Treatt Plc

Treatt Plc (LON: TET) is a Chemicals company which is engaged in the business of manufacturing and providing solutions to consumer goods, fragrance and global flavour markets.

The Company will announce full-year results on 24 November 2020.

Investment Highlights - Treatt Plc – Sell at GBX 643.00

• Due to the impact of covid-19, the Company faced significant risks which impacted the financial performance significantly.
• As per valuation metrics, EV/Sales, EV/EBITDA & Price/Earnings multiples of the Treatt Plc are currently higher as compared to the corresponding multiples of the Food & Tobacco industry, reflecting overstretched valuations.
• The Company’s Return on Equity stood at 5% in the H1 FY2020, which is lower than the industry median of 5.3% and is continuously declining since FY2017.
• From the technical standpoint, 14-day RSI is supporting downward movement (around 61 level), which means the stock price could decline in the short term.

Key Risks

• The Company operates in highly competitive markets, and market share will fall if it fails to innovate its products.
• In the current set of COVID-19 environment, Specialty Chemicals space has taken a hit given the issues circling around production and demand.

Trading Update for FY2020 (30 September 2020) (released on 9 October 2020)

• The Company’s profit before tax for FY2020 stood in line with expectations, driven by a business recovery in H2 FY2020.
• The revenue from health & wellness business surged by 16%, with stronger margins from added-value products.
• The Company’s relocation project is progressing well in the UK and on budget, while the transition is expected in spring of 2021.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company witnessed an improvement in the trading environment in the second half of the financial year 2020, but still remained on the lower side. Due to imposed travel restriction, the operational and financial performance impacted for the short-term period. TET continue to diversify the revenue and position, while markets remained significantly impacted across markets. With the increased number of covid-19 cases, the growth projects might delay or put on hold. Moreover, the Company’s share price is trading near its 52-week high, which raises doubt over its upside potential. The stock made a 52-week low and high of GBX 310.00 and GBX 651.90, respectively.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation for Treatt Plc at the current price of GBX 643.00 (as on 5 November 2020, before the market close at 10:15 AM GMT) based on 29.72x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.).

N Brown Group Plc

N Brown Group Plc (LON: BWNG) is the United Kingdom-based online retailing Company, which primarily caters to the range of products for footwear, clothing, and homewares.

Investment Highlights - N Brown Group Plc – Sell at GBX 63.50

• Despite the recovery in Q2 FY2021, the Company has shown a significant decline in financial performance in the first half of H1 FY2021.
• As per valuation metrics, Price/Cash Flow multiple of the N Brown Group Plc is currently higher as compared to the corresponding multiples of the Speciality Retailers industry, reflecting overstretched valuations.
• In the last one year, the Company delivered a negative return of ~ 56.58% and delivered significantly lower returns compared to the benchmark Index (FTSE-All share Index).
• From the technical standpoint, 90-day RSI is supporting downward movement (around 56 level), which means the stock price could decline in the short term.

Key Risks

• The Company may experience an increase in operating expenses due to disruptions in the supply chain.
• In the covid-19 era, the Group increased reliance on online platforms, which need to be maintained properly to avoid cyber-attacks or frauds, failing to do so will deteriorate the reputation of the Company.

Financial Highlights – H1 FY2021 (29 August 2020) (released on 5 November 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2021, due to lower product and financial services revenue, the total revenue declined by 17.6%.
• With the launch of Home Essentials, the trajectory for product revenue business improved in Q2 FY2021.
• The Company increased focus towards digital transformation, and 92% of product revenue was generated through digital channels in H1 FY2021.
• BWNG achieved significant cost efficiencies across all areas, with improved marketing efficiency.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown a decline in financial performance in the first half of the financial year 2021. Both the top-line and the bottom-line performance have declined, with lower profitability margins. Despite the improvement in product revenue trajectory in the second quarter of FY2021, the product revenue declined by 20.5% in H1 FY2021. The current cash collection rate for the period remained stable. At present, N Brown Group is not able to predict the impact of increasing economic uncertainty. The stock made a 52-week low and high of GBX 10.02 and GBX 163.90, respectively.

Based on the risks associated and support from valuation done using the above method, we have given a “Sell” recommendation for N Brown Group Plc at the current price of GBX 63.50 (as on 5 November 2020, before the market close at 8:05 AM GMT) based on 5.40x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.