Effective Measures Taken by 2 LSE Stocks to Drive Operational Efficiencies: Wey Education PLC & Kingfisher PLC

In the wake of COVID-19 mayhem, survival in the near-term is vital to generate return in the long run. On this note, some marginal gains were observed in selective pockets as on 12^th May 2020, since the investor sentiments are optimistic with upbeat quarterly results despite the slow economic recovery as COVID-19 cases spiked again. Today, we are going to discuss two FTSE listed stocks from varied industry – an online education service provider, Wey Education PLC (LON:WEY) and home improvement retailer, Kingfisher PLC (LON:KGF) as both the Companies have released their financial update. While WEY posted its half-year FY2020 results and reported substantial revenue growth, KGF announced the first quarter FY2020 results and signaled a recovery in sales with lockdown easing. Subsequently, the stock price of WEY surged by around 2.8 per cent, while KGF accelerated over 6 per cent, against the previous day close (at the time of writing, 9.50 AM GMT). Let’s walk through the financial and operational position of these two Companies and gauge the magnitude of their latest updates in light of prevailing market conditions.

Wey Education PLC (LON:WEY): Continue to Growth with Rising Demand for Online Education.

Wey Education PLC is a FTSE AIM All-Share listed company, which is engaged in online education services. The Company was incorporated in England and Wales, and as at 4^th May 2020, the Company has 138,373,613 shares in issue while 44 per cent of shares are not in public hands. Operationally, it serves through two divisions – InterHigh and Academy21. InterHigh was formed in 2005 and provides schooling and interactive teaching in the UK and Internationally. Academy21 is operating as a B2B business, serving other schools, educational providers, other public bodies and local authorities.

(Source: Presentation, Company Website)

Key Regulatory Updates of 2020

8^th April 2020: A former employee of the Company exercised options over 183,000 ordinary shares (of 1 pence each) for trading on AIM.

24^th January 2020: Doctor Sara de Freitas joined the Board of Wey Education PLC as Executive Director from 20^th January 2020.

Interim Highlights for the Six Months to 29 February 2020 (as on 12^th May 2020) – Reflecting a Robust Performance, with Sturdy Cash Position and Well-Structured Balance Sheet

• For the first half of 2020, the revenue growth stayed robust. Turnover surged by 43% to £3.87 million as compared with the corresponding period of the last year (2019: £70 million), driven by sales growth across both brands (Interhigh and Academy21) in the company. The group’s gross margins have seen a small improvement. This increase would also reflect student additions in future years.
• Profit before and after-tax for the first half of 2020 stood at £215 thousand against the last year same period (2019: loss after tax of £895 thousand after exceptional items and discontinued operations).
• The balance sheet is well structured, and the cash position is decent, with no debt. Cash balances were more than £6.6 million in H1 FY20.
• In the challenging market, the strategy is to take advantage of improved awareness and opportunities in online education.
• Some key operational highlights: expanded executive team to drive future growth in WEY’s performance; implemented its Teaching Online qualification; improved education model and delivery strategy for progress underway.

Share Price Performance

Daily Chart as of May 12th, 2020, before the market close (Source: EODHD/Others, Thomson Reuters)

WEY’s shares were trading at GBX 23.60 on 12^th May 2020 (before the market close at 8:47 AM GMT+1). Stock's 52 weeks High is GBX 26.95 and Low is GBX 5.53.

Short Term Scenario

From the perspective of the market, the online education market has witnessed continuous growth in the past few years and continue to grow in future as well due to government initiatives and technological advancement in the education sector. Moreover, considering the current disruption of Covid-19, opportunities are likely to surge in the online education market. The above interim results demonstrate that the focused plan is attracting a growing number of students to Wey. The global challenges have now ensured that online education is a subject more in the public eye than ever before. The company remained focused on building strong foundations and has made significant operational advancements. The group has a decent financial performance, with a robust balance sheet for the current period.

Kingfisher PLC (LON:KGF) – Signaled a Recovery in May Sales with Store Reopening while Q1 was Hammered by Lockdown.

Kingfisher PLC is a FTSE 250 listed home improvement Company. It operates with more than 1,300 stores in 9 countries, which are supported by around 78,000 employees. The Group provides services across Europe, Turkey and Russia and serves around 6 million customers every week through stores and digital channels. In 2016, the Company introduced ‘One Kingfisher Transformation Plan’ to bring operational efficiency through digitalization and offering of unique & unified products, while bolstering their capabilities in core markets and expanding into other geographies.

