The United Kingdom and European markets retreated for the first time this week on Friday (before the close on 29th May 2020), and some of the significant triggers were as follows:
- The optimism of revival in economic activities is dampened by the escalating apprehensions between the US and China.
- British business confidence plunged to -33 in May, touching the lowest since December 2008.
- The Car production in the United Kingdom slumped lowest in decades as merely 197 cars were manufactured in April compared to 71,000 in April 2019.
During the lockdown scenario caused by the Coronavirus outbreak, there has been a change in the demand pattern of utility services as most of the working population is working from home as Companies and factories have been shut down.
Considering the prevailing market conditions, we will cover two LSE listed stocks which are operating in Gas, Water & Multi-utilities sector. The two stocks are Fulcrum Utility Services Ltd (LON: FCRM) and Yu Group PLC (LON: YU.). As on 29th May 2020 (before the market close at 2.20 PM GMT), FCRM shed around 0.29 per cent whereas YU. surged over 12.72 per cent. For better understanding regarding the share price movement, we will dig through their respective recent regulatory updates, financial and operational position to inference a guiding light towards prospects of Companies.
Fulcrum Utility Services Ltd (LON: FCRM) – Bolstering Position with Disposal of Local Gas Assets
Fulcrum Utility Services Ltd is a multi-utility service provider. The Group caters to Scotland, England and Wales through its services. The Group Companies includes Fulcrum, Dunamis, CDS and Maintech Power. Further, the Group splits its revenue through the following three services – Utility Asset Ownership, Dunamis and Infrastructure Services. It is listed on the FTSE AIM All-Share index and was admitted to the LSE (London Stock Exchange) on 24th December 2009.
(Source: Annual Report, Company Website)
Recent Major Regulatory Developments
- 11th May 2020: A further 2,825,000 shared were acquired by the Harwood Capital LLP in the Fulcrum's share capital. Post transaction, Harwood Capital LLP holds 11 per cent stake in the Company.
- 1st April 2020: The Group completed the disposal of domestic gas connection assets with initiation tranche for consideration of £16.8m.
- 4th March 2020: The Group announced the sale of domestic gas assets for the estimated total consideration of £33 million, while around £17 million was expected to receive in the initial tranche.
COVID-19 Update (as on 1st April 2020) - Asset Sale Significantly Strengthened the Balance Sheet
On 1st April 2020, the Company completed the sale of its domestic gas assets and provided the update on the actions being taken to mitigate the impact of COVID-19. For the Financial Year ended 31st March 2020, the Group's trading performance was broadly in line with expectations. However, the UK government has taken stringent measures during March 2020; there has been a more pronounced decrease in demand for the services; some suppliers are also suspending operations; numerous customer sites have closed.
Some Additional Highlights are stated below:
- The Group confirmed the accomplishment of the sale of the early tranche of its domestic gas assets and order book and associated meters, to ESP (E.S. Pipelines Limited) on March 31, 2020, with GBP 16.8 million (before related expenses) of cash consideration received on completion, significantly strengthening the Group's balance sheet.
- As earlier announced on 23rd December 2019, the total estimated net consideration is expected to be GBP 33 million (inclusive of the GBP 16.8 million announced on 1st April 2020) with the balance to be received in future tranches.
Share Price Performance
(Source: Refinitiv, Thomson Reuters) - Daily Chart as of May 29th, 2020, before the market close
FCRM’s shares were trading at GBX 27.92 on 29th May 2020 (before the market close at 2:02 PM GMT+1). Stock's 52 weeks High is GBX 31.00 and Low is GBX 13.00. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 62.19 million.
As per the past scenario, the Company witnessed the utility connections market is enhancing with several substantial contracts being won. However, given the unquantifiable impact of COVID-19 on the Group's trading environment, the management believes that it is not possible to provide guidance for the financial year 2020 at this stage. Looking further ahead, the Group has a healthy business fundamentally with a robust order book, supported by upcoming and existing cash received from the sale of domestic assets to ESP. These factors give the management confidence that Fulcrum Utility Services is on-track to prosper in the long term.
Yu Group PLC (LON: YU.) - Operating with Decent Balance Sheet Position During Demand Uncertainty
Yu Group PLC is a United Kingdom-based supplier of electricity, water and gas services. It serves all size of businesses, customers across the UK. Operationally, the Group reports its revenue through a single segment, i.e. supply of electricity, gas and water to large and SMEs customers. Geographically, all its revenue is generated from customers in the United Kingdom. The Company is listed on FTSE AIM All-Share index and was admitted to the LSE on 17th March 2016.
(Source: Annual Report, Company Website)
Recent Significant Developments of 2020
- 25th March 2020: Considering the government restrictions regarding the coronavirus outbreak and keeping the business continuity plan in mind, the Group decided to operate the business remotely. Further, the Group unveiled that it had £13m of cash and collateral deposits on 29th February 2020.
- 8th January 2020: Robin Paynter Bryant joined the Board of Yu Group as Non-Executive Chairman since the former Chairman Mr Ralph Cohen stepped down from his position.
Financial Highlights – Achieving Sustainable Growth and Increased Profitability
On 6th April 2020, the Group provided results for the year to 31 December 2019, with substantially increased performance and while bringing operational efficiency. The Group also reflected a positive trend in cash collections. Other Highlights are:
- For the year to 31 December 2019, the results have seen a growth of 38 per cent in revenue to GBP 111.6 million (FY18: GBP 80.6 million). Most encouragingly, the tighter commercial and financial management across the business is now being evidenced in the improved financial results.
- The Group’s Adjusted EBITDA loss of GBP 4.2 million for FY2019 exceeded market expectations and is significantly below the GBP 6.3 million loss level in FY2018.
- The balance sheet stays robust with GBP 13 million net cash at the end of April 2020, plus a further GBP 4.8 million in prepaid cash collateral.
- During these testing times, the Company has taken the difficult decision to furlough some colleagues, has deferred payment of GBP 1.1 million (at 30 April 2020) of VAT and PAYE liabilities by utilising HMRC's (Her Majesty's Revenue and Customs) Covid-19 payment relief schemes.
- Despite the impact of Covid-19 which temporarily abridged the level of enquires in the early stages of lockdown, the Company continue to add to the robust forward contract book, with GBP 5.7 million of Average Monthly Bookings in the four months to 30 April 2020 (H1 2019: GBP 3.2 million; H2 2019: GBP 5.3 million).
Share Price Performance
(Source: Refinitiv, Thomson Reuters) - Daily Chart as of May 29th, 2020, before the market close.
YU’s shares were trading at GBX 109.25 on 29th May 2020 (before the market close at 2:05 PM GMT+1). Stock's 52 weeks High is GBX 213.50 and Low is GBX 48.10. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 15.87 million.
At the start of the year 2020, the Company was poised to implement ambitious growth plans and in an excellent position. Yu Group is investing in a new purpose-built sales, marketing, and innovation office in Leicester. The Group has taken several financial and commercial measures to enhance its financial returns and to benefit from the available market opportunity. Although the short-term business consequences from the COVID-19 outbreak are largely uncertain, the medium to long-term growth opportunity and the Group’s core target stays clear.