Shoe Zone (SHOE) : Corp

Early signs of restored positive trading momentum

Key data

  • Share price (p) 118.5
  • Target price (p) 220.0
  • Market cap (£m) 59.3
  • Enterprise value (£m) 49.9

Today’s FY19 pre-close trading statement should be well-received by investors on multiple levels and therefore serve as the basis of a valuation re-rating: (1) we believe SHOE has delivered on recently downgraded PBT expectations of £9.5m, an important staging post in rebuilding investor confidence; (2) SHOE’s strong cash conversion delivered FY19 net cash of £11.3m (FY18: £15.7m), well ahead of our recently downgraded expectations of £9m; and (3) underpinned by the continued growth of the successful Big Box roll-out combined with “strong Digital momentum”, early signs of SHOE’s return to positive trading performance, after a tough summer, are a cause for optimism. FY19 results on 8 January should provide additional quantification of current progress.

Peter Smedley 020 7220 0548

Braemar (BMS) : Corp

Change and uncertainty drive value

Key data

  • Share price (p) 230.0
  • Target price (p) 325.0
  • Market cap (£m) 71.0
  • Enterprise value (£m) 101.9

Shipping is a large, constantly changing market influenced by a wide range of factors, including fuel standards/efficiency, geopolitical events, GDP and natural disasters, and it serves a wide range of end customers, globally. Shipbroking thrives on change and uncertainty, but Braemar’s skills in this area have been masked by previous management’s failed diversification strategy. New management is focusing on the core and we expect a simpler business plan based on growing Shipbroking, alongside a drive to reduce debt. This will narrow the valuation gap to closest peer Clarkson. We initiate with a 325p price target based on a CY 2020 P/E of 11x (a 40% discount to Clarkson) with significant further upside to come as the new strategy is articulated and delivered.

Guy Hewett 020 7220 0549

Alumasc (ALU) : Corp

AGM trading update – on track with restructuring

Key data

  • Share price (p) 82.5
  • Target price (p) 122.0
  • Market cap (£m) 29.4
  • Enterprise value (£m) 49.6

The group’s brief AGM trading update for its Q1 to September highlights it has generated a resilient performance against challenging UK construction market conditions. The operational improvements that will deliver £2m of cost saving are on track, with EBIT margins so far lifted by 1%. No change to forecasts. The shares remain at a very low level, offering a highly attractive secure yield of 8.9% and an unduly severe P/E discount to its peer group, trading on a P/E of 4.9x, less than half the value of many peers.

David Buxton 020 7220 0542

Solid State (SOLI) : Corp

H1 trading update – in line with stronger cash flow

Key data

  • Share price (p) 491.0
  • Target price (p) 610.0
  • Market cap (£m) 41.7
  • Enterprise value (£m) 43.7

The group has announced a positive trading update, with trading overall trading in line with recently upgraded FY expectations. Trading continues at a record level with revenue of about £33m, with improved gross margins and operational drop-through resulting in H1 adj PBT of c£2.5m. Cash flow has been strong with the earlier than expected pay-down of Pacer-related debt resulting in a small net cash position at the period end. No change to forecasts. The shares have been good performers on the back of positive trading updates, EPS-enhancing acquisitions and a strong strategy. Momentum should remain positive and the shares still look decent value. We maintain our price target of 610p, which offers good upside to current levels.

David Buxton 020 7220 0542

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