In the last year or two this £35m capitalised group has been facing some uphill struggles and the 2023 Final Results, which were due to be announced tomorrow, have been delayed.

The questions in the market are just what could have changed since the end January Trading Update?

The Business

Founded in 1991, Maintel (LON:MAI) floated on the AIM market in 2004 and has subsequently grown both organically and through strategic acquisition.

Today the company is leading provider of cloud, network and security managed communications services, with almost 600 staff operating from five UK office locations, from where they service customers globally, through both direct relationships and via strategic partners. 

It is a fast-growing provider of such services for the private and public sectors, securely connecting with its customers in the office, on the move and in the cloud to companies nationwide and internationally.

The group’s core expertise encompasses unified communications, contact centre solutions, workforce optimisation, networking and security, mobile and connectivity services.

Recent Trading Update

It is apparent that the company made significant progress in profit generation and working capital management during the last year.

It has embedded margin improvements in 2023, delivered cost structure improvements and continues its focus on streamlining operations, evolving the market and product strategy, which underpins its sustainable future profitability.

The company has declared that its next generation products and services continue to be the investment focus, along with exploring the role of new technology and customer service delivery.

Converting its solid pipeline of opportunities in both the public and private sectors and with a leaner organisation, the Board is confident that the company starts the new financial year with solid foundations to deliver revenue, profitability and cash generation in line with market expectations.

CEO Carol Thompson stated that:

“2023 has been a challenging year, following on from 3 previous challenging years; as such to have the Maintel team support, deliver and build on the changes in focus, operational and cost effectiveness, is an outcome one can only have hoped for when we started on this journey.

The team are positive, energised and keen to engage with clients, both existing and new. 

Post pandemic the rate of technological change in our markets is significant, with changes in business working practices and how and where they use and locate their resources.

This is both exciting and challenging; but change is where opportunity lies, and we intend to be part of that new generation of service to clients.”

Results Delayed to Wednesday 1^st May

The date of the final results has been slightly delayed due to increased audit work driven by regulatory changes and temporary resource constraints.

However, we now know that the group is on the road to recovery, last week it guided that it still expects to report revenues amounting to £101.3m and adjusted EBITDA of £9.1m for 2023, driven largely by an acceleration in trading momentum during that year.

Broker’s View

Analysts Andrew Darley and Kimberley Carstens at Cavendish Capital Markets have estimates for the year to end December 2023 for £101.0m (£91.0m) revenues, with adjusted pre-tax profits of £4.7m (£0.0m), with earnings coming in at around 26.6p (loss 6.4p) per share.

For the current year they go for £103.0m sales, £7.2m profits and 32.9p in earnings per share.

The year to end December 2025, sees the analysts pencilling in £108.0m turnover, £9.3m profits and 41.1p in earnings.

They have a Price Objective of 400p on the shares.

Shares In Issue

There are some 14.36m shares in issue.

Directors hold around 25% of the equity, with John Booth owning 3.5m shares (24.37%).

Other holders of significance include Harwood Capital (18.39%), JA Spens (16.20%), AJ McCaffery (11.97%), Herald Investment Trust (5.60%), Elitetele.com (5.00)%), Hargreaves Lansdown (3.21%) and Barclays Wealth (3.08%).

My View – Heading To 325p

I don’t see any reason for concern in the delay of the results, the group is not unlike a host of other PLC’s suffering late ‘signing-off’ of corporate statements.

On the basis of the Cavendish analysis, this group’s shares are undervalued, in my opinion.

They touched 269.90p two weeks ago, before easing back to the current 245p, at which level they would be trading on just over 9 times historic and a mere 7.45 times current year earnings.

I believe that positive news on Wednesday of next week could prove to be a progressive platform from which they will rise to over 325p in the short term.

Ahead of Lloyds results due for release this week, a Pepperstone analyst has said the Lloyds share price is unlikely to hit £1 in 2024.

Last week, we outlined the key metrics Lloyds investors should look out for in its Q1 2024 update, including Net interest margin and provisions for bad debts.

