Strategic Review of two FTSE Listed Stocks: Severn Trent PLC and Ten Entertainment Group PLC

  • May 24, 2020 BST
  • Team Kalkine
Strategic Review of two FTSE Listed Stocks: Severn Trent PLC and Ten Entertainment Group PLC

The Government of United Kingdom has considered every plausible tool to manage the economic turmoil from extending employee retention scheme and mortgage payment holidays scheme to increase the loan size for large businesses and hypothesis of negative interest rates. Meanwhile, as the government of the United Kingdom targeting the carbon emission to net-zero by 2050, renewable energy sector certainly plays a significant role in the utility sector.

The British market was influenced by various factors on Friday, such as:

  1. Plunge of consumer confidence in early May even after considering easing of Coronavirus-led restrictions.
  2. Government Borrowing topping a historical jump to GBP 62.1 billion in April.
  3. Rising apprehensions from US accusing China for mishandling the contagion of Coronavirus to a proposal of Beijing over a new security law in Hong Kong.

In light of the prevailing market conditions and considering the factors as stated above, we are going to discuss two LSE listed stocks from diverse industries – a Utility stock, Severn Trent PLC (LON: SVT) and a Travel & Leisure stock, Ten Entertainment Group PLC (LON: TEG). As on 22nd May 2020, SVT and TEG closed the week by shedding 3.93 per cent and 6.76 per cent, respectively. On Friday, SVT unveiled the approval of supplementary prospectus for Euro Medium Term Note Programme, while TEG shared a notice of annual general meeting along with director performance plan. Let us quickly go through the financial and operational position of both the Companies to gauge upon the plausible outlook scenario.

Severn Trent PLC (LON: SVT) – One of the Largest Water Company in Britain with Track Record of Decent Dividends

Severn Trent PLC is a FTSE 100 listed water Company. It supplies nearly 2 billion litres of drinking water to around 4.5 million households. In addition, around 2.9 billion of wastewater is getting treated by the Company every day.

(Source: Company Website)

Recent Major Developments of 2020

  • 20th May 2020: The Group’s Euro Medium Term Note Programme of €6,000,000,000 has been approved by the Financial Conduct Authority.
  • 1st May 2020: Sharmila Nebhrajani has been admitted to the board as a Non-Executive Director with immediate effect.

Financial Highlights - Good Results in Line with Expectations (FY2020)

On 20th May 2020, the Company announced the full-year results for the year ended 31st March 2020, with a good set of results rounding off a strong AMP6 (Asset Management Plan) and strong cost control, good non-regulated growth and surged IRE investment for a good start to AMP7. Some additional highlights:

  • Group’s turnover for FY20 increased by GBP 76 million or 4.3 per cent to GBP 1,844 million as compared with the previous year (2019: GBP 1,767 million).
  • Reported PBIT (profit before interest and tax) stood at GBP 568 million, a growth of GBP 5 million (0.9 per cent) against the last year (FY19: GBP 563 million). This increase reflected a robust cost control, good non-regulated growth and increased IRE investment for a good start to AMP7.
  • During the year, the Group generated a Return on Regulated Equity (RoRE) of 6.7%, reflecting reinvestment in the final year of the AMP (Asset Management Plan) while the cumulative RoRE of 8.5% was delivered across all three levers.
  • Underlying basic earnings per share increased by 0.1 per cent to 146 pence per share. The Group is on-track to manage the financial impact of Coronavirus with GBP 755 million undrawn debt facilities, less than 2.5% of debt maturing in FY21, and GBP 200 million raised on US Private Placement market.
  • The total ordinary dividend per share for the year stood at 100.08 pence (FY19: 93.37 pence).

Share Price Performance

 (Source: Refinitiv, Thomson Reuters) - Daily Chart as of May 22nd, 2020, after the market closed

SVT’s shares closed at GBX 2,371 on 22nd May 2020. Stock's 52 weeks High is GBX 2,716.00 and Low is GBX 1,900.50. Total outstanding market capitalization stood at around GBP 5.67 billion, with a dividend yield of 4.22 per cent.

