UK Daily Stock and Finance News Report Wednesday 11th October (QUIZ, MNDI, PHD, VTU, CSP)

 

Quiz PLC

 Share price: 180 pence (down 3%)

Pre-Close Trading Update

This UK omni-channel fast fashion womenswear brand is like BOOHOO.

Their interim results showed a 35% increase in group sales to £56.1m from £41.5m.

Sales breakdown is international operations saw an increase to £10m from £8.9m. Their UK operations, standalone stores and concessions increased by 15% to £32.3m in H1 2017 (H1 2016: £28.1m) with each channel performing in line with expectations.

As always, the online side sparkle with growth of 204% to record £13.8m from £4.5m, helped by the new distribution centre.

Quiz PLC is a newly listed company (debut in 2017). It raised £102.7m in gross proceeds, where £10.6m is used to expand growth.

 

Could this be the next BOOHOO?

Potentially.

They have a high operating margin close to 10% (higher than BOOHOO 7-8%). Their balance sheet is super strong with low debt levels and prudent levels of assets. Strong share proceeds mean growth gets funded for many of years, so shareholders don’t need to worry about fundraising.

Another positive is hiring Peter Cowgill from JD Sports as non-executive chairman. You don’t need to worry about someone who delivers profits to long-term shareholders!

Shares look cheap when compared to BOOHOO and with Quiz PLC sales looking to break £100m in 2018. (Boohoo’s sales £294m)

At £1.86, this value the business at £232m, compared to Boohoo’s £2.2bn valuation.

 

Final Thoughts

Quiz PLC looks attractive, especially when sales are growing at 30% apace. Margins are attractive. With 2018’s EPS forecast at 6.4 pence gives it forward-PE of 28 times, much lower than Boohoo’s 90 times.

My advice is to research this company before taking a punt. If the due diligence turns out fine, then it’s worth a punt!

Mondi PLC

Share price: 1923 pence (down 8%)

Trading Update

This former Anglo American subsidiary has come out with a profits warning without saying it was a profits warning (the devil is in the detail!)

Although underlying (before exceptional and impairments costs) profit for the third quarter of 2017 of €245 million was 8% above the comparable prior year period (€227 million).

The impact of planned maintenance shuts on operating profit for 2017 will be around €90 million. This means reported operating profits for 2017 will be down by 10%.

Experiencing Higher Costs

Mondi blames this on inflationary cost pressures and the impact of maintenance shuts. Also, currency movements had a net negative impact on operating profit versus the comparable prior year period driven mainly by a weaker US dollar and sharply weaker Turkish Lira.

 

Lower Returns

Operating margins is down to 13.9% from 16%, also, ROCE is down from 21.2% to 18.7%!

 

 

Market Valuation

Mondi’s share price had a good run, which saw the shares rose by 300% in five years. PE of 18 times looks rich when next year’s earnings will fall.

 

Final thoughts

Mondi’s shares had a good-run and shareholders should reduce their holdings and take profits.

Countryside Properties

Share price: 348 pence (unchanged)

 

FY 2017 Trading Statement

 

This homebuilder completed 28% more homes than last year taking it to 3,389 homes.

But, the average selling price (“ASP”) reduced by 8% to £430,000, which was in-line with market expectations.

The problem is their housebuilding division with average ASP reduced by 23% to £515,000, whereas the Partnerships division saw 12% increase to £343,000.

 

Countryside contributes ASP rise in their Partnership down to “outer London and regional cities.” But the reason for price decline in their housebuilding division is down to reduce their exposure from the high-end product! It should say that London home price is falling.

Land plots continue to grow to 38,811 plots, which is equivalent to 11.45 years’ supply at current volume.

 

 

No profit forecast

Apart, from stating the obvious (Help to Buy scheme), there is no mentioned with a profit forecast. It will be interesting to know how the reduction in homebuilding selling price affects pre-tax profits.

 

Historical and forecast

Last year sales came to £671m, up from £277m in 2013. Meanwhile, operating profits were £87m, up from £17m.

