Softcat Plc

Softcat Plc (LON: SCT) is an FTSE 250 listed Company, which provides technology services and solutions.

The Company will release preliminary results on 20 October 2020.

Update on Trading Performance for Q3 FY2020 (Released on 26 May 2020)

The Group has shown decent performance in the third quarter of the financial year 2020 and delivered revenue, gross profit and operating income growth. The cash receipts from customers improved to normal trends and remained in line. The Group is exposed to a high degree of uncertainty in the next coming months due to challenges related to the economy. The Group has managed to move to a remote working model seamlessly and showed business resilience so far.

Share Price Performance


Daily Chart as of August 17, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Softcat Plc shares were trading at GBX 1,317.00 at the time of writing before the market close (at 10:18 AM GMT+1) on 17 August 2020 and up by 0.15% versus the previous day closing price.Stock 52 week High and Low were GBX 1,419.00 and GBX 832.17, respectively.

From the technical standpoint, 14-day RSI is currently in an overbought zone, which means the stock price could decline in the short term.

Key Risks

The Company is exposed to various kinds of risks such as loss of competitive advantage due to customer dissatisfaction, technology upgrades, the security of data, business interruption due to COVID-19 outbreak.

Valuation Methodology
 


Conclusion

The trading in the third quarter of the financial year 2020 stood decent with improved financial performance. The Group delivered growth in revenue, gross profit and operating income. Despite the decent performance, the Group is exposed to a high degree of uncertainty in upcoming months due to the impact of Covid-19 pandemic. The Group has also cancelled its interim dividend due to ongoing uncertainties. Hence, it would impose pressure on profit margins and rebate programmes. In the long run, the Company has the potential to emerge strong with decent cash availability and no bank debt position. However, in the current trading scenario, the stock looks overvalued. Moreover, the stock is trading close to its 52-week high and holding limited upside potential for the stock.

Based on the above rationale, we have given a “Watch” recommendation for Softcat Plc at the current price of GBX 1,317.00 (as on 17 August 2020, before the market close at 10:18 AM GMT+1), while we look for any upcoming catalysts in the near term such as the benefit of cash receipts at the normal trend.

Watches of Switzerland Group Plc

Watches of Switzerland Group Plc (LON: WOSG) is an FTSE 250 listed personal goods company based out of the UK and engaged in the business of retailing of watches. The Group operates through its own stores, Mayors and Goldsmiths stores and Mappin and Webb stores.

The Company will hold Annual General Meeting on 14 October 2020.

Update on Trading Performance in Q1 FY2020 (13 August 2020)

In the first quarter of the financial year 2021, the Group managed to offset the impact of tourism decline through an increase in domestic demand. Due to store closures, the revenue declined by 27.6% in Q1 FY2021 to £151.6 million (Q1 FY2020: £209.4 million). Due to imposed lockdown, the stores traded for around 38% of total trading hours. The Group reopened the majority of stores and witnessed strong performance in July 2020 with 7.4% growth. The Group witnessed a strong performance from e-commerce business with 79.3% sales growth. The contribution of the luxury watch increased and represent 86.8% of revenue (Q1 FY2020: 84.8%). The net debt as on 26 July 2020 stood at £91.2 million and financial headroom stood at £161.1 million. To improve the liquidity position further, WOSG secured facility agreement of £45.0 million in May 2020.

Share Price Performance


Daily Chart as of August 17, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Watches of Switzerland Group Plc shares were trading at GBX 315.00 at the time of writing before the market close (at 10:20 AM GMT+1) on 17 August 2020 and up by 2.61% versus the previous day closing price.Stock 52 week High and Low were GBX 397.00 and GBX 170.80, respectively.

From the technical standpoint, 14-day RSI is currently in an overbought zone, which means the stock price could decline in the short term.

Key Risks

Any change in the spending pattern of customers might hamper the financial performance of the company. The launching of new operations might increase the regulatory risks for the company. Changes to economic conditions could lead to a reduction in demand for housing which could impact the company’s revenue.  The outbreak of COVID-19 has impacted the business performance of the company due to closures of its stores.

Valuation Methodology


Conclusion

Despite the existence of business uncertainties, the Company’s guidance for FY2021 is based on strong demand for luxury watches in the US and the UK. The Group’s sales performance in Q1 FY2021 is supported by supply-driven business model and strong domestic demand. Despite the strong demand, the revenue from both the UK business and the US business has declined significantly in the Q1 FY2021. The improved guidance for FY2021 is based on the assumption that there will be no lockdowns in the US and the UK, as it would impact sales further. The imposed lockdown with impacted the brand partner’s production and will cause localised disruption in remaining FY2021. With the travel restrictions imposed on travelling, the Group witnessed a decline in the trading from travel and tourism business.

Based on the headwinds faced by the Group, we have given a "WATCH" recommendation at the current price of GBX 315.00 (as on 17 August 2020, before the market close at 10:20 AM GMT+1), while we look for any upcoming catalysts in the near term such as improved domestic demand.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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