Stocks To Watch: MCRO, AMGO, HSV, SMIN

Stocks To Watch: MCRO, AMGO, HSV, SMIN

Micro Focus International PLC

Micro Focus International PLC (MCRO) is a British company engaged in the business of delivering and supporting software solutions, and its business involves acquiring companies whose margins it believes can improve and have a favourable business model. The company operates five portfolios with approximately 300 product lines and help around 40,000 customers, ranging from small and medium-sized enterprises to most of the companies listed in the Forbes Global 2000.

Recent News

On 29th August 2019, the company announced its trading update for FY19. The company does not expect to meet the revenue guidance (-4 to -6 per cent) in FY19.The unfavourable macro environment and weak sales have impacted trading performance. As of the now, the company’s management has revised the revenue guidance to -6 to -8 per cent for FY19.

Financial Highlights (H1 FY2019, $million)

Revenue from continuing operations declined by 5.3 per cent on a constant currency basis in H1 FY2019, though it was in line with the full-year guidance of minus 4 per cent to minus 6 per cent.
Statutory operating profit rose by 2.5 per cent to $32.6 million, while adjusted EBITDA at constant currency basis was $662.3 million. Adjusted EBITDA margin at constant currency rose by 2.8 ppt to 40 per cent. 

Profit for the period, which includes profit from discontinued operations, was $1,397.1 million, representing an increase of 125.4 per cent from H1 FY2018, while adjusted diluted earnings per share growth from continuing operations was 8.4 per cent to 85.53 cents.

The company reported adjusted cash conversion ratio of 115.1 per cent and free cash flow of $429.9 million, while adjusted net debt was $3,807.5 million at 30 April 2019 with net debt to Adjusted EBITDA multiple of 2.7 times.

The group reconfirmed its revenue target from the continuing operations for the financial year ending 31 October 2019 to minus 4 per cent to minus 6 per cent, while leverage remains at the medium-term target of 2.7x. Coupled with operational efficiency and disciplined capital allocation, and underpinned by effective long-term product management, the company continues to execute the strategy and business model to deliver returns.

However, one of the biggest impediments to its growth has been the integration of software division of Hewlett Packard which it bought for £7 billion in 2017, which the company admitted in the recent filing, remains a complex and significant programme of work as it has proved to be more time consuming and costly than anticipated. Moreover, the sale of stake by the chairman raises some serious questions.

MCRO Share price performance

Daily Chart as at 30-August-19, before the market closed (Source: Thomson Reuters)

On 30th August 2019, at the time of writing (before the market close, GMT 12:41 PM), MCRO shares were trading at GBX 1,120.60. Stock’s 52 weeks High and Low are GBX 2,174.50/GBX 1,026.60.

Amigo Holdings Plc

Amigo Holdings Plc (AMGO) is a consumer finance company and was incorporated in the year 2005. Since then, it has grown to become one of the largest providers of guarantor loan in the UK. The guarantor loan business model brings the second individual to the lending relationship, and they could be a friend, a family member, those who have a strong credit profile than the user of the fund.

Recent News

On 29th August 2019, the company announced results for Q1 FY20. The company saw a rise in revenue numbers to £71.5 million, it was a surge of 13.7 per cent as against £62.9 million in Q1 FY19. The company’s profit after tax was recorded at £18.1 million in Q1 FY20 as against £12.3 million in Q1 FY19. The company’s basic EPS was recorded at 3.8 pence in Q1 FY20 as against 3.1 pence in Q1 FY19.

Financial Highlights Financial Year 2019 (£, million)

For the year ended March 31, 2019, the group’s revenue surged by 28.4 per cent to £270.7 million from £210.8 million in the year-ago period. The stellar performance was driven by decent growth in the loan book and new customers added. Net loan book during the year under review expanded by £104.9 million or 17.4 per cent to £707.6 million and total customers at the year-end were at 224,000 and recorded a growth of 23.1 per cent from 182,000 in the year-ago period. Amigo’s cost-to-income ratio during the FY19 period stood at 17.5 per cent against 21.9 per cent recorded in the previous financial year.  Post-tax profit of the lender increased substantially by 75.1 per cent to £88.6 million from £50.6 million reported in 2018. However, the group’s adjusted profit after tax improved by 38.3 per cent to £100.1 million from £72.4 million in the FY18. Basic earnings per share of the company surged to 19.4 pence per share and improved by 52.8 per cent against the corresponding previous year. On an adjusted basis, basic earnings per share increased by 21.5 per cent to 22.0 pence per share.

Amigo’s solid balance sheet with low debt, high liquidity and conservative provisioning create a competitive mark for its peers. The group performed well during the financial year 2019, with free cash flow surging by 35% to £515.7 million. Also, the cost-to-income ratio of the lender improved from 21.9% in FY18 to 17.5% during FY19, an accounting measure that reflects the relation between the running cost of business against its operating income. The lower the ratio is, the more lucrative the bank should be. It provided insights into the efficiency of the operation. The company had maintained a cautious attitude towards credit risk due to economic uncertainty created because of Brexit.

