Two FTSE-100 Listed Stocks Unveiled Their Half Yearly Results: Imperial Brands & Compass Group

  • May 19, 2020 BST
  • Team Kalkine
Two FTSE-100 Listed Stocks Unveiled Their Half Yearly Results: Imperial Brands & Compass Group

Britain has decided to cushion large business further by increasing the loan facility from GBP 50 million to GBP 200 million. Meanwhile, the Treasury intends to boost cash flow needs of those Companies which could not qualify for Covid Corporate Financing Facility of Bank of England. Following the update, investor sentiments were certainly encouraged and thus, British and European market surged on Tuesday (before the close on 19th May 2020) amid the anticipation of speedy recovery from COVID-19 led recession.

In light of the current market conditions, we are going to discuss two FTSE listed stocks from diverse industry – a Consumer Goods stock, Imperial Brands PLC (LON: IMB) and a Travel & Leisure stock, Compass Group PLC (LON: CPG). Today, both the Companies released its half-yearly results for FY20. Following the business updates, the price of both the companies, IMB and CPG plunged by 7.44 per cent and 5.24 per cent, respectively (at the time of writing, 2.35 PM GMT). Let’s have quick review through their business model, recent updates, and financial position to gauge upon the outlook.

Imperial Brands PLC (LON: IMB) – Compensating the Potential Second Half Hit with Disposal of Premium Cigar Business and Fresh Credit Facilities

Imperial Brands PLC is a FTSE 100 listed consumer goods Company. It serves tobacco products globally through three divisions, namely the Americas, Europe and Africa, Asia and Australasia. The Company employs around 32,700 people worldwide. The Company creates value through two growth models - Brand Adoption Model and Market Repeatable Model. The Group strategizes to hold a distinguished market position by:

  • Maximizing contribution through recognized brands to deliver growth in priority markets (established brand includes as John Player Special, Blu, Davidoff Cigarettes, Winston, among others).
  • Developing a portfolio of alternative products (includes vapour, oral nicotine and heated tobacco brands) to create Next Generation Products.
  • Simplifying business and prudently allocate capital to maximize cash conversion.

(Source: Presentation, Company Website)

Progress of Non-Financial KPIs in FY2019

  • The Gropu reduced the energy consumption by 7 per cent in FY2019 compared to the base year 2017.
  • Similarly, Carbon emission was reduced by 5 per cent in FY2019, compared to the base year 2017.

(Source: Annual Report, Company Website)

Significant Actions of 2020

  • 27th April 2020: The Imperial Brand announced the disposal of Worldwide Premium Cigar Business for a consideration of GBP 1,074 million. The proceeds of the sale will provide aid to reduce debt and scale up business activities.
  • 31st March 2020: The Company secured GBP 3.1 billion in revolving credit facility through a syndicate of 20 banks. It will provide committed financing until March 2023.
  • 27th February 2020: The new Chief Executive Officer, Stefan Bomhard will join the IMB Group from 1st July 2020.

Financial Highlights (as on 19th May 2020) – Challenged the Cost Base and Strengthened the Balance Sheet

  • The Group published its half-year results for the six months ended 31st March 2020, which shows result was in line with revised expectations in AGM update.
  • For the first half of 2020, the tobacco net revenue stood at £3,509 million and remained the almost same as compared with the corresponding period of the last year (H1 FY20: £3,508 million). While the net revenue from tobacco business increased by 0.9 per cent at constant currency, NGP net revenue decreased by 43.9 per cent (down 43.2 per cent at constant currency) to £83 million in H1 FY20. Asset Brand net revenue for the first half of 2020 decreased by 1.7 per cent, which reflect lower sales of Backwoods and blu.
  • Group Revenue was reported at £14,672 million in H1 FY20, a growth of 2 per cent against the same period last year (H1 FY19: £14,390).
  • In the first half of 2020, the adjusted operating profit decreased by 7.7 per cent at constant currency basis to (down 9.3 per cent at actual basis) to £1,469 million and the reported operating profit reduced by 19.6 per cent to £925 million.
  • IMB witnessed decent cash and debt position, with cash conversion of 103 per cent, adjusted net debt increased by £518 million, and reported net debt up by £763 million.
  • The Group further expect to simply business through the disposal of Premium Cigars for EUR 1.2 billion.
  • Progressive dividend growth from FY20 rebased level, reflecting a decent underlying business performance.

