Southern Cross Media Group Limited

SXL Limited

Southern Cross Media Group Limited (ASX: SXL) is one of the Australia’s leading media company, reaching 95% of the Australian population via radio, television, and digital assets. The company has a market capitalization of around $492.75 million as on May 3, 2021.

Result Performance (Half-Year Ended December 31, 2020 – H1FY21)

For the first half ended 31 December 2021, revenue fell by 15.9% YoY to $259.2 million, while advertising trend rate of recovery improved. Meanwhile, EBITDA grew by 11.5% YoY to $75.3 million. Net profit from ordinary activities after tax (including significant items) for the period stood at $32.5 million, an increase of 59.3% YoY. Net Tangible Assets Per Security for the period stood at -$0.60, as compared to -$0.47 in the pcp.

Key Data (Source: Company Reports)

Recent Update:

As per the release dated 12 March 2021, Nine Entertainment Co (ASX: NEC) has informed SXL that it will not continue the current regional television affiliation agreement with SXL past 30 June 2021. The company broadcasts Nine’s metropolitan free-to-air television content into the three aggregated markets of regional Queensland, Southern NSW and regional Victoria since 1 July 2016. Further, SXL’s television business continues to include program supply agreements with Seven West Media (ASX:SWM) covering the Tasmania, Darwin, Central and Spencer Gulf markets until 30 June 2022 under which 20% of the company’s total television advertising revenue is generated.

Key Risks:

The company is exposed to emergence of new products that are more compelling than Linear Radio. Further, the economic shape of recovery reduces shareholder returns during the economic recovery phase of the COVID-19 pandemic.

Outlook:

The company has seen a jump of 100% in digital audio since 2016 that is projected to reach 80% of Australians by 2024. Further, the LiSTNR is projected to provide a significant listening experience that will ease consumers to discover a new world of premium, relevant audio that is available both live and on-demand. Moreover, LiSTNR is at the primary digitalfirst operating model, competently deploying smart technology to create, distribute and sell the premium audio content. These fundamentals are expected to drive future growth perspective for the company.

Technical Overview:

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

The stock has been experiencing low volatility with bias on the downside for several weeks. On the first trading session of the ongoing week, it gave softer closing at $1.840. The technical indicator RSI with a reading around 39 and a flattish curve at the end, suggests flattening of momentum for the stock.

Going forward, the stock may have resistance around the converging point of resistance line and 20 periods SMA of $2.148 whereas support could be around $1.488 as has been derived by support line.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (illustrative)

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

Stock Recommendation:

The company’s net margin for H1FY21 stood at 12.6%, better than the H1FY20 result of 6.6%. ROE for H1FY21 stood at 5.4%, surpassing the H1FY20 result of 4.8%. Current ratio for H1FY21 stood at 2.78x, better than the H1FY20 result of 1.84x, implying decent liquidity position for the company. Its Debt-to-Equity ratio for H1FY21 stood at 0.69x, lower than the H1FY20 result of 1.11x.

We have valued the stock using Price to Earnings multiple-based valuation (on an illustrative basis) and have arrived at a target price with the potential of lower double-digit (in % terms) growth. We have applied a slight discount to the peer average price/earnings multiple (NTM) considering slide in topline performance and planned expiry of regional television affiliation agreement.

Considering the aforesaid facts, we have a ‘Buy’ recommendation on the stock at the current market price of $1.840 per share, down 1.341% on May 3, 2021.

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.

Nanosonics Limited

NAN Limited

Nanosonics Limited (ASX: NAN) is an infection prevention company that has developed and sells a unique automated disinfection technology, Trophon, a high-level disinfection for ultrasound probes in more than 20 years. The company has a market capitalization of around $1.81 billion as on May 3, 2021.

Result Performance (Half-Year Ended December 31, 2020 – H1FY21)

For the first half ended 31 December 2020, the revenue fell by 11% YoY to $43.1 million due to the foreshadowed reduction in purchases by GE Healthcare on the back of COVID-19 on its inventory at 30 June 2020 as well as strong Australian dollar. Further, net profit plunged by 74% YoY to $1.5 million, partially due to rise in administrative expenses that grew by 23% YoY to $7.6 million and rise in R&D expenses by 12% YoY to $7.6 million. Net Tangible Assets Per Security for the period stood at 38.73 cents, as compared to 34.68 cents in the pcp.

Key Data (Source: Company Reports)

Key Risks:

All research and new product development programs involve inherent risks and uncertainties which can impact commercialization timeline. Further, the products are under constant regulatory compliance, at all phases of product life cycle.

Outlook:

Based on current market improvements the company is anticipating ongoing growth in total revenue and profitability in the second half, driven by increasing installed base growth and increased usage of consumables across all regions. Total operating expenses for the year are now expected to be at the lower end of the $75 million to $78 million range indicated previously that is expected to strengthen the bottom-line.

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 weaker close $5.93 around its low price of $5.90 on the first trading session of the ongoing week. The technical indicator RSI with a reading around 44 suggests neutral momentum for the stock.

Going forward, the stock may have resistance around the 61.8% retracement level of $6.27 whereas support could be around $5.70.

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.

Stock Recommendation:

The company’s gross margin for H1FY21 stood at 79.4%, better than the industry median of 72.3%. Current ratio for H1FY21 stood at 8.69x, surpassing the industry median of 3.13x, implying decent liquidity position for the company. Its Debt-to-Equity ratio for H1FY21 stood at 0.02x, lower than the industry median of 0.10x.

We have valued the stock using EV/Sales multiple-based valuation (on an illustrative basis) and have arrived at a target price with the potential of lower double-digit (in % terms) growth. We have applied a slight premium to the peer average EV/Sales (NTM) considering expectations on rise in sales due to COVID-19 circumstances led by growth in demand for Trophon.

Considering the aforesaid facts, we have a ‘Buy’ rating on the stock at the current market price of $5.93 per share, down 1.659% on May 3, 2021.

NAN 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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