FTSE 100 Extend Gains On August 20; GNK And MTO Show Some Consolidation

FTSE 100 Extend Gains On August 20; GNK And MTO Show Some Consolidation

The broader equity benchmark index of the UK extended gains in day’s session and was trading 21.30 points or 0.30% higher at 7,210.15 at GMT 09:22 AM on August 20.  A couple of days back fears of a global slowdown and increased chances of a recession-like economic scenario and inflated trade rifts between the United States and China had dragged down market sentiments globally. After the new week started, investors’ risk appetite seemed improving, global indices pared some losses amid increased optimism over the US and China fixing a trade deal.

As a precursor to a positive outlook, US President Donald Trump also expressed optimism over striking an agreement with China. This would have a direct impact on what we consider to be the primary reason behind the global meltdown.

Easing yields and Gold prices fall

Safe-haven asset classes of last week are unwinding, with gold, bond yields and Japanese yen all seen trading lower since August 19. Precious metal miners who have witnessed firm rally led by an impressive surge in the gold prices over the past couple of weeks are now finding the precious metals lower since the start of the week on August 19.

The broader index of 100 large businesses by market capitalisation on the FTSE 100 index is recovering some of the lost ground from the past couple of weeks. Though the FTSE 100 index is heading higher; it is still quoting below the 20-day and 30-day simple moving average prices on the daily price chart, which is a bearish short-term indicator.

British pubs operator Greene King Plc (LSE: GNK) ended 49.20% higher in the August 19, 2019 session amid major Pub deal

As on August 19, 2019, the board of CK Noble, a wholly-owned subsidiary of CK Asset Holding Ltd, and that of the Greene King Plc notified that they have finalised an agreement on the terms and conditions of a recommended cash offer extended by CK Bidco for the entire issued and to be issued share capital of the United Kingdom-headquartered Greene King Plc which is not already owned by the CK Group.

Under the terms of the deal mentioned above, Greene King Plc is entitled to receive GBX 850 for each share of the company. In addition to this, the shareholders of the Greene King Plc will receive a final dividend of GBX 24.4/share, previously announced by the company for the 52-week ended as on April 28, 2019.

Under this acquisition arrangement, the Greene King Plc will receive a total cash consideration of £2.7bn on a fully diluted basis, which implies an enterprise value of approximately £4.6bn for the group.

Also, the cash consideration extended to Greene Group Plc was approximately at a premium of 51% on the closing stock price of the company as on August 16, 2019, and a 42.8% premium on the three months’ adjusted volume-weighted average price (VWAP) of GBX 595/share to August 16, 2019. (last business day prior to the announcement of agreement).

The cash consideration is also at a 39.6% premium over the six-month adjusted volume-weighted average price (VWAP) of GBX 609/share to August 16, 2019, and at an enterprise value multiple of approximately 9.5x on Greene King Plc’s 52-week (to April 28, 2019) EBITDA of £482mn.

The acquisition is being recommended by Citigroup, and Rothchild & Co. The financial terms of the arrangement and the conditions of acquisition are considered to be fair and reasonable by the Directors of the Greene King Plc.

However, the Pub retailer and Brewer, which operates more than 3,000 pubs and restaurants has lost more than one-third of its market value over the past four years and a steep fall in the Sterling over the past couple of months has made the company’s assets cheaper for overseas investors.

Greene King PLC: Business Overview

United Kingdom-headquartered, the Greene King Plc is a leading British pub retailer and brewer and operates about 3,040 managed, rented, leased and franchised pubs, hotels and restaurants. The group’s key brands are Hungry Horse, Flaming Grills and Chef & Brewer respectively. Institutional investors like Capital Research & Management Co. (Global Investors), Dimensional Fund Advisors LP, Standard Life Investments Ltd., Mondrian Investment Partners Ltd., Royal London Asset Management Ltd. and The Vanguard Group, Inc. are some of the major institutional investors in the company. On February-04-1995, shares of the Greene King Plc got listed on the main market of the London Stock Exchange, and the stock is a constituent of the FTSE 350 index.

Stock Commentary

While writing (as on August 20, 2019, at 12:12 PM GMT), shares of the LSE: GNK was quoting at GBX 845 and declined by 5 points or 0.58% in day's session. In the previous 52-week time period, shares have registered a high of GBX 865.80 and a low of GBX 466.68 respectively. On a Y-o-Y basis, shares have delivered a price return of approximately 76.39% on a year-to-date basis.  In the last five trading sessions, its shares were up by 48.39%. Despite a steep surge in the stock price, the dividend yield of the company stood at 3.91%.

The five-day average volume traded on the London Stock Exchange was up by approximately 63.69% against the thirty-day average traded volume on the London Stock Exchange.

After a massive surge in the stock price in August 19, 2019 session, the outstanding market capitalisation of the company stood at £2.64bn, with 310mn shares on issue.

Mitie Group Plc (MTO) all set to dispose of its Catering business and foray into a strategic partnership with CH&CO

In an exchange filing made by the Industrial Support Services provider Mitie Group Plc as on August 19, 2019, the company reported that it is in talks to sell its catering arm Gather & Gather to CH&CO for an economic consideration of £85mn. The management of the company stated that the sale was initiated after a strategic review of their businesses with the conclusion that the catering arm would best fit with a specialised catering and food business. The proceeds of the sale would be used to make further investments into the company’s facility management, security, cleaning and engineering services branches.

Mitie Group Plc: Business Overview

United Kingdom-headquartered Mitie Group Plc is engaged in the facilities management business. It provides infrastructure consultancy, property management, healthcare services, facilities management and energy management services. On November-29-1988, shares of the company got listed on the main market of the London Stock Exchange. Silchester International Investors LLP, Standard Life Investments Ltd. and Harris Associates LP are the major institutional investors in the company. (Source: TR).

Recently the company has reported trading update for the 1Q FY20 ended June 30, 2019. The company's revenues grew by around 14% on a Y-o-Y basis. This also comprises the contribution from VSG acquisitions in Security and a full quarter effect from the Home Office Detention & Escorting Pact in Care & Custody. Revenues were driven by decent performance in every business segment of the company during the period under review, with a relatively strong performance recorded by Care & Custody and Cleaning & Environment Services which now takes into account the Waste business as well.

The company’s EBIT growth during the period under consideration was held back on account of the higher than estimated mobilisation costs; however, it was in line with the 1Q FY19 EBIT performance of the company. The average net debt during the first quarter of the FY20 was £55mn lower against the corresponding period of the prior financial year.

Stock Performance

After two consecutive days of the positive close of the stock, it was paring some of its gains on August 20, 2019 and was quoting 0.49% lower at GBX 160.80 at GMT 12:50 PM, before the market close. Shares have registered a 52-week high of GBX 170.10 and a 52-week low of GBX 105.80 respectively. The outstanding market capitalisation of the company stood at £591.36mn, with a dividend yield of 2.52%. On a Y-o-Y basis, its shares have delivered a price return of 11.45%.

From the Price-to-Earnings (PE) (TTM) valuation standpoint, shares were quoting at LTM PE of 19.5x against the industry average PE of 36.11x, which reflects shares of the MTO were trading at a cheaper valuation as compared to the industry.

Also, at the current market price as mentioned above, shares were quoting substantially above the 200-day, 90-day and 50-day SMA, while, the 14-day and 9-day Relative Strength Indices were hovering in a neutral zone.

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