Two Stocks From Diverse Industry Under Market Scanner: Quixant PLC and HSBC Holdings PLC

  • Sep 24, 2019 BST
  • Team Kalkine
Two Stocks From Diverse Industry Under Market Scanner: Quixant PLC and HSBC Holdings PLC
Quixant PLC

United Kingdom-based Quixant PLC (QXT) is involved in the supply and development of computer systems. The company is registered on the LSE (London Stock Exchange). The company has operations in Germany, Australia, Japan, Italy, Taiwan, and the United States and also supplies to gaming machine manufactures in every region internationally. Blue-chip slot manufacturers broadly utilize the company’s systems across the world. The company’s continuous investment in new products, service, and technology demonstrate the long-term commitment of being the premier vendor to the major gaming companies of the world.

Financial Highlights (H1 FY2019)

For the six months ended 30 June 2019, the company’s revenue stood at $41.9 million, a decrease from the $50.3 million in H1 FY18. In Gaming Division, the revenue decreased to $23.6 million against the $31.4 million in H1 FY18, consisting of Gaming Platform revenue of $19.6 million in H1 FY19 versus $27.0 million in H1 FY18 and Gaming Monitors revenue of $4 million in H1 FY19 versus $4.4 million in H1 FY18. In Densitron division, the revenue marginally reduced to $18.4 million against the $18.9 million in H1 FY18. The company’s gross margin of 36.4 per cent was slightly better than the first half of 2018 (35.8 per cent) as sales of lower‐margin monitors became a minor percentage of revenue. Gaming monitors revenue consist of $1.5 million of lower‐margin monitors (H1 FY18: $2.2 million) and $2.5 million of higher‐margin button decks (H1 FY18: $2.2 million).

In the first half of 2019, the adjusted profit before tax stood at $3.4 million versus $7.1 million in H1 FY18. Overheads increased by 4 per cent in the current period as the company recorded full periods for costs added in 2018 part‐way through the year 2019. Unadjusted profit before tax reduced to $3.0 million as compared with the same period of the last year. In May 2019, the company sold the 80 per cent share in the loss‐making subsidiary Densitron Nordic to its management.

The company believes in maintaining a robust balance sheet. On 30th June 2019, the net assets stood at $59 million as compared with $50.4 million at 30 June 2018 and $59.4 million at 31 December 2018, including minimal debt. On 31st December 2018, the net assets decreased marginally as the dividend compensated in May 2019 was higher than the profits made in the first half of the financial year 2019. The inclusion of IFRS 16 had ensued in a $1.2 million of the asset being capitalised, indicating a proper to use asset of leases, primarily rented offices, through a corresponding lease liability. The international shortage of electronic components had continued in 2019, and the company had persisted in making strategic purchases to ensure that they can satisfy client lead times and maintain the margins. As a result, the company’s stock level remained elevated, at $22.9 million. On 30th June 2019, the net cash was $12.4 million versus $2.5 million in H1 FY18. The company sustained its progressive dividend policy, making a payment of $2.8 million or 3.1 pence/share in May 2019.

Outlook

The company anticipate persistence in decreased order volumes from some clients for the remainder of 2019, which are below expectations. The company does not seem meeting prior market expectations for both profits and revenues in 2019. In 2020, Australian clients are doubtful to recover to revenue levels seen in previous years. The company have strived continuously to diversify the client base to minimise the effect of the historically high client concentration. While it had not lost any clients, some of its largest clients in Australia had suffered a large drop-off in sales driven by the rise in competition. However, the market prospect in Gaming has not weakened, and the company have not lost any clients. Part of the problem is the company’s reliance on a small number of large clients. The company has been working to reduce this, and management expects sports betting terminals and a major new Japanese client to start providing growth in 2020 and beyond. In 2021, this will be followed by the recent new gaming platform industry win in Japan come into mass production. After completing their design cycles in the current year, the company have numerous additional smaller clients come into mass production in 2020. The densitron division is anticipated to gain from its emphasis on the broadcast market in the year 2020 while maintaining profits and revenue from its current business in 2019.

Share Price Performance
Daily Chart as at September-24-19, before the market close (Source: Thomson Reuters)

On September 24, 2019, at the time of writing (before the market close, at 9:30 AM GMT), Quixant PLC shares were trading at GBX 152.20, down by 0.20 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 460/GBX 146. At the time of writing, the share was trading 66.91 per cent lower than the 52w High and 4.25 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 625,302.40; 30 days – 132,116.60 and 90 days – 98,395.11. The average traded volume for 5 days was up by 373.30 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.27, reflecting low volatility as compared to the benchmark index. The outstanding market capitalisation was around £101.71 million, with a dividend yield of 2.03 per cent.