(Source: Interim Presentation, Company Website)

Share Price Performance

 (Source: Refinitiv, Thomson Reuters) - Daily Chart as of May 19th, 2020, before the market close

IMB’s shares were trading at GBX 1,531.5 on 19th May 2020 (before the market close at 1:57 PM GMT+1). Stock's 52 weeks High is GBX 2,256.00 and Low is GBX 1,258.20. Total outstanding market capitalization stood at around GBP 15.64 billion, with a dividend yield of 12.50 per cent.

Outlook

The Company is taking every necessary action to protect the interests of all the shareholders. The first half of FY20 was not materially impacted; however, its impact is anticipated in the second half of 2020.

The business is on-track to navigate the unprecedented crisis arising from COVID-19. However, the Company expect single-digit impact on EPS. Imperial Brand now also anticipate that the Premium Cigar disposal will complete in July 2020, resulting in earnings dilution of approximately 0.3 per cent in 2020. Further, the Company expects the neutral FX translation impact on EPS based on current rates.

Compass Group PLC (LON: CPG) – Placing Equity to Bolster the Balance Sheet and Liquidity Position

Compass Group PLC is a FTSE 100 Company which provides catering and vending services in around 45 countries. It employs a workforce of more than 600,000 people to serve around 55,000 clients.

(Source: Company Website)

A Glimpse of Segments

The Company provides food and support services in five sectors while differentiating its revenue into three major regions – North America, Europe and Rest of World. The further breakdown of revenue can be seen in the picture below:

(Source: Presentation, Company Website)

Recent Developments - Reflecting a Boost in Liquidity and Capital Structure

  • 19th May 2020: The Group launched the placing of new equity to raise GBP 2 billion in gross proceeds, to remain resilient during the pandemic.
  • 15th May 2020: The Company has obtained a covenant waiver from its US private placement investor. Further, the Group reported a Revolving Credit Facilities of GBP 2.8 billion.

(Source: Presentation, Company Website)

Financial Highlights (as on 19th May 2020) – Reflecting the Impact of COVID-19

  • The Company announced its half-year results for the six months to 31 March 2020 and published an update on the impact of COVID-19. The overall result has shown a decent performance in the first half of 2020, with the organic revenue surged by 1.6 per cent and operating margin reduced by 80bps.
  • The Group delivered a strong result in the five months to the end of February 2020, with an increase in organic revenue of approximately 6 per cent and operating profit margin improved by approximately 20bps.
  • For the first half of 2020, the underlying free cash flow stood at £186 million (H1 FY19: £530 million).
  • The statutory revenue increased by 1.2 per cent to £12.5 billion in H1 FY20.
  • The statutory operating profit was £759 million in H1 FY20, a decrease of 16.9 per cent against the same period last year.
  • As per the trading in March and April, the organic revenue decreased by 20.4 per cent in March and 46.1 per cent in April. Through the impact of lost revenues on operating profit, the drop was 28.5 per cent in March 2020 and 23 per cent in April 2020.
  • Compass Group is taking several actions to mitigate the financial impact of COVID-19, with H2 capex reduced to approximately £200 million, monthly cost savings of £500 million, dividend suspended, acquisitions paused, and committed credit facilities increased to £2.8 billion from £2.0 billion.
  • The Company has launched a GBP 2 billion equity raise to increase liquidity and reduce leverage.

(Source: Interim Results, Company Website)

Share Price Performance

(Source: Refinitiv, Thomson Reuters) - Daily Chart as of May 19th, 2020, before the market close

CPG’s shares were trading at GBX 1,061 on 19th May 2020 (before the market close at 2:02 PM GMT+1). Stock's 52 weeks High is GBX 2,150.00 and Low is GBX 865.80. Total outstanding market capitalization stood at around GBP 18.32 billion, with a dividend yield of 3.47 per cent.

Outlook

CPG will also keep the future dividends under review and will resume dividend payments when it is appropriate. In the current scenario created by COVID-19, the Company has taken several actions to mitigate the financial impact. The business has strengthened the liquidity, reduced leverage and increased the resilience. The Group is prepared to reopen sites when lockdowns are lifted, but the outlook is uncertain. Compass Group remain excited by the structural growth opportunities in the sector and will continue to invest in the business to create sustainable long-term shareholder value.

 

 


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