Myer Holdings Limited

MYR Details

Myer Holdings Limited (ASX: MYR) is one of the largest department store groups which operates 60 department stores across Australia, where its merchandise offer includes core product categories: Womenswear; Menswear; Childrenswear; Beauty; Homewares; Electrical Goods; Toys and General Merchandise. The company has a market capitalization of ~$254.59 million as on May 4, 2021.

MYR Details

Results Performance (Half-Year ended January 23, 2021 – H1FY21)

The total sales of the company for the interim period stood at $1,398.0 million, a decline of 13.1% on the previous corresponding period (pcp), reflecting store closures and reduced foot traffic throughout the period, particularly in the large CBD stores Melbourne, Sydney and Brisbane. There was a continued strong growth in Group online sales, up 71.0% to $287.6 million, representing 21% of total sales and one of the largest and fastest-growing online retailers in Australia. EBITDA stood at $214.6 million, a decline of 1.7% on pcp. Statutory net profit after tax increased by 76.3% to $43.0 million.

Key Data (Source: Company Reports)

Outlook:

Although sales of the company during the interim period was impacted by the government-mandated store closures, the online channel sales managed to offset in part the reduced sales in physical stores. Online channel sales delivered strong growth throughout the period. Profit contribution continued to improve through a more effective media investment profile and introduction of 3PL delivering cost per order efficiencies. Moreover, it is emphasizing over a strong platform to drive further growth and remains focused on future investment.

Key Risks:

Ongoing localized shutdowns hurt consumer confidence leading to reduced foot traffic. Besides, disruption to global supply chains makes the company vulnerable to decline in earnings.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (illustrative)

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has given a softer close at $0.305 for the ongoing week. The technical indicator RSI with a reading around 50 and a curve at the end pointing down, suggests softening of bullish momentum for the stock.

Going forward, the stock may have resistance around the 23.6% retracement level of $0.348 whereas support could be around the 61.8% retracement level of $0.273.

Stock Recommendation:

The company’s net margin improved from 1.8% in H1FY20 to 3.6% in H1FY21. ROE for H1FY21 stood at 22.3%, better than the H1FY20 result of 5.0%.

The stock declined by ~1.61% in 3 months and by ~6.15% in 1 month. It rose by ~60.5% in 1 year. It has made a 52-week low and high of $0.180 and $0.415, respectively.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at the target price which reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Median) considering robust liquidity position which could help the company in navigating tough conditions and decent outlook.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.305 per share, down by 1.613% on May 4, 2021.

MYR Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: Investment decisions 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.

Service Stream Limited

SSM Details

Service Stream Limited (ASX: SSM) provides integrated end-to-end asset life-cycle services to asset owners and regulators in the utility and telecommunications industry. It has developed expertise in the design, construction, operation and maintenance of assets across networks. The company has a market capitalization of ~$416.54 million as on 4^th May 2021.

Result Performance – For the First Half Ended 31 December 2020 – (H1FY21)

For the first half ended 31 December 2020, the revenue decreased by 17.7% to $409.9 million vs $497.8 million in H1FY20 mainly led by reduced revenue from the telecommunication segment that fell by 29.5% YoY to $209.9 million. The utilities segment, however, grew marginally by 0.2% to $199.6 million, during the period. Meanwhile, EBITDA from operations plunged by 30.8% YoY to $40.2 million due to EBITDA for the telecommunication segment observing a significant decline by 36.6% YoY to $28.7 million and EBITDA for the utilities segment declining by 5.2% to $14.7 million. Finally, adjusted net profit after tax fell by 37.8% to $20.1 million.

H1FY21 Financial Performance (Source: Company Reports)

Key Risks:

The company is exposed to an unprecedented level of uncertainty due to COVID-19 led restriction on staff movements, higher safety standards, and a fall in demand from the customers. Further, the company faces the risk relating to the level of customer demand that may change over time with the change in service preferences provided by the company. Importantly, the company has to keep pace with technological advancement, keeping in view the requirements of customers.

Outlook: 

The business continues to be impacted by the prolonged COVID-led uncertainty which is causing delays to client-initiated work program and shortages across client supplied materials. These along with the restrictions on movement are expected to be there for the remainder year. The company, therefore, expects the H2FY21 results to be approximately in line with H1FY21. However, the company continues to benefit from its strategy of progressively diversifying across utility infrastructure markets and expand its service offerings. These markets offer great business potential amidst increased urbanisation necessitating the upgradation of critical infrastructure. There is a strong pipeline of organic growth linked to the company’s core markets, and it will continue to explore external growth opportunities.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months.

Technical Overview:

Weekly Chart –

Source: Refinitiv (Thomson Reuters)

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

The stock has been in a downtrend and following the existing trend, it has given a lower closing for the ongoing week at an all-time low of $0.995. The technical indicator RSI with a reading around 25 suggests the highly oversold status for the stock thereby limiting the scope of further downside for the stock.

Going forward, the stock may have resistance around the 23.6% retracement level of $1.334 whereas support could be around $0.900. 

Stock Recommendation 

The stock has a 52-week low and high of $0.982 and $2.470 respectively and is currently trading below the average of 52-week high-low range. The stock reported a fall of ~42.4% in 9 months, and ~49.2% in 1 year. The stock declined by ~5.6% in 1 month.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at the target price with the potential upside of low-double digit (in % terms). We have assigned a slight discount to EV/Sales Multiple (NTM) (Peer median) as sales and EBITDA are under pressure in H1FY21, resulting in a fall in net profit after tax as well as the company is facing jittery government regulations due to Covid-19 restrictions. 

Considering the current trading levels and organic growth pipeline across key markets, we give a “Speculative Buy” rating on the stock at the current market price of $1.010, down by 0.493% on 4^th May 2021.

SSM Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: 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.

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