Scottish Mortgage Investment Trust Plc

Scottish Mortgage Investment Trust PLC (SMT) is a closed-end investment company and incorporated in the United Kingdom. The objective of the Fund is to maximize the total return to investors at the same time as generating real dividend growth through a diversified portfolio. The Fund invests internationally, primarily in quoted securities. The company’s portfolio is concentrated in a relatively small number of holdings.

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

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, the company’s total gains on investment stood at GBP 289,983 thousand versus GBP 1,219,964 thousand in H1 FY2019. The company’s total net returns before interest expense and tax stood at GBP 284,910 thousand in H1 FY2020 versus GBP 1,216,909 thousand in the first half of the financial year 2019. The company’s total net returns before tax stood at GBP 269,169 thousand in the first half of the financial year 2020 versus GBP 1,202,650 thousand in the first half of the financial year 2019. The company’s total net returns after tax stood at GBP 268,547 thousand in H1 FY2020 versus GBP 1,201,456 thousand in the first half of the financial year 2019. The net return per share in H1 FY2020 stood at 18.11 pence versus 84.38 pence in H1 FY2019. The group’s board proposed an interim dividend per share of 1.39 pence. This is despite an 18.5 per cent fall in the earnings.

Share Price Performance

Daily Chart as at 21st November 2019, before the market closed (Source: Thomson Reuters)

On November 21^st, 2019, Scottish Mortgage Investment Trust Plc shares were trading at GBX 513.00 at the time of writing before the market close (at 11:28 AM GMT), down by 1.16 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 568.50/GBX 440.14.

Conclusion
Scottish Mortgage Investment Trust PLCis emphatically optimistic about the underlying and aggregate progress of the portfolio. Political and economic uncertainty due to Brexit negotiations could have a negative effect on the financials and target market of the company. Moreover, the company’s stock is trading near a 52-week high, raising doubts at its upside potential at the current price level.
Therefore, based on the above rationale, we have given a “Watch” recommendation at the current price of GBX 513 (as on November 21, 2019, before the market close), while we look for any upcoming catalysts in the near term.

William Hill Plc

William Hill Plc (WMH) is a Bristol, United Kingdom-headquartered betting and gaming company. The company, which was established in 1934, attracts millions of customers from around the world and is one of the most trusted brands in the industry. The UK is the home market for the group, but it is increasingly focusing on the international market, as it continues its strategy of creating a digitally led, internationally diverse gambling company, with a presence in eight countries worldwide and license in four regulated gambling markets. 

Trading Update
On 21st November 2019, William Hill announced its trading update for the 17 and 43-weeks ending 29th October 2019. The company is in line with the expectations, and net revenue surged by 1 per cent for 43 weeks period. The net revenue from Online UK business was up by 4 per cent (on a proforma basis) and remained consistent with the growth rate of the market. The company’s net revenue (like-for-like basis) from retail business declined by 16 per cent. As the market continues to grow, the net revenue from US business was up by 60 per cent for the period.

Financial Highlights – H1 Financial Year 2019 (2 July 2019, £, million)

(Source: Interim Reports, Company Website)

Revenue of the group remained largely flat over the year as it rose by 1 per cent to £811.7 million, against £802.9 million recorded in H1 2018, reflecting lower revenue in Retail due to the £2 stake limit on B2 gaming products. Adjusted operating profit fell by 33 per cent to £76.2 million due to a 9 per cent increase in the net operating expenses, reflecting increased investment in the US business and an increase in the cost of acquiring Mr Green. The proposed closure of around 700 shops and the implementation of the new £2 stake limit contributed to a statutory loss before tax of £63.5 million, while loss before interest and tax was £38.1 million. Adjusted profit before tax declined to £50.8 million, reflecting a 47 per cent fall. Statutory loss per share stood at 7.1 pence (H1 2018: loss per share of 93.5 pence), while adjusted earnings per share fell by 42 per cent to 5.3 pence, resulting in a 38 per cent decrease in dividend per share to 2.66 pence. 

Share Price Performance

Daily Chart as at 21st November 2019, before the market closed (Source: Thomson Reuters)

On November 21^st, 2019, William Hill Plc shares were trading at GBX 182.40 at the time of writing before the market close (at 11:35 AM GMT), up by 1.84 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 206.80/GBX 128.41.

Valuation Methodology

*Peers: 888 Holdings Plc, Whitbread Plc and Flutter Entertainment Plc.

Conclusion
The company has shown a decline in financial performance for the first half of the financial year 2019. Although the company’s revenue has marginally increased, the bottom-line performance has declined for the period. The company’s cash balances reduced significantly for the period. The company anticipate losses from the United States business will be in the guided range of $0-20 million for 2019.

The company’s operations can be affected negatively due to ongoing uncertainties created over the Brexit, as it would disturb the business, in particular in the event of an unfavourable outcome in respect of any final agreements between the UK and EU. As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations.

The key risks include the regulatory and political risk, cybercrime and information security, competitive landscape, delivery of IT strategy, talent engagement and retention, programme optimisation, and compliance risk.

Based on the above rationale and valuation as done above, we recommend investors to keep a "Watch" on the stock at the current price of GBX 183.07 (as on 21^st November 2019, before the market close at 10:50 AM GMT), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and peers have been taken from Thomson Reuters.

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