However, the wider economic backdrop is likely to cap Lloyds shares in the coming year explains Capital.com analyst Daniela Hathorn, in her own words:

“Shares of Lloyds Banking Group have struggled to find their footing in the past, but the company’s strong fundamentals have made it an attractive investment, and investors are finally catching on. The share price surpassed the 50 pence mark at the end of March for the first time in over a year as appetite for stocks has increased with resilient macroeconomic data. But investors want to know if shares of Lloyds can trade back at £1, a level not seen since 2008.

“Fundamentally, the bank is strong, with a widely recognisable brand and a large customer base. Earnings have remained robust, with post-tax profits at £5.5bn and £3.9bn in 2023 and 2022 respectively. Interest income – a key revenue source for banks – has grown consistently for the past 5 years, increasing 30% from 2019 to 2023. 

“Even so, market sentiment has been holding the share price back, resulting in a price-to-earnings (P/E) ratio that makes the company look undervalued. But appetite in the UK banking sector seems to be turning. Interest rates are expected to start dropping soon, which could be a headwind for banks, but it is also expected to boost the wider market, which is likely to reflect on Lloyds share price eventually.  

“The issue doesn’t seem to be so much with the company’s fundamentals, but rather with investor concerns about loan defaults if the economy continues to perform weakly. After all, the GDP data confirmed that the UK economy entered a technical recession in the second half of 2023, with two consecutive quarters of negative growth.

“And while growth is struggling, inflation continues to be an issue, especially in the services sector, where there are still upward pressures on wages. Markets now only have one rate cut fully priced in for 2024, a stark contrast to where the year started. 

“So, there is reason to believe that investors are nervous about the long-term outlook for the UK economy, and that has an impact on consumers and their ability to pay back loans. For this reason, the likelihood of getting Lloyds shares back up to £1 is pretty slim until the economic uncertainty clears up, and that is unlikely to happen this year. 

While Hathorn mentions the constraints on banks in terms of earnings multiples, it’s interesting to note that UK-focused banks have consistently traded at a discount to book value over many years, effectively valuing the stock at less than the sum of their assets, including loan books and other investments. 

This represents the wider negative sentiment surrounding UK assets, which alleviated, would have more of an impact on the Lloyds shares price than fractional changes in net interest margins.

Lloyds will report Q1 2024 results Wednesday 24th April.

Last week, we suggested that the index was looking more likely to dip down towards the 5,000 area than to push up to fresh all-time highs, so the minor weakness in recent days has come as no major surprise.

We highlighted a couple of weeks ago how major near term trends had already been breached, both in price and RSI. In these environments it does not take much selling to move markets lower.

First, we had the US CPI numbers coming in slightly hotter than expected, curtailing hopes of Fed rate cuts in the next few months. Then, in recent days, we have had the Iranian attacks on Israel and then overnight Israel’s response.

This nervousness has allowed the VIX to tick up above 20 in recent hours, highlighting how the markets remain nervous on how this geopolitical situation could yet spill over into a more serious global situation.

So, in this environment, it has been relatively easy for the index to slip down towards 5,000. Quite frankly it has done rather well to have only slipped this far. So this does suggest that there still remains significant underlying buying momentum, to have been able to keep this selling spell relatively muted. The RSI is already close to oversold levels, which is quite unusual in such a powerful bullish trend. So, barring any further escalation of hostilities, we do see buyers tempted back into the markets in the coming days.

The 4,800 area remains a natural support area if a bout of nervousness does emerge ahead, however due to the relatively robust performance of the index so far to the negative geopolitical news and CPI we do see buyers returning next week, and this could quickly escalate into FOMO and cause quite rapid gains in a number of names that have been sold into in recent days, and this could lift the market back towards the 5,200 area. Moves down and under 4,800 would be needed to turn more negative on the outlook.

There are continuing mutterings in the market that there could soon be some corporate action in the equity of Currys (LON:CURY).

We already know that the technology products and services retailer has been up on the screens of several of the Private Equity houses, as well as those of some of its competitors.

