Top UK Stocks to Watch: DMGT shares pop as Cazoo prepares to list
Joshua Warner March 29, 2021 3:54 AM
Daily Mail & General Trust is set to make a tidy profit as Cazoo prepares to go public, Domino’s Pizza exits Iceland, LXI REIT splashes out on supermarkets, and Ten Entertainment hopes to make a strong recovery as the UK economy reopens.
Top News: DMGT expects stake in Cazoo to be worth £1.35 billion
Daily Mail & General Trust (DMGT) said it expects its 20% stake in Cazoo, the UK-based online car retailer, to be worth around £1.35 billion when it goes public in the US by merging with a Special Purpose Acquisition vehicle (SPAC).
Cazoo is going public by merging with a SPAC named AJAX I that is listed on the New York Stock Exchange. SPACs are becoming an increasingly popular way for companies to go public as it provides a quicker and cheaper route to market compared to a traditional initial public offering (IPO). The fact SPACs have not taken off in the UK and Europe in the same way as they have done in the US could be one reason why Cazoo decided against listing in London.
Cazoo is one of the fastest-growing digital car retailers and is currently expanding into Europe, with the listing to provide the cash it needs to grow and develop. Cazoo revealed this morning that revenue hs been growing over 300% year-on-year and that annual revenue was approaching £1 billion.
The deal with AJAX is expected to close by the end of the third quarter of 2021, valuing Cazoo at around $7 billion and a pro-forma equity value of around $8.1 billion.
‘If the proposed transaction closes, and assuming no redemptions by AJAX shareholders, the combined value in cash proceeds and shares in the listed Cazoo, valued at the $10.00 per share issue price, that DMGT will receive on closing is expected to be approximately $1.35 billion,’ said the company.
The value of DMGT’s stake has more than trebled from the $409 million valuation back in October 2020 and sits 11 times higher than the cost of investment.
‘This is another great example of DMGT's ability to identify and support disruptive early-stage businesses led by entrepreneurial management teams. Our strategy gave us confidence in our portfolio and the financial flexibility to invest in Cazoo, including leading a funding round in March 2020 at a time of global uncertainty. We are delighted by the rapid progress the business has made and the capital appreciation on our £117 million investment,’ said chief executive Paul Zwillenberg.
Where next for the DMGT share price?
DMGT has traded in an ascending channel since early September. It trades above its 20 & 50 sma on the daily chart indicating an established bull trend.
Today’s jump higher has taken the share price out of the upper band of the ascending channel in a bullish break out.
The RSI is supportive of further upside in bullish territory but still someway from overbought territory.
Immediate resistance can be seen at 1000 round number and 4 year high reached March 19. A move beyond there could see the bulls target 1065 the 2014 high ahead of 1150 a level last seen in 2000.
On the flip side, 914 sees the support of the upper band of the ascending channel. A break below here back into the channel could see the bears test 890, the 20 sma ahead of 850/40 the mid point in the channel and the 50 sma. It would take a move below here to negate the bullish trend.
Domino’s Pizza Group exits Iceland
Domino’s Pizza Group has agreed to sell off its business in Iceland for around £13.7 million, representing the company’s exit from the country as it continues to refocus its efforts in the UK and Ireland.
The company is selling Pizza Pizza ehf, which owns 23 stores across Iceland, on a cash and debt-free basis to PPH ehf, which is paying in cash. PPH is an investment vehicle formed by a consortium of investors that all have ties to Birgir Bieltvedt, who indirectly owns Domino’s Pizza operations in Norway and is in the process of acquiring further stores in Sweden.
The Iceland business reported around £600,000 of underlying operating profit in the year to the end of December 27, 2020, and has gross assets worth £22.1 million.
Domino’s said it would look to exit all its international operations that it directly operates (compared to franchising them out) last year as part of a plan to refocus its efforts on the UK and Ireland. The company hopes the latest sale will be completed by the end of May.
The company said it is still considering its options for its operations in Switzerland after striking deals for its Norwegian and Swedish operations last year.
Domino’s Pizza Group shares were up 0.5% in early trade at 351.6.
LXI REIT spends £85 million on grocery properties
LXI REIT said it has spent £85 million on buying grocery stores, giving it exposure to a reliable sector underpinned by strong growth fundamentals and stable tenants.
The cost of the acquisitions represents around 70% of the £125 million LXI REIT raised earlier this month and the company, which invests in properties that provide inflation-protected income, said the quick turnaround shows its ‘ability to execute on identified investment opportunities efficiently and in short order.’
The six acquisitions have all been made separately but, combined, offer a net initial yield of 5.25% net of the £85 million price tag. Tenants are signed up under long contracts and these include contractual rental uplifts.
The first deal is for pre-let forward funding for a 20,000 square foot Lidl store in Greater London. It is also buying an Asda store in Glasgow and Tesco in Greater London. It has also purchased a property housing an Aldi and a Home Bargains next door in Denbighshire and a string of Co-op convenience stores in Leicestershire, Wiltshire and Oxfordshire.
‘We continue to believe that right-sized, well positioned grocery real estate assets let on sustainable rents to financially robust tenants, who are benefitting from flexible and proven operating models, and offering us as landlords very long, index linked, lease terms, remain attractive investments. Following these acquisitions, foodstores will be our largest sector exposure representing approximately 25% of our portfolio by value,’ said Simon Lee, a partner of LXI REIT Advisors.
‘The company has a number of other assets in solicitors' hands which would fully deploy the balance of the proceeds of the capital raise and further announcements are expected to be made shortly in that regard,’ the company said.
LXI REIT shares were up 0.8% in early trade at 122.2.
Ten Entertainment eyes recovery as UK exits lockdown
Ten Entertainment Group said it is ‘operationally fit for purpose’ and well positioned to recover as the UK comes out of lockdown as it revealed it entered the red after being severely impacted by the pandemic.
The company, which runs 46 family entertainment centres across the UK offering the likes of bowling, escape rooms, soft play and laser tag, said it was only able to operate as normal for 11 of the 52 weeks to December 27 as restrictions disrupted business and forced it to close sites for much of the year.
Total sales plunged to £36.3 million from £84.1 million the year before, with like-for-like sales down 17.4%. It swung to a £16.3 million adjusted pretax loss from a £15.4 million profit, while the reported loss came in at £12.2 million compared to a £9.0 million profit.
Ten Entertainment said it had taken ‘swift and decisive action’ during the pandemic to ensure it has a big enough financial buffer to keep it going even if it has to remain closed for 18 months in total, and said it has over £18 million in liquidity as of March 26. It has cut cash-spending by 75% during lockdown, excluding property costs like rent.
The company said it intends to reopen all of its centres on May 17, in line with the government’s roadmap out of lockdown, and that it has enough financial headroom to survive in the meantime. Ten Entertainment said it experienced strong demand when centres temporarily reopened after the end of the first lockdown and that it was well placed to benefit as the economy reopens.
‘2020 has been extremely challenging but we can be proud of the way we have protected the long-term future of the business. We progress towards the reopening of hospitality and leisure with a business that is fit and ready and more digitally driven than ever before,’ said chief executive Graham Blackwell.
‘We used the time wisely in Lockdown to transform our digital platforms and to prepare our business for the future, to open our next generation centre in Manchester and refurbish two of our flagship centres. We are in great shape, prepared, and looking forward to reopening, with our team eager to welcome back and entertain our customers,’ he added.
Ten Entertainment shares were down 1.1% in early trade at 230.0.
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