April 16, 2020, Funding Circle Holdings PLC shares closed at GBX 98, up by 28.99% against the previous day closing price. Stock's 52 weeks High is GBX 329, and 52 weeks Low is GBX 21.95. From the price-performance standpoint, its shares have delivered a positive return of approximately 12.01% on a year to date basis and losses of around 20.92% recorded in the past nine months period.

Key Risks
Macroeconomic or political factors that may affect Funding Circle’s financial or credit performance. Liquidity risk; credit risk; and market risk (including interest rate risk, foreign exchange risk and other price risks). The company continue to assess the possible impact of COVID-19 on borrowers and investors.

Conclusion
Due to seasonality and lapping credit tightening actions taken in H1 2019,the combined US and UK revenue to grow by 15%, skewed to H2 2020. In 2020, the reorganised Developing Markets contributing 7 million pounds of revenue. The company is targeting that the group’s adjusted EBITDA will be break-even in the second half of 2020. The company continue to assess the possible impact of coronavirus (COVID-19) on investors and borrowers. The company has reduced its growth and shown an uncertain economic outlook. The challenging economic and political situation in the UK region was persisting. The group’s shares have tumbled substantially in the year-over period (-66.83% return).

Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 98 (as on April 16, 2020), while we look for the growth catalysts in the near-term.
 

Carr's Group PLC

Carr's Group PLC (LON: CARR) is a United Kingdom-based international leader in manufacturing value-added products and solutions, with market-leading brands and decent market positions in the Engineering and Agriculture sectors.

Financial Highlights for the 26 weeks ended 29 February 2020

(Source: Interim Reports, Company Website)

Despite the challenging market conditions, the company has delivered a decent performance in the current period. During the first half of 2020, the company’s revenues decreased by 3% to £200 millionas compared with the corresponding period of the last year (H1 2019: £206.2 million). The adjusted operating profit for the first half of 2020 reduced by 13.4% to £10.3 million (H1 2019: £11.9 million) against the same period last year (H1 FY2020: £11.9 million), while reported operating profit surged by 3.8% to £11.2 million (H1 2019: £10.8 million).  The decrease in operating profits was mainly attributable to challenging market conditions and the impact of contract phasing in Engineering, and weather in Agriculture. Adjusted profit before tax For H1 FY20 tumbled 16.0% to £9.6 million as compared with the corresponding period of the last year (H1 2019: £11.4 million). Whilst the reported profit before tax after amortisation and non-recurring items stood at £10.5 million (H1 2019: £10.3 million). Amortisation and non-recurring items were a credit of £0.9 million (H1 2019: charge of £1.1 million) and related mainly to adjustments to contingent consideration partly offset by amortisation of intangible assets. The adjusted earnings per share reduced by 14.9% to 8.0 pence in H1 FY20 (H1 2019: 9.4 pence), while basic earnings per share rose by 12.0% to 9.3 pence from 8.3 pence.

Share Price Performance
 
Daily Chart as of April16^th, 2020, after the market closed (Source: Thomson Reuters)

On April 16, 2020, Carr's Group PLC shares closed at GBX 129, up by 15.18% against the previous day closing price. Stock's 52 weeks High is GBX 166, and 52 weeks Low is GBX 83.53.

Key Risks and Uncertainty
Performance in Agriculture impacted by: pressure on farm incomes due to rising costs and pressure on prices in UK and USA; uncertainty in UK Agriculture surrounding future relationship with EU; large winter forage stocks reducing demand for bought-in feed-in UK and USA; and mild weather reducing demand for a range of supplements and feed. Performance in Engineering impacted by the delay in contract awards in both Japan and China in Global Robotics, driven by COVID-19.

Conclusion
Resilient performance in the current period despite market challenges across both Agriculture and Engineering sectors. The company continue to monitor the impact of COVID-19 closely, with a high level of uncertainty, important steps have been taken to protect the people, and contingency planning in place to limit any negative impact on the Group’s performance. Interim dividend deferred given the level of uncertainty, will be reassessed in July 2020. Being a food producers’ company, Carr's Group needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. The supply of the foods is limited, due to the lockdown of cities. This will impact the company’s financial performance in FY2020. However, conditions in UK markets have remained challenging, which impacted the volumes and margins for the company.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 129 (as on 16th April 2020), with support from few catalysts needs to be evaluated at a later stage.

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