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Following the partial reopening of the UK economy in June, the UK PMI index rose to 47.1 from 29.0 in May. However, the threshold for growth is 50.0. Meanwhile, the FTSE-100 retreated from the previous day’s gain and was trading at 6,152.01. Also, the FTSE AIM All-Share inched up by 0.11 percent and was trading at 892.82 (as on 3 July 2020, before the market close at 3.32 PM GMT+1).
The other important factors to watch out were:
- The Central banks of the emerging market, which consist of 37 countries, continue to cut interest rates to boost economic activity.
- The UK government has suspended the sales tax on the personal protective equipment (PPE) until October end.
- Germany’s new car sales drop by 40 percent in June year on year, close to 220,000 new cars were registered in June.
Given the above market conditions, we will review two consumer discretionary stocks - Hornby PLC (LON:HRN) and Tandem Group PLC (LON:TND). The shares of both Hornby PLC and Tandem Group PLC were down by 0.60 percent and 2.59 percent, respectively (as on 3 July 2020, before the market close at 2:00 PM GMT+1). It is mindful to note that both companies are aware of the channel shift and are focusing on the online sales platform. Let’s review their financial and operation updates.
Hornby PLC (LON:HRN) - Centenary year for the Company
Hornby PLC is involved in developing, designing, sourcing and distribution of hobby and interactive products. The Company products are sold in the UK, US and Europe. The Group sells the products online and through a network of retailers. The key brands include Hornby, Scalextric, Airfix, Corgi, Humbrol.
FY2020 Annual Results (ended 31 March 2020) as reported on 18 June 2020
The Company reported revenue of £37.8 million, which increased by 15 percent year on year. The improved revenue was due to efficiency in product development and supply chain. The gross profit margin improved to 44 percent from 41 percent a year ago as it suspended discounts on stocks. The underlying loss before tax narrowed to £3.2 million from £4.4 million in the previous year. The UK business division reported revenue of £28.6 million whereas Europe and the US reported £6 million and £3.3 million, respectively. The Company refrained from announcing any dividend.
On 12 March 2020, Hornby issued 41,666,666 new shares at 36 pence per share. The new equity issued raised net proceeds of £14.7 million, which will be used in upgrading the central system and investing in digital marketing. At the end of the financial year, the Company had net cash of £5.9 million.
The Company launched a model diesel locomotive named after Captain Tom Moore, the proceeds from the sale of this model were contributed towards NHS charities, which was close to £140,000.
Key Performing Indicators
The capex productivity, which is the gross profit in a year per capital expenditure in the previous year, was £9.2 better than last year of £8.4. The inventory at the end of the year as percent of sales in that year was 38 percent in FY20 above 33 percent in FY19, mainly due to increased inventory purchases ahead of Chinese New Year.
Financial Performance
(Source: Company Website)
Share Price Performance
1-Year Chart as at July-3-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Hornby PLC’s shares were down by 0.60 percent and trading at GBX 33.30 per share (as on 3 July 2020, before the market close at 2:00 PM GMT+1). Stock 52-week High and Low were GBX 41.00 and GBX 24.59, respectively. The Company had a market capitalization of £55.92 million.
Business Outlook
The Company believes that people go back to things they love and pursue hobbies in the event of a crisis. Hornby offers brands that connect them with their customers; therefore, the Company has re-launched some of the iconic products along with the new one. The Company’s focus is to rebuild the brand, which is under process and expand the digital presence. The customers shopping directly from the online channels will improve the gross margins. The Company’s leading brand completes the hundredth anniversary this year; thus, Hornby would be robust in providing a wide range of products.
Tandem Group PLC (LON:TND) – Mixed performance of portfolio products
Tandem Group PLC is a designer, developer, distributor and retailer of sports, leisure and mobility products. The product portfolio includes both licensed and owned brands. The products in the collection are Bicycles and accessories, Wheeled toys, Football training, Golf, Garden and camping, Homewares and household, Mobility and Outdoor play. The Group is incorporated in the UK and listed on the FTSE AIM-All Share index.
FY2019 Annual Results (ended 31 December 2019) as reported on 26 March 2020
The Group revenue was up by 20 percent year on year to £38.8 million. The Group benefitted from the products sold under the licensed brands. The gross profit improved from £10.2 million in FY18 to £11.8 million in FY19. The Group did a capital expenditure of £63,000 in FY19 excluding the expense of £250,000 related to IFRS16. The cash from operations was £2.3 million. The net cash as on 31 December 2019 was £1.8 million.
The Group proposed a final dividend pay of 3.04 pence per share, which was 2.89 pence per share a year ago. The total dividend payout was 6.60 pence for the year.
Trading Update as reported on 28 May 2020
The year to date, Group revenue was above last year; however, the order book was down by about 3 percent. The bicycles sales revenue surged by 77 percent as compared to the previous year and has a robust future order book. Online sales demand has been stable from both direct consumers and national retail partners. The outdoor activity products, as well as domestic electrical appliances under the Jackstone brand, have sold well. But, the national retail business was severely impacted due to the store closure and the cancellation of the order. The national retail order book was down by nearly 21 percent year on year due to slowdown in the business. The Group is working on the supply chain to make up for the increased demand.
KPIs for FY19
The gross profit margin was 30.4 percent down from 31.5 percent in FY18. The turnover per employee, i.e. total sales, invoiced by the average number of employees during the period was £492,000, better than £396,000 in the last year. The net operating expense as percent of sales was 22.5 percent, it was 24.6 percent a year ago. The interest cover improved from 14.3 in FY18 to 20.4 in FY19. The shareholder’s return was up from 14.7 percent in FY18 to 16.4 percent.
(Source: Company Website)
Share Price Performance
1-Year Chart as at July-3-2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Tandem Group PLC’s shares were down by 3.70 percent and trading at GBX 260.00 per share (as on 3 July 2020, before the market close at 2:00 PM GMT+1). Stock 52-week High and Low were GBX 299.10 and GBX 109.04, respectively. The Group had a market capitalization of £13.59 million.
Business Outlook
The Group expects the revenue in the summer to be less than last year due to the lack of orders from the national retailers. The sales to national retailers would be challenging as they would be carrying stocks forward. The Group would continue to focus on the existing product range on the online channel with seeking an opportunity for a new one. The Group has secured 2020 licenses for major wheeled toys.