(Source: Company Website)

List of Brands

• BBQ: Provides nearly 40,000 products under one roof.
• Castorama: ~50,000 products under one roof.
• Brico Dépôt: Operational as low cost product.
• Screwfix: Operates as a supplier for products related to Plumbing, Bathrooms, Trade Tools, Electrical and Kitchens.
• Koçta?: Leading retailer in Turkey for home improvement.
• GoodHome: Comparatively a new brand for providing a portfolio of unique products at reasonable prices.

Significant Updates of 2020

• 23^rd March 2020: The Company postponed the publication of the full-year 2020 results (ended 31^st January 2020), complying with Financial Conduct Authority guidance in the wake of COVID-19 disruption. Subsequently, the Group decided not to propose a dividend for FY2020.
• 16^th March 2020: The Company released a COVID-19 update, it discussed significant measures to contain cost, state of strong liquidity position with limited debt obligations. Further, the Group stated about the closure of its all 28 stores in Spain.

Update (as on 12^th May 2020) – Providing its Q1 FY21 Sales and Managing the Impact of COVID-19

• For the first quarter of 2021 (three months ended 30 April 2020), the sales tumbled 24% (down 24% at constant currency) to £2 billion, driven by a decrease in almost all regions (UK & Ireland down 14.7%, France down 41.5%, and Other International 12.8%). On the like-for-like (LFL) basis, the sales decreased by 24.8% in the current period. The main downfall in sales was started after the 14^th March 2020, due to COVID-related disruption.
• After the COVID-19 reflection, the group has quickly adapted operating model: robust e-commerce growth (up to fourfold growth since mid-March); phased reopening of stores in France and the UK after 15^th April 2020; improving relative sales trend.
• Kingfisher has taken several effective actions to preserve cash and reduce costs.
• The company has sufficient liquidity headroom, with cash and cash equivalents of £195 million at 31 January 2020 and cash at bank of approximately £700 million at 8 May 2020. On 17^th March 2020, the company drew down on its two RCFs (Revolving Credit Facilities) of 775 million pounds, which will expire in March 2022 (£225 million) and August 2022 (£550 million).
• On 8^th May 2020, KGF had access to more than £2 billion in total liquidity.
• For the Bank of England’s CCFF (Covid Corporate Financing Facility), the business has received confirmation of its eligibility. Further, the company has arranged an approximately £525 million (€600 million) term facility with 3 French banks in assist of its operations in France.
• Operational Highlights by Market: B&Q and Screwfix in the United Kingdom are eligible to stay open because Hardware shops comes under ‘essential’; all stores in Ireland (eight B&Q and five Screwfix) have been closed until 18^th May 2020; Screwfix in Ireland is offering a home delivery service from its stores; 220 stores in France were categorised as ‘essential’; all 121 Brico Dépôt stores and 99 Castorama stores in Franch have reopened (as on 11^th May onwards), under the same strict measures; all 81 stores in Poland remain open; all 35 stores in Romania remain open; stores in Iberia could reopen from late May; the three stores in Portugal remain open.
• In Russia, a click & delivery is available from all stores and a contactless click & collect service is available in 14 stores.

(Source: Update, Company Website)

Share Price Performance

Daily Chart as of May 12th, 2020, before the market close (Source: EODHD/Others, Thomson Reuters)

KGF’s shares were trading at GBX 170.80 on 12^th May 2020 (before the market close at 8:50 AM GMT+1). Stock's 52 weeks High is GBX 245.40 and Low is GBX 101.00.

Short Term Scenario Reflects an Increase in Online Transaction

The decline in the earnings momentum was impacted by the challenging trading conditions in all the regions. The group began by transforming the operations to meet a material growth in online transactions through the home delivery services and click & collect. Further, KGF has donated more than £1 million of PPE (personal protective equipment) to frontline health workers, with more on the way. Also, the company has taken substantial actions throughout the business to protect cash and reduce costs, in part supported by governments. The current cash balance of around £700 million provides Kingfisher with sufficient financial headroom based on assumptions of a lengthy period of reduced sales.