AMGO Share price performance

Daily Chart as at 30-August-19, before the market closed (Source: Thomson Reuters)

On 30th August 2019, at the time of writing (before the market close, GMT 12:43 PM), AMGO shares were trading at GBX 75.86. Stock’s 52 weeks High and Low are GBX 297.50/GBX 66.79.

HomeServe PLC

HomeServe plc (HSV) is a Walsall, the United Kingdom-based company, which is involved in providing repair, heating installation and home emergency services. The company’s operations are differentiated into five segments being UK, USA, France, Spain and New Markets. The group designs a range of water, heating and electrical related home assistance products. The Company also provides connected home solutions. The company has long-term contractual relations with utility industry providing entry to households under affinity partner households.

Recent News

On 19th July 2019, the company released a trading update for quarter ended 18th July 2019. The company’s performance is in line with the expectations, and it looks forward to strong, sustainable growth in the approaching year (FY20). The company will announce its results for H1 FY20 on 19th November 2019.

Financial Highlights (FY2019, £ million)

The company’s reported total revenue increased by 12 per cent to £1,003.6 million as compared with the financial year 2018 of £899.7 million. The operating profit surged by 13 per cent to £152.6 million against the £135 million in FY18. The company’s statutory profit before tax witnessed an increase of 13 per cent to £139.5 million from £123.3 million of the financial year 2018. Profit for the year 2019 stood at £108.3 million, an increase from the previous year data. Basic earnings per share increased by 8 per cent to 32.7 pence as compared with the financial year 2018 of 30.2 pence.

The Board is proposing a final dividend per share was 16.2 pence, bringing the total ordinary dividend per share for the year 2019 at 21.4 pence, a surge of 12 per cent as compared with the financial year 2018 of 19.1 pence. The company’s board operates a liberal dividend policy and future dividend cover under the range of 1.75-2x across the medium term. Total customers at the year 2019 stood at 8.4 million with the retention rate of 82 per cent. 

The group expects to deliver more decent growth in the financial year 2020, with increased P&L investment in Home Experts division expected to be offset by solid performance in the membership, mainly in North America. The company ramped up its P&L investment in the New Markets division and Home Experts division to £9.8 million in the financial year 2019 as compared with the financial year 2018 of £4.4 million and is expected to surge in the range of £12-£15 million over these two areas in the financial year 2020.

The company expects the full-year results to be ahead of the management’s expectations. In the longer term, being a cyclical company, there is a strong relationship between demand for company’s products and levels of economic activity. Any downturn in global economic activity can have an adverse impact on the company’s performance. The company has an excellent opportunity to tap on this fundamental shift. The group expects to continue experiencing robust end markets in North America, which is supplemented by the group’s strategy of organic growth and helped by targeted bolt-on acquisitions. The UK market is more mature and competitive, but the company is in a strong position to make the best of market conditions.

The company continues to perform well in improving end markets. The company’s growth prospects look favourable as innovations and acquisitions have been made to cut down on costs and expand to new markets.

HSV Share price performance

Daily Chart as at 30-August-19, before the market closed (Source: Thomson Reuters)

On 30th August 2019, at the time of writing (before the market close, GMT 12:45 PM), HSV shares were trading at GBX 1,156. Stock’s 52 weeks High and Low are GBX 1,275.00/GBX 847.50.

Smiths Group PLC

Smiths Group PLC (SMIN) is a British technology company headquartered in London, United Kingdom. In 1851, the company, formerly known as Smiths Industries, was established by Samuel Smith as a jewellery shop in south London. In 2000, the name of the business was changed to Smiths Group. The group develops, manufactures and sells control systems and instrumentation for industrial applications to customers based in over 200 countries and territories around the world; enabling industry, improving healthcare, enhancing security, advancing connectivity and supporting new homes.

Financial highlights for H1 FY19

The company’s underlying revenue was recorded at £1,573 million in H1 FY19 as against £1,542 million in H1 FY18. The company’s underlying profit from operations was recorded at £246 million in H1 FY19 as against £248 million in H1 FY18. The company’s underlying operating margin was recorded at 15.6 per cent in H1 FY19 as against 16.1 per cent in H1 FY18. The company’s underlying profit after taxation was recorded at £160 million in H1 FY19 as against £162 million in H1 FY18. The company’s underlying basic EPS was recorded at 40.2 pence per share as against 40.7 pence per share in H1 FY18. The company’s dividend was recorded at 14.1 pence per share in H1 FY19 as against 13.8 pence per share in H1 FY18.

SMIN Share price performance

Daily Chart as at 30-August-19, before the market closed (Source: Thomson Reuters)

On 30th August 2019, at the time of writing (before the market close, GMT 12:45 PM), SMIN shares were trading at GBX 1,662. Stock’s 52 weeks High and Low are GBX 1,676.50/GBX 1,256.74.

 

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