BlueScope Steel Limited

BSL Details

BlueScope Steel Limited (ASX: BSL) is one of the significant manufacturers of painted and coated steel products globally. With rich expertise in steel, the company delivers vital components for houses, buildings, structures, automotive, among others. It has a robust global network with over 160 operations and sales offices across 18 countries.

Result Performance (FY21 Ended 30^th June 2021)

• Revenue for the period stood at $12.90 billion, compared to $11.28 billion in the previous year.
• The underlying EBIT stood at $1.72 billion in FY21, tripled from FY20, mainly due to solid performance from operating segments supported by robust demand and steel spreads.
• After capital expenditure, the operating cash flow stood at $898 million in FY21, including investment expenditure on the North Star expansion.
• The company has declared a final unfranked dividend of 25 cents per share, increasing from 8 cents in the PCP.
• It announced a special unfranked dividend of 19 cents per share and an on-market buy-back of up to $500 million.

Source: Company Reports, Analysis by Kalkine Group

Recent Update:

Recently, the company informed the market about the acquisition of the ferrous scrap steel recycling business of MetalX LLC completed on 17 December 2021 USA time. The transaction was completed on terms entered into and announced on 5 November 2021. The acquired business will operate under the name BlueScope Recycling and Materials.

Outlook:

BlueScope now expects underlying earnings before interest and tax (EBIT) for 1H FY 2022 to be in the range of $2.1 billion to $2.3 billion. This is above the prior guidance range of $1.8 billion to $2.0 billion, and is subject to spread, FX and market conditions.

Key Risks

The company is exposed to the risk of a deep or prolonged economic downturn that would affect demand for the group’s products and financial prospects. Additionally, fluctuation in foreign exchange rates, mainly the Australian dollar relative to the US dollar, and higher competition are other potential risks.

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

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation

BSL would be using the strength of the balance sheet as well as cash flow to build the growth pipeline, leveraging the trends like growth in detached residential construction, e-commerce as well as logistics, and national infrastructure programs.

The stock has been valued using Price/EPS multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) considering the decent outlook as well as balance sheet strength.

Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $19.695 per share (Time: 1:45 PM (GMT +10), Sydney, Australia) as of 20^th January 2022.

HomeCo Daily Needs REIT

HDN Details

HomeCo Daily Needs REIT (ASX: HDN) is one of Australia’s leading Real Estate Investment Trusts, mainly involved in investing in convenience-based assets across the target sub-sectors of Neighbourhood Retail, Large Format Retail and Health & Services.

Result Performance (FY21 Ended 30 June 2021)

• In FY21, the company’s actual revenues stood at $45.2 million, compared to the Product Disclosure Statement (PDS) budget FY21 figure of $38.2 million. During the period ended 30 June 2021, ~24.7% of the group’s external revenue was derived from the rental income from 2 main tenants being Woolworths Group Limited and Coles Group Limited.
• Actual profit (statutory) stood at $31.3 million in FY21, against a loss of $7.3 million reported as PDS budget for FY21. Actual EBITDA for the period came in at $38.4 million against a PDS loss of $2.5 million. The company’s outlook seems to be decent led by positive market conditions and higher funds from operations (FFO).

Source: Company Reports, Analysis by Kalkine Group

Recent Update:

On 19 January 2022, it was highlighted that Aventus Capital Limited (in its capacity as responsible entity of the Aventus Retail Property Fund) and Aventus Holdings Limited announced that the Commonwealth Government has confirmed, for the purposes of the Foreign Acquisitions and Takeovers Act 1975, that it has no objection to the proposed Merger, by way of the Unstapling of Aventus Shares and Aventus Units, followed by the implementation of the Trust Scheme and Members’ Scheme, as per which:

• HMC Funds Management Limited as the responsible entity of the HomeCo Daily Needs REIT would be acquiring 100% of the Aventus Units under the Trust Scheme; and
• Home Consortium Limited would be acquiring 100% of the Aventus Shares by way of a scheme of arrangement.

Outlook:

The company has reaffirmed merged HDN group proforma FY 2022 FFO/unit guidance of 8.9 cents as well as standalone FY 2022 DPU guidance of 8.25 cents. Notably, including the revaluation gains separately announced by Aventus, the combined portfolio is anticipated to increase by $346 Mn (+9%) on the net basis which would result in increasing HDN’s proforma NTA per unit from $1.24 to $1.41.

Risk Analysis: 

The company is exposed to the threats of the COVID-19 Pandemic, as it could impact the operating environment and the company’s tenant base. The company is exposed to stiff rivalry from competitors developing similar product lines and services. Further, foreign currency fluctuation risks, low demand and prices for property, and changes in government regulations might hinder the company’s business model.

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

Technical Overview:

Chart:

Source: REFINITIV

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

Stock Recommendation

The stock has been valued using Price/EPS multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average) considering the decent outlook as well as higher gross margin in FY 2021 as compared to the industry median.

Considering the factors above, we give a “Buy” recommendation on the stock at the current market price of $1.345 per share (Time: 12:09 PM (GMT +10), Sydney, Australia) as of 20^th January 2022.

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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