The a2 Milk Company Limited
A2M Details
This report is the full version of the report published on 19 May 2022 at 3:54 PM GMT.
Material Updates: The a2 Milk Company Limited (ASX: A2M) (a2MC) markets branded milk and associated products under its intellectual property in Australia and New Zealand, the UK, and the USA, China, and other Asia.
- Legal Update: Recently, Thorn Law filed a representative proceeding against A2M in the High Court of New Zealand. The proceeding pertains to the 19 August 2020 to 9 May 2021 period and is broadly like the allegations advanced by the previous two class actions submitted in the Supreme Court of Victoria. A2M plans to defend the proceedings aggressively and refuses any liability, as it believes that it has always complied with the disclosure obligations.
- CFO Appointment: David Muscat will join as the new CFO from October 2022. Meanwhile, Mark Sherwin, the current Group Head of Finance – FP&A and Risk, will fill in as the interim CFO starting from 17 May 2022.
- Substantial Shareholder: On 17 May 2022, BlackRock, Inc., and related bodies corporate became a substantial shareholder, holding ~5.029% shares in A2M.
1HFY22 (ended 31 December 2021) Results in Overview:
- A2M posted an improvement in the brand health metrics of China & Other Asia regions in 1HFY22. As per the latest update in January 2022, total brand/ China label metrics were improving.
- Net operating cash flows stood at ~+ NZ$98.4 million in 1HFY22 versus ~outflows of NZ$9.17 million in 1HFY21, depicting ~130% cash conversion.
Australian Market Topline Trend; (Analysis by Kalkine Group)
Key Risks: The company faces supply chain issues, acquisition risk, inventory rebalancing, new product launches, and peer competition.
Outlook:
- A2M expects revenue in 2HFY22 to be significantly higher than 2HFY21 and growth relative to 1HFY22 and for FY22, mainly due to growth in China label and English label IMF. However, a significant increase in brand and other growth reinvestments might not lead to higher earnings.
- A2M is implementing a refreshed growth strategy to manage the rapidly changing China IMF market dynamics and witnessing decent early progress in its key initiatives.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of A2M gave a negative return of ~21.13% in the past three months and a negative return of ~31.92% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $3.900 - $7.450. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering the decline in top line, NPAT, challenging China IMF market conditions, and COVID-19 led supply chain volatility. For this purpose of valuation, a few peers like Synlait Milk Ltd (ASX: SM1), Bega Cheese Ltd (ASX: BGA), Bubs Australia Ltd (ASX: BUB), and others have been considered. Considering the low trading levels, increase in liquid milk volumes in Australia, synergies expected from the acquisition of MVM (Mataura Valley Milk), continued investment in brand building and marketing, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $4.080, as of 19 May 2022, 11:00 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
A2M Daily Technical Chart, Data Source: REFINITIV
Universal Store Holdings Limited
UNI Details
This report is the full version of the report published on 19 May 2022 at 3:54 PM GMT.
Latest Developments: Universal Store Holdings Limited (ASX: UNI) is a fashion retailer for women’s and men’s shoes, fashion, accessories, lifestyle, and gifting. Clare Therese Craven has joined as the Ioint Company Secretary while Anne Maree Cresswell has ceased to be the Company Secretary with effect from 13 May 2022.
Results of 1HFY22 (ended 31 December 2021):
- 1HFY22 results were impacted by government mandated store closures in Victoria, New South Wales, etc. due to COVID-19.
- Sales reported in the first eight (8) weeks of FY22 increased by ~5.0% or ~$1.5 million on pcp. During the same period, Group LFL sales (including online) were up by ~23.5% versus FY20.
Improved Net Cash Position; (Analysis by Kalkine Group)
Key Risks: The company faces growing peer competition, technological changes, supply chain risk, store closures mandated by the Government.
Outlook:
- UNI remains committed to the disciplined pricing and promotional strategy approach to safeguard the brand and margins.
- In preparation to aid the long-term business, UNI is developing a new office and distribution centre and plans to make the new facility operational in early 1HFY23. It will add three new stores to its current network in the next six months.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of UNI gave a negative return of ~29.13% in the past three months and ~44.31% in the past six months. The stock is currently near to its 52-weeks’ low level of $4.300. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering COVID-19 store closures in 1HFY22, continued growth investments for expansion, the risk of inventory management. For this purpose of valuation, a few peers like Accent Group Ltd (ASX: AX1), City Chic Collective Ltd (ASX: CCX), and Premier Investments Ltd (ASX: PMV) have been considered. Considering the current trading levels, roll out of new stores in 1HFY22, improved operating cash flow conversion, plans to open about three new stores, relocation to a new distribution centre to aid business growth, rise in online sales, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $4.340, as of 19 May 2022, 10:40 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
UNI Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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