SkyCity Entertainment Group Limited

SKC Details

Issue of Retail Bonds: SkyCity Entertainment Group Limited (ASX: SKC) is engaged in tourism, leisure, and entertainment activities in New Zealand. Its segments include SKYCITY Auckland, Rest of New Zealand, SKYCITY Adelaide and International Business. The company has declared bond offering of up to NZ$125mn with a provision to oversubscribe up to NZ$50mn at SKC’s discretion. The bonds are expected to be on offer from 10 May 2021 to 14 May 2021 to institutional and New Zealand retail investors. The bonds will carry a fixed rate of interest rate maturing on 21 May 2027 and has been assigned with BBB- rating from S&P Global ratings.

Key Dates for Bond Offering (Source: Company Reports)

Appointment of Chief Corporate Affairs Officer: SKC has announced on 29 April 2021, regarding appointment of Nirupa George to the role of Chief Corporate Affairs Officer with effect from 21 June 2021.

1HFY21 Financial Highlights: The company has registered a decline in revenue to NZ$315.71mn in 1HFY21 as compared with NZ$412.53mn in 1HFY20 on back of Covid-19 situation and the fire took place at NZICC in October 2019. Similarly, the company has registered a decline in profit from continued operations to NZ$78.41mn in 1HFY21 as compared with NZ$327.75mn in 1HFY20. The company has posted an increase in its cash and bank balances to NZ$58.07mn as on 31 December 2020 as compared with NZ$52.83mn as on 31 December 2019.

Key Risks: The company is exposed to liquidity risk. There is always a risk for the company not to be able to meet its financial obligations as and when they are due to pay. The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in financial losses for the company. The company has seen higher costs and lower footfalls during COVID-19 situation, which has impacted the profitability of the company.

Outlook: SKC is expecting a robust growth in its EBITDA in FY21 compared with FY20 and likely to see at least 75% of levels in FY19. The company is expecting near normalised earnings growth in FY22. The recovery in earnings is likely to be supported by strong growth in gaming revenue and a recovery in non-gaming revenue. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, SKC has increased by ~5.66% and by ~19.57% in the last three months. The current market capitalisation of SKC stands at ~$2.51bn as of 30 April 2021. The stock is currently trading above the average 52-week price level range of ~$2.140-~$3.380. On the technical analysis front, the stock has a support level of ~$3.24 and a resistance of ~$3.42. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in its cash position and an expectation of higher EBITDA in FY21. For this purpose, we have taken peers Crown Resorts Ltd (ASX: CWN), Redcape Hotel Group Pty Ltd (ASX: RDC), Viva Leisure Ltd (ASX: VVA). Considering the company is likely to see a normalized revenue growth by FY22, expectation on increase in EBITDA in FY21, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $3.34, up by ~0.906% as on 30 April 2021.

SKC Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Mosaic Brands Limited

MOZ Details

Significant Growth in Online Sales: Mosaic Brands Limited (ASX: MOZ) is engaged in selling women's apparel and accessories in Australia. The company has seen a significant growth in its online sales channel due to Covid-19 restrictions to visit in store. The company has delivered $52mn in online sales in 1HFY21, representing 17% of the total revenue and a growth of 27% YoY. The company has added ~50,000 new VIP members and has registered 61% customers making purchases via mobile phones. The company has introduced 30 categories in 1HFY21 from 14 in the previous corresponding period (pcp) resulting in more online products on offer.

Online Sales Growth in 1HFY21 (Source: Company Reports)

Increase in Profits Despite Declining Revenue: The company has registered a decline in its revenue to $344.01mn in 1HFY21 as compared with $425.16mn in 1HFY20. Despite a decline in revenue, the company has registered an increase in profits to $13.00mn in 1HFY21 as compared with $12.24mn in 1HFY20 mainly on the back of closing of unprofitable stores, reducing stock levels by $92mn and growth in online products offering to more than 3,50,000 from 25,000 in 12 months. The company has seen an improvement in its cash situation to $118.93mn as on 27 December 2020 as compared with $86.92mn as on 28 June 2020.

Key Risks: MOZ is mainly engaged in retail segment, any disruption in supply chain will lead to decline in sales for the business and may lead to financial loss for the company.

Outlook: MOZ has seen a significant improvement in its online products offering to more than 350,000 from 25,000 in 12 months. The company has seen a similar trend of improvement is sales in January 2021. 

Valuation Methodology: EV/EBITDA based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, MOZ has increased by ~3.94% and decreased by ~24.03% in the last three months. The current market capitalisation of MOZ stands at ~$76.84mn as of 30 April 2021. The stock is currently trading below the average 52-week price level range of ~$0.455-~$1.190. On the technical analysis front, the stock has a support level of ~$0.758 and a resistance of ~$0.834. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a decline in revenues and associated business risks. For this purpose, we have taken peers Vita Group Ltd (ASX: VTG), Reject Shop Ltd (ASX: TRS), Super Retail Group Ltd (ASX: SUL). Considering the company has registered a significant increase in online sales, posted profits despite decline in revenue, increase in cash position, key risks associated with the business and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.79, down by ~0.629% as on 30 April 2021.

MOZ 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.