Fundamental Review of Two FTSE Listed Stocks: Intu Properties PLC and Kromek Group PLC

United Kingdom market moved towards the lower side on 1st May 2020, as the British housing market gradually comes to a standstill and further, the market sentiments are dented since the US President Trump threatened China for imposing new tariffs. Moreover, Companies are seeking debt waivers from creditors apart from adopting cost-saving measures, since revenues have collapsed amid the coronavirus lockdown. In light of current sentiments, we will discuss two FTSE listed stocks - Intu Properties PLC (LON:INTU) and Kromek Group PLC (LON:KMK) as INTU released a market update, while KMK came up with Full-Year Trading update, today. Subsequently, the price of INTU gained around 1.94 per cent, whereas KMK plunged over 11 per cent (at the time of writing, GMT 9.50 AM). Let’s take a glance fundamentally over their respective business model, financial position, and outlook to understand the magnitude of their latest market updates.

Intu Properties PLC (LON:INTU)

Intu Properties PLC is a FTSE 100 listed company, which is British headquartered real estate investment trust (REITs), which owns and manages 20 shopping centres, primarily in the United Kingdom (UK) and in Spain. The Group caters 400 million visitors a year with 35 million unique visitors. As the Company is focused on shopping centre business, it reports its operating segments as the UK and Spain.

(Source: Company Website)

Five Years Strategy and Latest Developments in 2019

• Fixing the Balance Sheet:
  • No dividend was proposed in 2018 or 2019.
  • Disposed approximately GBP 600 million of assets.
  • Reduced capex by GBP 60 million.
• Driving Efficiency through Simplification:
  • Several new members have been added to the Board since 2018.
  • Restructure the Executive Committee as well.
  • Delivered GBP 5 million of cost savings annually.

• Customer-Centric Business:
  • Organized Top 30 customers meeting with the CEO.
  • Appointed a director for customer performance.
  • Multi-channel approach adopted to align the retailers and understanding customer better.
• Transformation of Centres:
  • Enhanced experimental offerings such as Big Bug Tour and Upside-Down House roll-out.
  • Introduced fresh retail concepts such as Fashion House and Birdhouse Café.
  • Explored avenues for flexible working sites.

Significant Updates of 2020:

• 1^st May 2020: David Hargrave has been appointed as a non-executive director with immediate effect. He will also manage the undergoing restructuring of the Group as Chief Restructuring Officer.
• 26^th March 2020: Considering the prevailing disruption of Covid-19 situation, the Group affirmed that their centres were operating on a semi-closed basis and Group reported cash facility of £184 million as at 24^th March 2020.
• 4^th March 2020: Intu Group announced that it had been reviewing its capital structure and considering options to restructure the business.
• 3^rd March 2020: Intu had announced the launch of the store for online brands in June. It would be the UK’s first store for online fashion labels.

Update (as on 1^st May 2020) – Representing COVID-19, Revolving Credit Facility and Swap Update along with Management Changes

• The Company announced the appointment of David Hargrave as a non-executive director and Chief Restructuring Officer.
• Presently, the group has agreed on waivers for certain potential breaches that were mentioned in the statement of COVID-19 (as on 26^th March 2020), which could have arisen, comprising under the Revolving Credit Facility (RCF). The waiver has been given until June 26, 2020.
• In respect of certain interest rate swaps, the business has also reached an agreement with the counterparty which had a compulsory break at the end of April.
• Now, Intu Properties has continued to collect rent and has received 40% of the service and rent charge for the current quarter. Till the end of 2020, the business is offering monthly rents scheme.
• The management has decided to initiate the process of furloughing its approximately 60% staff in the centres and approximately 20% at the head office. Further, the Board has decided to take up the 20% salary reduction in the upcoming three months. During the short-term period, the company has identified 3 million pounds of cost savings.
• From the perspective of COVID-19 update on 26^th March 2020, the group affirmed regarding the semi-closed state of their centres in the UK and Spain. The group’s cash and facilities stood at £184 million while the group is expecting to receive £95 million in proceeds against the disposal of Intu Puerto Venecia, in May. The group was also seeking aid from the UK government’s £330 billion support package.

