How Are the Business Prospects Shaping up for 2 LSE Stocks: 3i Infrastructure & Creo Medical Group?

The British market closed Thursday’s trading session (as on 7^th May 2020) on an upbeat note, while the Global markets on Friday (8^th May 2020) showed a positive response since the market sentiments were buoyant over the indications of improving US-China relations and gradual reopening of economic activities. Inevitably, the COVID-19 mayhem has brought significant volatility in credit and equity markets, while massive decline in the oil prices were observed. Relatively, the infrastructure sector has shown resilience, which is reflected in the full-year 2020 results (on 7^th May 2020) of 3i Infrastructure Group PLC (LON:3IN). Similarly, the medical device manufacturer, Creo Medical Group PLC (LON:CREO) released its full-year 2019 results and looked confident for medium- and long-term prospects despite short term slow down. Following the financial updates, the stock price of 3IN surged 4.55 per cent whereas CREO dipped 2.90 per cent (at the close of trade as on 7^th May 2020). Let’s take a glimpse over their operational and financial performance to gauge the magnitude of their latest updates.

3i Infrastructure PLC (LON:3IN) – Operating with Resilient Portfolio and Strong Liquidity Position

3i Infrastructure PLC is a FTSE 250 listed closed-ended investment company. It is a Jersey-incorporated company, which is approved as UK Investment Trust and listed on the London Stock Exchange (LSE). The Company is a wholly owned subsidiary of 3i Group, which acts as Investment Manager to 3IN. It holds a portfolio of infrastructure investments with the objective to yield 8 per cent to 10 per cent of total return annually.

(Source: Presentation, Company Website)

Performance Amid the Unprecedented Economic Conditions against the Strategic Priorities

• Maintaining a balanced portfolio: The Group delivered 9.2 pence per share of dividend for FY2020, while targeting 9.8 pence of dividend for FY2021.
• New Investments are made with a disciplined approach: NAV per share stood at 254.5 pence (at the end of FY2020), reflecting 11.4 per cent total return on opening NAV.
• Intensively managing the investment portfolio: As at 31^st March 2020, the Group held a portfolio of 20 assets with GBP 1.6 billion in valuation.
• Operating at an efficient balance sheet position: The Group was operating with a strong cash position of GBP 418 million, as at 31^st March 2020.

Comparison of Shareholder Return (As at 31^st March 2020)

(Source: Presentation, Company Website)

Significant Regulatory Updates of 2020

• 20^th March 2020: The Group reported its resilience to meet its dividend target (9.20 pence per share) for the financial year 2020.
• 1^st April 2020: Joulz (backed by 3i Infrastructure) acquired the GreenFlux’s business for the electric vehicle charging station.
• 24^th February 2020: The Board of 3IN announced that Samantha Hoe-Richardson was appointed as a non-executive Director from 22^nd February 2020.

Results for the Year to 31^st March 2020 (as on 7^th May 2020) - Defensive Portfolio Performing Well During Exceptional Economic Conditions

• For the financial year 2020, the Company generated a total return of £224 million, or 11.4 per cent on opening Net asset value (2019: £259 million, 15.4%), again exceeding the target of 8 per cent to 10 per cent per annum to be attained over the medium term. The NAV (Net asset value) per share rose to 254.5 pence at 31^st March 2020 (2019: 234.7 pence).
• Total Shareholder Return (TSR) was down by 7.3 per cent in 2020 (FTSE 250: down 18.6 per cent), because of the share price fall in the last few weeks of the financial year 2020, following the Covid-19 outbreak.
• For the financial year 2020, the total income increased by 5 per cent to £121 million as compared with the previous year (2019: £115 million), with good levels of dividend receipts from Attero and Joulz, partly offset by abridged income from Oystercatcher. Led by a lower level of refinancing proceeds, the total income and non-income cash for FY20 reduced to £139 million against the last year (2019: £201 million).
• On 31^st March 2020, 3i Infrastructure Plc’s portfolio was valued at £1,647 million (2019: £1,681 million). Including income and allocated foreign exchange hedging, the business delivered a total portfolio return in 2020 of £272 million (2019: £325million).
• Prior to that (February 2020), the Company’s share price had reached an all-time high of 317.5 pence per share. Since IPO, the Company’s annualised TSR stood at 11.7 per cent.
• The Company’s share price performance relative to the FTSE 250 has been particularly strong over the last five years.
• 3IN delivered a strong position in an uncertain market with an increase in cash of £418 million. At 31 March 2020, liquidity stayed robust at £718 million (2019: £550 million).

