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FTSE-100 index opened in red, and it was trading at 6,163.69. The index was down by 2.48 per cent (as on 24th June 2020 before the market close at 3.00 PM GMT). The critical factors to watch out were:
- The increasing cases of the novel coronavirus capped the upward trajectory of the market.
- As per the market experts, the UK and European Union will likely miss their end-June date to arrive at any conclusion for future cross-border trade.
- Brent oil prices were trading lower at USD 40.56 per barrel down by 4.83 per cent (as on 24th June 2020 before the market close at 3:00 PM GMT). The oversupply of the crude oil in the market and sluggish demand posed as concern for the investors.
Given the development in the market, we will review two stocks - Smiths Group PLC (LON:SMIN) and Northbridge Industrial Services PLC (LON:NBI). As on 24th June 2020 (before the market close at 10.31 AM GMT), the shares of SMIN were down by 2.18 per cent whereas shares of NBI were trading flat, against the previous day closing price. Let's walk through their financial and operational performance to understand the stocks better.
Smiths Group PLC (LON:SMIN) – Having robust portfolio strength to stay resilient
Smiths Group PLC is the UK based London Stock Exchange-listed Company. It is a conglomerate with a diverse portfolio of business and operates in more than 50 countries. The target market of the Group includes security & defense, general industry, energy, and aerospace. The Group is a constituent of FTSE-100.
H1 FY2020 results (ended 31st January 2020), as reported on 6th April 2020
In H1 FY20, the Group reported headline revenue of GBP 1,240 million, which was up by 8 per cent year on year. The underlying growth was 3 per cent as the acquisition of United Flexible added 5 per cent. The operating profit was GBP 186 million and generated a free cash flow of GBP 132 million.
As on 31st January 2020, the Group had a net debt of GBP 1,270 million after the adoption of IFRS-16. It had a cash reserve of GBP 247 million and an undrawn revolving credit facility of GBP 600 million, in total the Group had a liquidity headroom of GBP 850 million. The management believes that it is eligible to get funding of GBP 600 million under the Covid Corporate Financing Facility from the UK government. The Group holds back from announcing interim dividend for FY20 to preserve cash.
Segmental Operations in H1 FY20
The Group reports its revenue under four divisions, namely John Crane, Smiths Detection, Flex-Tek and Smiths Interconnect.
- John Crane provides a solution to global energy and process industries. It generated revenue of GBP 474 million and constituted 38 per cent of the total Group revenue.
- Smiths Detection provides services in the detection and identification of security threats; the primary end market is the Aviation sector. It generated revenue of GBP 378 million.
- Flex-Tek is a component provider to heat or move fluids and gases. The division generated revenue of GBP 248 million which was close to 20 per cent of the Group revenue.
- Smiths Interconnect designs solutions for high-speed and secure connectivity for the industrial sector. It added GBP 140 million to the Group revenue.
Segmental Revenue in H1 FY20
(Source: Company Website)
Smiths Medical – a discontinued operation
The Group is currently pursuing the demerger of Smiths Medical to list it separately on the UK Stock Exchange; however, the separation has been delayed until the current situation improves. The revenue from Smiths Medical is currently reported as income from discontinued operations of the financial statements. Smith Medical revenue was GBP 434 million up by 1 per cent year on year. The division supplies medical equipment such as ambulatory pumps, vascular access, convective warming, and syringe pump.
Trading Update for first eight weeks of H2 FY20
The underlying revenue growth was in mid-single-digit for all operating businesses and Smiths Medical. To preserve cash, it has put all discretionary capital expenditure on hold. Smith Medical is working with the UK government for the supply of ventilators.
Share Price Performance
Daily Chart as of 24th June 2020, before the market close (Source: EODHD/Others, Thomson Reuters)
Smiths Group PLC’s shares were down by 2.21 per cent to trade at GBX 1,280.50 per share (as on 24th June 2020 before the market close at 10.30 AM GMT+1). The stock had 52 weeks High and Low of GBX 1,778.50 per share and GBX 790.00 per share. The Group had a market capitalization of GBP 5.19 billion.
Business Outlook
The Group has withdrawn guidance for the remaining year, and it will make prudent decisions to slash the cost to preserve cash. It expects that apart from Smiths Medical, other businesses will face weakening demand. Further, the Group will change supply as per the demand needs to reduce cost pressure. Given the current situation, Smiths Medical is well placed among the different business divisions; however, it expects an aftermarket order book for other businesses to improve as the sectors resume operations.
Northbridge Industrial Services PLC – Posted operating level profit for the first time in the last four years
Northbridge Industrial Services PLC (LON:NBI) is one of the largest designers, manufacturer, supplier and renter of specialist load banks and transformers in the world. The Company is listed on FTSE AIM All-Share index and operates under two trading divisions, namely Crestchic and Tasman Oil & Tools. Cresthic is a specialist in electrical testing equipment whereas Tasman Oil & Tools provides drilling tool and ancillary item on rent to gas, oil, and geothermal industries.
FY2019 annual result (for the year ending 31st December 2019), as reported on 7th April 2020
The Company generated revenue of GBP 33.6 million up by 24.7 per cent year on year, which was supported by the good order book for Crestchic. The Company posted profit at the operating level for the first time in the last four years to GBP 8.0 million.
As on 31st December 2019, the Company had a cash balance of GBP 3.2 million. It had a net debt of GBP 6.4 million including convertible debt.
Segmental reporting
The Crestchic and Tasman Oil & Tools added GBP 25.4 million and GBP 8.2 million in Group revenue, respectively. The growth in Crestchic revenue was supported by growth in rental revenue and sales of manufactured goods. To expand its food prints in the US. Northbridge is making investments in rental fleets and relocating of underutilized equipment from other parts.
The revenue of Tasman was supported by oil tool rental operation mainly in Australia. The revenue from rental was GBP 7.1 million and increased by 30 per cent year on year. The Company is investing in infrastructure and fleet hire in addition to cutting cost.
Financial Performance for FY19
(Source: Company Website)
Trading Update for three months ending March 2020 as reported on 4th May 2020
The Company started FY2020 on a more positive note in tandem with its performance in FY19; however, it felt the brunt of the pandemic in late March. The lockdown of countries and restriction on cross border movement made it difficult for the companies to move their equipment, which impacted the business of both Crestchic and Tasman. The cash outflow of close to GBP 0.5 million has been saved from salary reduction and putting staff on furlough.
Share Price Performance
The shares of Northbridge Industrial Services PLC were trading at GBX 82.0 per share (as on 24th June 2020 before the market close at 8.00 AM GMT+1), which was flat against the previous day closing price. The NBI’s stock had 52-weeks High and Low of GBX 165.00 per share and GBX 62.16 per share, respectively. The Company had a market cap of GBP 22.8 million.
Business Outlook
The equipment pre-orders are likely to offset the fall in revenue from rental up to some extent. The sales from equipment will help in cash planning as the full payment is made before the material leaves the factory. The Company is also reducing its future capital expenditure, and it will keep a close watch on the working capital. The Company is uncertain about the timeline for resumption of projects which have been postponed or cancelled; however, it will be critical for its performance. The impact of COVID-19 and energy price downturn will impact the trading unfavorably.
