AJ Bell Plc – Resilient FY20 performance

AJ Bell Plc (LON: AJB) is the FTSE 250 listed company, which is one of the largest UK investment platforms. Its flagship program includes AJ Bell Investcentre and AJ Bell Youinvest.

Investment Highlights - AJ Bell Plc – Expensive at GBX 446.50.

• On the valuation front, the Company is trading at a higher P/B, EV/Sales, EV/EBITDA and P/E than that of an average of corresponding multiples of the financial services industry.
• The Company has forecasted lower revenues in FY22 due to the interest rate cuts in FY20 across both the business segments – advised platform and D2C platform.
• The stock is trading near its 52-weeks high, which creates doubts regarding its upside potential.
• From a technical standpoint, 14-day RSI (62.93) is in the overbought zone and hence, a stock price correction is anticipated.

Key Risks

• The fluctuation in currency rates and interest rates may cause significant disruptions.
• The physical consultation segment may get affected due to restrictions imposed by the government.
• The ongoing challenges of Covid-19 pandemic and Brexit may increase its operating cost and hamper business activities.

Financial Highlights (for FY20 ended on 30 September 2020 as on 03 December 2020)

(Source: Company result) 

• The Company has reported 21% growth in revenue from £104.9 million for FY19 to £126.7 million during FY20.
• Similarly, profit before tax of the Company went up by 29% from £37.7 million for FY19 to £48.6 million during FY20.
• The Company announced an increase of 28% in total ordinary dividend for FY20 to 6.16 pence per share.
• The customer retention rate remained high and stood at 95.5% for FY20.
• With regards to its financial position, the Company has managed to increase its net assets by 27% to £109.5 million during FY20. 

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group) 

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

Conclusion

The Company has delivered a resilient financial performance in FY20 ended on 30 September 2020. However, the Company is expecting its revenue margin to decline in FY22 from the levels of FY21 reflecting the full impact of 2020 interest rate cuts as advised platform interest is expected to drop by 17 basis points while D2C platform is expected to drop by 31 basis points.

From a valuation perspective, the Company is trading at higher P/B, EV/Sales, EV/EBITDA and P/E than that of an average of corresponding multiples of the financial services industry. On the technical front, the Company is hovering around its 52-week high, which raises doubts regarding its upside movement. The Company is having a 14-day RSI of 62.93, which creates doubts on its upside potential. The stock made a 52-week low and high of GBX 229.00 and GBX 467.58, respectively.

Based on its lower revenue forecast in FY22 and the valuation method used above, we have given the "Expensive" stance on AJ Bell Plc at the current market price of GBX 446.50 (as on 04 December 2020, before the market close at 08:20 AM GMT), while we will keep a close watch on the Company and update when the catalyst starts growing.

eve Sleep Plc – Loss-making entity

eve Sleep Plc (LON: EVE) is the FTSE AIM All-Share listed Company,which is direct to consumer sleep wellness brands having its operations in the UK, Ireland and France.

The Company will provide a detailed trading update of FY20 full year on 21 January 2021.

Investment Highlights - eve Sleep Plc – Avoid at GBX 4.75

• The EBITDA margin of the Company is in the negative territory from the last five years while the industry median is 8.7%.The return on assets and return on equity are falling in the negative zone.
• The revenue of the Company has shown a declining trend during H1 FY20 and went down by 5.1%.
• The stock might have rallied due to the seasonality factor as the Company delivered strong trading due to the successful Black Friday period.
• From a technical standpoint, 14-day RSI (67.22) is in the overbought zone and hence, a stock price correction is anticipated.

Key Risks

• The Company is exposed to liquidity risk as the Company is incurring losses since its inception.
• The second wave of Covid-19 pandemic may cause disruptions in the business environment of the Company.
• The increasing digital penetration implies growing cyber risk.

FY20 Trading Update (for the eleven months period ended on 30 November 2020, as on 03 December 2020).

• The Board has raised its revenue expectations for revenue during FY20 to at least £24 million due to strong trading across the mattress and bedframe ranges and declined its EBITDA loss by 77% to around £2.5 million.
• The Company had a net cash position of £8.0 million as of 30 November 2020.
• The Company has been able to sell on an average one mattress every three minutes on a Black Friday.

Recent News

On 21 September 2020, the Company announced that Nikki Crumpton will step down from her position of Non-Executive Director effective from 30 September 2020. 

FY20 Financial Highlights (ended on 30 June 2020 as on 15 September 2020)

(Source: Company result) 

• The revenue of the Company went down by 5.1% to £12.2 million for H1 FY20 from £12.9 million during H1 FY19.
• The underlying EBITDA loss of the Company was reduced by £5.1 million to £0.8 million during H1 FY20.
• The Company has reported positive cash flow from operations of £1.8 million for the first time.
• The market efficiency was almost doubled, bringing down marketing cost as a percentage of revenue from 51.0% during H1 FY19 to 25.3% for H1 FY20.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company is having a negative return on asset and return on equity of -93.12% and -158.78%, respectively. The revenue of the Company went down by 5.1% to £12.2 million for H1 FY20 from £12.9 million during H1 FY19. The Company is consistently making net losses from the last five years. The stock might have rallied till its saturation levels due to the positive trading momentum created by the successful Black Friday period and promotional activities on the telly.

On the technical front, The Company is having a 14-day RSI of 67.22, which creates doubts on its upside potential..The stock made a 52-week low and high of GBX 0.65 and GBX 7.00, respectively.

Based on the weak financial performance and several risk factors discussed above, we have given the "Avoid" stance on eve Sleep Plc at the current market price of GBX 4.75 (as on 04 December 2020, before the market close at 08:20 AM GMT), while we will keep doing our analysis and update when the festive season ends soon.

*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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