Share Price Performance

Daily Chart as of May 1st, 2020, before the market close (Source: Refinitiv, Thomson Reuters)

INTU’s shares were trading at GBX 5.9104 on 1^st May 2020 (before the market close at 9:12 AM GMT+1). Stock's 52 weeks High is GBX 100.65 and Low is GBX 3.10.

Short Term Scenario – Reflecting FY19 Performance, Weak Consumer Confidence, and Uncertainty

Led by increased vacancy and impact of administration, the group’s net rental income was declined by £48.9 million to £401.6 million in the year 2019. Overall, the loss for the financial year 2019 was also surged by £848.1 million from the previous year. Hence, there was no dividend announcement for financial years 2019. Moreover, weak consumer confidence and political uncertainty are further hampering the property values. With prevailing lockdown scenario to curb the outbreak of COVID-19, the company would face like-for-like net rental income to decrease as only essential services are permitted to remain open by the government. Even in the last update, the group was unable to provide guidance for 2020 amidst the uncertainty around Covid-19.

Kromek Group PLC (LON:KMK)

Kromek Group PLC is the United Kingdom-based company which is engaged in designing and supply of both software and hardware for components of a scintillation radiation detector and CZT solid-state radiation detectors. The Company prominently serves medical OEM, security and civil nuclear sectors.

(Source: Annual Report, Company Website)

Segments and Capabilities of Kromek

• The Kromek Group is divided majorly into two geographical units in terms of revenue generation, i.e. US and UK and both the divisions are catering three key markets - Nuclear Detection, Medical Imaging and Security Screening.
• Besides the UK and US, the Group also generates revenue from Asia, Europe and Australasia regions.
• Regarding product capabilities, the Group serves with CBRNe security, which provides a range of handheld detectors, suits of components for Bone Mineral Densitometry and gamma-ray detection.

Vital Developments of 2020

• 21^st April 2020: Kromek Group received a Queen’s Award for its contribution to International Trade.
• 15^th April 2020: The Group commenced the production of medical ventilators to sale in the UK and global markets under the license from Japan-based Metran Co., Ltd.

Full Year 2019/20 Trading Update and Response to COVID-19 (as on 1^st May 2020)

• As per the interim results announced on 11^th December 2019, the company entered the second half of FY2020 with increased commercial momentum and signed multiple agreements. There was no material impact from COVID-19 on its businesses until the end of February 2020.
• Led by constraints imposed upon sub-contractors, suppliers and customers, the group has experienced a delay in certain projects from the last two months. Also, it has been informed that two of its main contracts are currently be postponed to the financial year 2021.
• For the financial year 2020, KMK expects to report revenues of £14.5 million, similar to the financial year 2019 revenues, and adjusted EBITDA is projected to be breakeven. The company will continue to deliver on its multi-year contracts, which ensures a healthy pipeline of projects, and good visibility over future revenues.
• On 30 April 2020, the Group delivered a strong balance sheet, with a cash of approximately GBP 10 million, including GBP 3 million utilized under its revolving credit facility (RCF) and GBP 2 million of five-year term-loan.
• Due to COVID-19, the company has enabled remote access for its employees in the UK and US. It is also taking several actions, including:

1. Implementation of some organizational restructuring.
2. Ceasing all discretionary capital expenditure.
3. Curtailing all travel and non-essential spend, and
4. Securing a short-term rent concession on the Group's leased properties.

• These measures are expected to decrease cash outflow and monthly running costs, which is generating approximately GBP 3 million of annualized savings.
• The company has formed a partnership with Metran Company Limited to commence sale and manufacture of medical ventilators in the United Kingdom and internationally. Till the end of July 2020, Kromek is on track to produce at least 2,000 units.

Share Price Performance

Daily Chart as of May 1st, 2020, before the market close (Source: Refinitiv, Thomson Reuters)

KMK shares were trading at GBX 16.60 on 1^st May 2020 (before the market close at 9:14 AM GMT+1). Stock's 52 weeks High is GBX 28.00 and Low is GBX 9.00.

Outlook

2020 represents a challenging market in an unprecedented geopolitical context, but progress has been made to ensure the business is well-positioned for future growth opportunities. The Company has also supported with targeted monthly cost reductions. In the short-term, the market environment in which the company operates has low growth potential. Considering the uncertainties, the group was unable to provide any significant guidance for FY 2020/2021. However, the fundamentals of KMK stay well-positioned.