Outlook

The Group has been contributing to 9 per cent real RCV (Regulatory Capital Value) growth over AMP6. The Company is well-positioned for AMP7 after a strong final year of AMP6. SVT has continued enhancements in main customer measures. The business stays robust, and SVT has made further growth against the things that really matter to the clients with supply interruptions, water quality, and lesser leakage complaints. The Group delivered a strong operational performance across water and waste measures with £36 million customer ODIs (Outcome Delivery Incentive) earned in the final year.

Ten Entertainment Group PLC (LON: TEG) - UK’s Second-Largest Operator of Ten-Pin Bowling with Highly Cash Generative Business Model

Bedford, United Kingdom-based Ten Entertainment Group PLC is a ten-pin bowling operator. It has around 1,000 bowling lanes at 45 centres in the UK. The Group claims to be the UK’s second largest operator of ten-pin bowling and employs around 1,100 people. The Group is a constituent of FTSE All-Share index of the LSE (London Stock Exchange) with admission date of 13th April 2017.

 (Source: Annual Report, Company Website)

Progress of Non-Financial KPIs

  • FY2019 witnessed a footfall of 5.8 million visitors as compared to 5.3 million in FY2018.
  • 9 million people visited the website in FY2019 against 4.0 million in FY2018.

(Source: Annual Report, Company Website)

Recent Significant Developments of 2020

  • 26th March 2020: The Group completed the placing of 3,250,000 new ordinary shares by Peel Hunt LLP, at a placing price of 155 pence per share. Hence, the Company raised £5m in gross proceeds.
  • 23rd March 2020: The Company announced the closure of all its sites, following the Government guidance regarding lockdown to contain the spread of COVID-19.

Financial Highlights – Continued to Perform Well Despite the Covid-19 Crisis

On 13th May 2020, the Group provided the audited full-year results for the 52 weeks to 29 December 2019, with an eighth consecutive year of like-for-like growth, showing terrific momentum and a great start to 2020. Additional points are stated below:

  • The total sales for FY19 increased by 10.2 per cent to GBP 84.1 million as compared with the previous year. Whilst the like-for-like sales growth of 8 per cent, driven by better Spend per head and increased footfall.
  • Group’s adjusted EBITDA surged by 14.7 per cent to GBP 23.6 million (FY18: GBP 20.6 million). Earnings per share climbed by 11 per cent 13.9 pence against the previous year (FY19: 12.5 pence).
  • In the Current period, the net debt was GBP 4.1 million (FY18: GBP 4.2 million), reflecting low levels of bank net debt.
  • A conservative approach to debt afforded a strong cash position at the point of closure, with a flexible RCF (Revolving Credit Facility) of GBP 25 million.
  • As of 20th March, the business has temporarily closed to protect employees and customers. However, the prospects are strong, with a clear ability to sustain a prolonged period of closure.
  • Trading in the first eleven weeks of the year to 15th March 2020 was robust with total sales growth of 12.7 per cent and like-for-like sales growth of 9.3 per cent.

Share Price Performance

 (Source: Refinitiv, Thomson Reuters) - Daily Chart as of May 22nd, 2020, after the market closed

TEG’s shares closed at GBX 138 on 22nd May 2020. Stock's 52 weeks High is GBX 339.00 and Low is GBX 110.00. Total outstanding market capitalization stood at around GBP 94.63 million, with a dividend yield of 2.68 per cent.

Outlook

The business is ready to open when allowed, with a clear focus on cash management. The Group has a detailed reopening plan to ensure that the business is “Covid Secure”. The Group has delivered an eighth consecutive year of like-for-like growth while it is showing terrific momentum and financially positioned at a low level of gearing with a healthy balance sheet. A flexible business model allowed swift action to reduce cash consumption. All stakeholders made a significant contribution to secure liquidity well into 2021. The Company stay attractive, and once restrictions are lifted should return to growth.

 


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The website https://kalkinemedia.com/uk is a service of Kalkine Media Ltd, Company Number 12643132. The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) or engage in any investment activity under discussion. We are neither licensed nor qualified to provide investment advice through this platform.

 

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