New Zealand King Salmon Investments Limited

NZK Details

New Zealand King Salmon Investments Limited (ASX: NZK) is the world’s largest aquaculture producer of the premium King Salmon species. It operates under four key brands: Ōra King, Regal, Southern Ocean, and Omega Plus, as well as the New Zealand King Salmon label. The company has a market capitalisation of around $188.67 million as on 29^th July 2021.

Results Performance (Seven Months Ended January 31, 2021 (FY21))

The company has changed its balance date to 31 January to align with summer seasonality.

Pandemic Impacts on Sales and EBITDA:  Revenue of the company for the financial year 2021 (comprising seven months) stood at $95.2 million. Pro Forma EBITDA of the company for the period stood at $10.0 million, as compared to $25.1 million in FY20 (12 months).

Pandemic Impacts on NPAT : Statutory NPAT of the company for the period stood at -$7.1 million, as compared to $18.0 million in FY20 (12 months). Proforma NPAT of the company stood at $2.3 million, as compared to $11.2 million as on June 30, 2020 (12 months period).

Cash Balance ($3.48 million): Net cash flows from operating activities for the period stood at -$881k whereas  cash balance at the end of the period stood at $3.48 million.

Key Data (Source: Company Reports)

Recent Update:

• On 3 June 2021, the company informed the market that trading in the first half of FY22 (Feb to July 21) has been problematic, as King Salmon is a difficult species to farm and there were issues with its fish in the warmer Pelorus Sound over the summer months that hindered growth in that region, after changes were made to its farming model. The company has taken several measures to rectify the issue and it is expected that fish sizes will be recovered  by July and biomass should improve to a satisfactory position in October.

Outlook:

Going ahead, the company believes that sales will continue to be affected by higher freight and disruption costs. However, it is optimistic that its average price will return to pre-COVID level soon.

The Blue Endeavour application to farm in the Cook Strait, 7 kms north of Cape Lambert is expected to go to the hearing in August once submitters are fully consulted. If successful, this would be driving significant economic benefits to the region. It would be providing better waterspace as well as conditions to grow the fish. Notably, the earliest possible harvest is mid CY 2024.

The move into the open ocean will be a first for New Zealand and the company believes that it is a critical cornerstone to deliver on the Government’s Aquaculture Strategy to grow the industry from its current $625 million to $3 billion by 2035.

A detailed guidance can be expected as on 31 July 2021 under the company’s report.

Key Risks:

The Group is exposed to the risk of supply chain disruptions and decline in disposable income with the potential of affecting premium brands sales of the company.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The company’s current ratio for H1FY21 stood at 4.38x, better than the H1FY20 result of 4.37x, implying that the company possesses better capabilities to meet its short-term obligations. Its gross margin also improved from 11.7% in H2FY20 to 14.0% in H1FY21.

We have valued the stock using EV/Sales multiple-based illustrative relative valuation and have arrived at a target price  that reflects a rise of low double-digit (in % terms). We have assigned a discount to EV/Sales Multiple (NTM) (Peer Average) considering the risks of supply chain disruptions.

Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of A$1.350 per share, down by 0.553% on 29^th July 2021.

AMA Group Limited

AMA Details

AMA Group Limited (ASX: AMA) is one of the market leaders in the Australian and New Zealand automotive parts markets and vehicle accident repairer. The company has a market capitalisation of around $373.26 million as on 29^th July 2021.

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

Robust Topline:  The revenue and other income from continuing operations of the company increased by 19.5% YoY to $435.1 million. Post the lockdown restrictions, the company benefited from the option to use private transport over public transport and the change to domestic driving holidays over international travel. As on 31 December 2020, the company had 182 sites, an increase of one since 30 June 2020.

Turnaround in the Operating Profit: Further, the company reported an operating profit of $7.1 million in H1FY21 versus an operating loss of -$1.6 million in H1FY20. The rise is operating profit was primarily driven by the benefit of full six-month trading for acquisitions like Capital Smart and ACM Parts. Meanwhile, it reported a net profit of $4.6 million in H1FY21 versus a net loss of -$12.3 million in H1FY20.

Key Data (Source: Company Reports)

Recent Update

• On 2 July 2021, the company announced a realignment of the Company’s business segments and senior leadership appointments with the objective of bringing a  diversity of industrial and corporate experience to the Company and ensure the Group has the appropriate governance and depth of skills to deliver the Board’s vision for the future of AMA.

Outlook

The recent report indicates that the vehicle volumes are close to pre-Covid levels. This trend is expected to continue to improve and act as a tailwind into the existing and coming financial year. Importantly, the financial performance so far is in line with the company's objective, driven by returning volume and current trading expectations. The company has access to financial resources to undertake acquisition opportunities that are strategically aligned with the growth.

Key Risks

The company is exposed to the risk of complying with regulatory requirements.  Besides,  it is exposed to credit risk, and liquidity risk, and market risks such as foreign exchange risk and interest rate risk. The lingering of the pandemic with the recent rise in delta variant might lead to localized, if not nationwide, lockdowns which would ultimately result in lesser use of auto and auto-parts and lesser earnings for the company.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The company’s EBITDA margin stood at 7.2% in H1 FY 2021 as compared to 6.9% in H1 FY 2020. Its current ratio stood at 0.87x in H1 FY 2021, while in H1 FY 2020, it was 0.85x.

We have valued the stock using Price/EPS multiple-based illustrative relative valuation and have arrived at a target price  that reflects a rise of low double-digit (in % terms). We have assigned a discount to Price/EPS Multiple (NTM) (Peer Average) considering the risks related to the lockdowns.

Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.500 per share on 29^th July 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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