Two Recent Approaches

A month ago, the group reiterated that both Elliott Advisors (UK), the Private Equity player, and JD.com, the Chinese e-commerce company, had backed away from making offers for the group’s equity, even though Elliott had indicated that it was contemplating a 67p a share £742m cash bid, which was 5p higher than its initial approach to the group.

The Board of Currys declared that it was none too interested in talking with potential bidders if they were coming in with cheap offers.

Analysts at Peel Hunt have previously stated that they believe it would take an offer of more than 80p a share for the Board to engage in any discussions.

Subsequent to both the Elliott and the JD.com expressions of interest and then declaring no interest in taking matters further, the retailer concluded the disposal of its Greek interest, the Kotsovolos chain, for £156m net cash – which has bolstered the group’s coffers and also reduced Management time for that chain, enabling it to concentrate upon the recovery of its Nordic operations.

Management Comment

CEO Alex Baldock recently stated that:

“We’ve been working to get the Nordics back on track, while keeping up the UK&I’s encouraging momentum.

Both are progressing well, despite still-challenging markets, and we now feel confident to raise this year’s profit expectations to at least the top of our previous guidance.

Stronger trading, selling more of the solutions and services that boost margins and build customers for life, and strong cost discipline have all been important.

The Business Today

Currys, which was founded in 1884 by Henry Curry as a bicycle-building business before diversifying into the sale of toys, gramophones and radios, floated on the LSE in 1927 and is now a member of the FTSE 250 index of mid-sized companies.

The big advance came about in 2021, when it merged the four brands it then operated – including PC World, Dixons and Carphone Warehouse – into one central brand.

However the retailer has struggled in the last few years with high inflation hitting demand across all of its markets and in July last year it cancelled its dividend and cut spending in its Scandinavian operations.

Today the group, which employs some 25,000 people, is an omnichannel retailer of technology products and services, operating online and through 720 stores in 6 countries.

In the UK & Ireland it trades as Currys and operates its own mobile virtual network, iD Mobile.

In the Nordics it trades under the Elkjøp brand.

It is the market leader in those markets.

The group’s operations also include its impressive ‘state-of-the-art’ repair facilities in Newark, UK, as well as a sourcing office in Hong Kong and an extensive distribution network which enables fast and efficient delivery to stores and homes.

List Of Professional Holders

Some 65% of the retailer’s shares are held in ‘professional hands’, with hedge fund group Redwheel as Currys’ largest shareholder with a 14.4% stake, that group is involved in active management with some $17.9bn of funds.

Spanish investment firm Cobas Asset Management holds 8.5%, followed by Schroders with 8.3% of the equity, while retail industry veteran Mike Ashley’s Frasers Group (LON:FRAS) is the fourth largest shareholder in Currys, with a 6.6% stake, it already has a 10% stake in competitor AO.com (LON:AO.)

Other investment names include Wishbone Management (5.2%), Artemis Investment Management (5.0%), Ruffer (4.6%), JO Hambro (4.6%), and UBS Asset Management (4.0%) while David Ross (Carphone Warehouse) holds 4.4%.

Proposal To Sell iD Mobile

Of those investors, JO Hambro has been demanding that the group’s Board realises shareholder value, suggesting perhaps the disposal of the Currys iD Mobile virtual network operation, which has over 1.5m subscribers to its services and has been valued at around £350m.

Going Forward

The group has clearly stated that with the disposal of Kotsovolos, its structure has been simplified and it will continue to focus on its larger markets of the UK & Ireland and the Nordics, whilst the strengthened balance sheet will increase flexibility to invest in and grow the business, as well as improve shareholder returns.

Nine years ago, the group’s shares were trading at over 500p each, while in the last year their highest has been 72.45p, which was scored in late February this year.

The group, which will be publishing a Pre-Close Full Year Trading Update on Tuesday 14^th May, could well be seeing some fresh market activity if the ‘mutterings’ are true.

It looks as though the £703m capitalised group’s shares, now 63.45p, are destined to rise as shareholder pressure intensifies, possibly ahead of another excursion of predatorial interest.