Share Price Performance

Daily Chart as of May 7th, 2020, after the market closed (Source: EODHD/Others, Thomson Reuters)

3IN’s shares closed at ~GBX 265 on 7^th May 2020. Stock's 52 weeks High is GBX 317.79 and Low is GBX 184.96. Total outstanding market capitalization stood at around GBP 2.35 billion, with an annual dividend yield of 3.48 per cent.

Business Outlook Scenario

The company is well-positioned to deliver the objectives like a resilient portfolio with strong market positions; healthy cash balance and active pipeline; focused on delivering the 8-10% net return target. In the past few months, the group has seen significant volatility in both credit and equity markets and falling oil & power prices. In this scenario, the infrastructure market has performed relatively well, demonstrating its value as an asset class. During the unprecedented crisis created by COVID-19, 3IN has stayed disciplined in its investment approach, maintaining an appropriate level of gearing in the Company’s portfolio and a strong cash position. 3i Infrastructure is delighted to see the latest investment in Ionisos playing its part in fighting Covid-19 through personal protective equipment and the sterilisation of testing kits.

Creo Medical Group PLC (LON:CREO) – Management is confident of medium and long-term prospects amid the COVID-19 Uncertainties

Creo Medical Group is a FTSE AIM 100 listed medical device company, which is focused on surgical endoscopy. It was established in 2003 for cancer treatment with dynamic matching and high frequency microwave energy techniques. The Company has developed CROMA (electrosurgical platform to deliver bipolar radiofrequency energy). Currently, the Group has a comprehensive portfolio of 176 granted patents and 567 pending patents (as at 30^th November 2019).

(Source: Annual Report, Company Website)

(Source: Company Website)

Vital Developments of 2020

• 23^rd March 2020: The Group received clearance from the US Food & Drug Administration for HS1 Haemostasis device, to be used in CROMA Advanced Energy Platform.
• 19^th February 2020: The Company made an application for 7,000,000 new Ordinary Shares, to be held by Employee Benefit Trust. Following the allotments, Company’s issued share capital stood at 157,484,021 Ordinary Shares.
• 3^rd February 2020: The Board of CREO appointed Ivonne Cantu as an independent NED (Non-Executive Director).

Final results for the 12 months ended 31 December 2019 (as on 7^th May 2020) - Continued Evolution to Wider International Commercialisation and Shown Considerable Progress

• Total sales for the financial year 2019 was £151 thousand as compared with the previous year (18 months to 31 December 2018: £30 thousand) of which £138 thousand was recognised from products supplied in relation to Framework Distribution Agreements, and £13 thousand was recognised as revenue in relation to direct sales.
• In FY19, the underlying operating loss increased to £14 million against the last year (18 months to 31 December 2018: loss of £12.6 million). This reflects an increase in commercial activities and was in line with the expected spend profile.
• Other key highlights: Cash and cash equivalents of £81 million at 31 December 2019 (31 December 2018: £44.6 million); Net assets of £82.7 million (31 December 2018: £47.4 million); Net cash outflow from operating activities of £11.9 million (18 months to 31 December 2018: £14.3 million).
• The main milestone was the equity fundraising, completed in December 2019 (amounting to £51.9 million). This follows the £20.0 million at the IPO and the £48.5 million raised in August 2018.
• Some Operational Highlights: Increased commercial momentum with Creo's first products, Speedboat and the CROMA Advanced Energy Platform; advanced progress for all four products (dissection, resection, haemostasis and ablation); strengthened IP portfolio; key appointments of Ivonne Cantu as an independent non?executive director.

Share Price Performance

Daily Chart as of May 7th, 2020, after the market closed (Source: EODHD/Others, Thomson Reuters)

CREO’s shares closed at GBX 134 on 7^th May 2020. Stock's 52 weeks High is GBX 211.16 and Low is GBX 96.00. Total outstanding market capitalization stood at around GBP 210.29 million.

Business Outlook Scenario

The company keeps on launching new platforms and upgrade the old products and services to become one of the market leaders in the healthcare market. There has been a strong demand for its existing as well as newly launched products in the market. The group is exposed to the effects of political and economic risks, including the impact of COVID-19. Whilst the global outlook for 2020 may be uncertain, CREO believe that the business will create a decent platform to deliver the longer?term commercial goals.