Stock, as % of sales is almost equivalent to annual turnover. PE ratio is at 25 times with EV/EBIT at 15 times. Although, PE is forecast to fall to 13 times.

Also, the dividend yield is low at 1.5%.

 

Comparison

For the sake of comparison, Berkeley Holdings has PE of 8.5 times and EV/EBIT at 5.9 times.

 

Final thoughts

Their housebuilding division contributes 53% of turnover and 48% of pre-tax profits. With the division seeing a 23% fall in average selling price, this could push it into a net loss and will affect overall profitability. I feel without profits forecast, this is a delay reaction. As soon as they report their annual results (somewhere in November), we could see a major share price correction!

 

Add in the fact that it is twice as expensive than the sector average, then the shares a sell, based on the lack of financial detail. Feel free to comment below.

Proactis Holdings

Share price: 164 pence (down 4%)

 

Preliminary Results

Proactis is a SaaS provider by giving solutions for finance and procurement (read more about it here)

The results were pretty good as it recorded sales of £25.4m, an increase of 31% with normalised EPS increasing to 9p per share.

With a cash balance of £4.3m, it has proposed an increase in dividend to 1.4p.

Meanwhile, it reported a fall in reported operating loss of £2.6m, compared to adjusted profits of £5.25m. The blame lies on “non-recurring” admin. Expenses of £6.8m, up from last year £0.58m.

The expenses shouldn’t be non-recurring! IMO

As a subscription-based business, its deferred income represents 45%, down from 49%. You can assume this to be “recurring revenue” at the date of the balance sheet.

Meanwhile, Cash earnings down slightly to £4.5m from £5m.

HOWEVER, the company’s financial statement will change dramatically after acquiring Perfect Commerce.

 

Looking Ahead and acquisition of Perfect

The results ignored the “PERFECT” acquisition which resulted in the company acquiring it for $127.5m.

Perfect has reported turnover of $39.7m (£30m) and EBITDA of $6.4m (£4.8m).

Proactis acquired this through raising £70m in share placing and £28m debt from £45m Debt facility.

 

Valuation

Proactis Holdings is a fairly valued business at 20 times PE.

 

Final Thoughts

An interesting software business that is going places. I like this company, but it requires more research.

 

Vertu Motors

Share price: 46 pence (down 1%)

Interim Results

 

The results weren’t surprising as SMNT stated the UK car market saw sales decline by 9% last month.

Sales are unchanged from the previous interim result at £1.45bn. Profit before tax was higher at £24m, but adjusted profit before tax increased by £1.4m to £21m.

However, they recorded a rare cash loss of £1.8m, whereas last year it made net cash of £22m.

The culprit is the £24m negative cash movement from working capital. However, I am slightly concern of their trade debtors as this rose to £64m from £49m, despite sales remaining unchanged.

This is unsurprising as buyers are delaying payments to keep up with other bills. But it could also signal a further deterioration for the car market.

 

I am pleased to see Vertu Motors has reduced capex to £8.2m from £15.8m and made disposal of £14m in PPE! (the reason why sales are unchanged) But it looks to be a sale and leaseback transaction.

Also, Vertu announces a further share buyback of £3m, but maximum of share purchase capped at 30m.

 

 

Vertu Divisions

It is good to see service revenue (Aftersales division) up by 4.4% where 44% of gross profit is made. Meanwhile, used cars are up 1%.

Their new car sales division saw a fall of 14%, but it maintained their margin.

 

Valuation

The market is placing a 7.5 times PE, which is low when profits are still increasing. Their EV/EBIT is 5 times. This makes it attractive for investors. But, the uncertainty surrounding this UK car market and the “unknown” consequences of PCP Financing scheme is the reason behind this low valuation.

 

Final Thoughts

The UK car market has risen strongly for many years. The downturn is now beginning to bite this year. The question on everyone lips is: “How long will this decline continues?”

At 46p, Vertu Motors is fairly value given the risks involved.

 

DISCLAIMER

The above analysis is my opinion and nobody else. It does not constitute professional investment advice. Data is correct on available information at the time.