HSBC Holdings PLC

United Kingdom-based HSBC Holdings PLC (HSBA) provides banking and financial services worldwide. It offers various banking products and business operations spread across Asia, Europe, the Middle East, North Africa, North America and Latin America. As in the beginning of 2019, the company operated in 65 countries and territories with a worldwide customer base of more than 40 million customers. The company was established in the year 1865 and is headquartered in London, the United Kingdom. The company’s business is divided into four segments:

Retail Banking and Wealth Management (RBWM): This segment offers personal banking products and services, home loans and advances, insurance and investment products, credit cards, international services, savings products, and wealth solutions and financial planning services, just as an Internet, mobile banking and telephone services.

Commercial Banking (CMB): CMB segment includes working capital, term credits, payment services and worldwide exchange facilitation just as mastery in mergers and acquisitions, and access to financial markets.

Global Banking and Markets (GB&M): GB&M segment supports the government, corporate and institutional customers across the world.

Global Private Banking (GPB): GPB segment gives private banking, and speculation and wealth and investment management solution to entrepreneurs, business people, and senior employee and their families.

On 28th October 2019, the company will announce the Q3 FY2019 earnings.

Recent News

On 18th September 2019, the company announced the second interim dividend per ordinary share for the year 2019 of US$0.10.

On 5th September 2019, the company announced the appointment of Group Head of Internal Audit, Jonathan Calvert-Davies, effective from 1st October 2019. He will report to Jon Symonds, Chair of the Group Audit Committee, and will be a Group Managing Director.

Financial Highlights (H1 FY2019, US$ million)
(Source: Interim Report, Company Website)

The company’s reported profit before tax increased by 15.8 per cent to $12.4 billion as compared to $10.7 billion in H1 2018. Adjusted profit before tax surged from $11.7 billion in H1 FY18 to $12.5 billion in H1 FY19. Reported profit after tax was up by 18.1 per cent to $9.9 billion against the $8.4 billion in the half-year of the Financial year 2018.

Reported revenue rose by 7.6 per cent and adjusted revenue climbed by 8 per cent, due to an increase in RBWM and CMB. Adjusted revenue was down by 3 per cent in GB&M, which suffered from lower market activity driven by the ongoing economic uncertainty and spread compression.  Investments stood at $2.2 billion in H1 2019, an increase of 17 per cent as compared with H1 2018 data.

Basic and diluted earnings per share increased by 16.67 per cent to $0.42 as compared with the H1 2018 of $0.36. Returns on average tangible equity surged by 150 bps to 11.2 per cent against the 9.7 per cent in H1 FY18. The Net Interest Margin decreased from 1.66 per cent in H1 2018 to 1.61 per cent in H1 2019. Common equity tier 1 ratio surged by 30bps to 14.3 per cent as compared to 14% recorded in FY18. An interim dividend per share was announced of $0.31. The company intend to initiate a share buy-back programme of up to $1 billion.

Outlook

The company is gearing up for the event of UK’s exit from the EU and to provide continuity of services to all the clients based in the UK and Europe. The company will remain vigilant to the downside risks to shareholders interests particularly, with respect to international trade tensions and future movement of loan costs.

In the US dollar bloc, interest rates are now projected to decrease rather than increase, and geopolitical issues could affect a substantial number of main markets. In the short-term period, the impact of the United Kingdom’s leaving from the EU (European Union) remains very uncertain given the prevailing prospects for revenue and interest rate headwinds in RBWM and GB&M.

The company expects some recovery in GB&M segment in the H2 of FY19 and into next year and targets a RoTE more than 11 per cent in 2020. The company said that it would not make short-term decisions that could risk the long-term health of the business.

The rising interest rate can help the company to improve its margins but can reduce the demand for loan. The company must remain alert and pursue a proactive approach in managing the cost base. The company will have to remain watchful of political and economic uncertainties around the world. Digital transformation, the emergence of Fintech, growing cards and payments channel in the UK, and expansion initiatives in China may offer new growth opportunities.

Share Price Performance
Daily Chart as at September-24-19, before the market close (Source: Thomson Reuters)

On September 24, 2019, at the time of writing (before the market close, at 9:50 AM GMT), HSBC Holdings PLC shares were trading at GBX 611.70, down by 0.196 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 687.70/GBX 578.20. At the time of writing, the share was trading 11.05 per cent lower than the 52w High and 5.79 per cent higher than the 52w low. Stock’s average traded volume for 5 days was 27,323,882.80; 30 days – 30,722,654.10 and 90 days – 24,018,085.24. The average traded volume for 5 days was down by 11.06 per cent as compared to 30 days average traded volume. The company’s stock beta was 1.03, reflecting almost the same volatility as compared to the benchmark index. The outstanding market capitalisation was around £124.02 billion, with a dividend yield of 6.46 per cent.

 

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