Synlait Milk Limited

SM1 Details
 
Expects Strong Growth across Packaged Infant Segment: Synlait Milk Limited (ASX: SM1) is a dairy manufacturing company, which offers higher value dairy products to leading milk-based health and nutrition companies. The company informed that it would disclose its first half FY20 results on 19^th March 2020.

FY19 Income Statement Highlights for the Period ended 31 July 2019: SM1 declared its full-year results, wherein the company reported revenue of $1,024.3 million, up 17% on y-o-y basis. The increase in the top line was majorly driven by 16% y-o-y growth in sales volumes of 21,087 MT. The business witnessed 21% growth in the consumer-packaged infant formula segment, with volumes increasing to 42,907 MT. Average milk price stood at $6.58 per kgMS for the 2018-2019 season. The company reported its net profit of $82.2 million, depicting a growth of 10.2% on y-o-y basis. 


Key FY19 Income Statement Highlights (Source: Company Reports)

Guidance: For FY20, the business expects its earnings within the range of $70 million to $85 million. The company expects strong growth within the consumer-packaged infant formula segment, driven by incremental costs of the new Pokeno facility impacting standard manufacturing costs and lower sales of infant base powders due to the China infant nutrition market consolidation. The business increased its forecasted base milk price for the 2019-2020 season to $7.25 kgMS from $7.00 kgMS.

Valuation Methodology: Enterprise Value to EBITDA Based Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of SM1 is trading at $6.510 with a market capitalisation of ~$1.17 billion. The stock is trading at the lower band of its 52-week trading range of $6.100 to $11.200. The stock has corrected 24.77% and 27.21% in the last three months and six-months, respectively. The Business is focused on the significant capacity available at its new advanced liquid dairy packaging facility at Dunsandel and its infant-capable manufacturing facility in Pokeno which would eventually create a strong customer pipeline. Considering the current trading levels and business prospects, we have valued the stock using EV/EBITDA based relative valuation method and arrived at a target price of higher single-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $6.510 per share, up 0.154% on 20^th February 2020. 

 
SM1 Daily Technical Chart (Source: Thomson Reuters)
 

Super Retail Group Limited

SUL Details
 
Reported Revenue up by 2.9%: Super Retail Group Limited (ASX: SUL) is engaged in the operation of specialty retail stores in the automotive, tools, leisure and sports categories.

H1FY20 Operational Highlights for the Period ended 29 December 2019: SUL declared it half-yearly results, wherein the company reported revenue of $1,443.5 million, up 2.9% on pcp terms. Total segment EBITDA came in at $159.8 million, down 3.9% on pcp. The period was marked by solid top line growth across the Supercheap Auto (3.7%) and Rebel (3.6%) segments, which together contributed to 89% of brand EBIT. The business continued omni-retail momentum with record Black Friday/Cyber Monday weekend sales and a 22% growth within the online segment.


Key H1FY20 Income Statement Highlights (Source: Company Reports)

Dividend Update: The company has declared a fully franked dividend of $ 0.21500 per share with a payment date of 2^nd April 2020.

Valuation Methodology: Price to Earnings Based Valuation

Price to Earnings Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of SUL is trading at $9.60 with a market capitalisation of $1.8 billion. The stock is trading at the upper band of its 52-week trading range of $7.15 to $10.54. The stock has corrected by 10.51% and 5.79% in the last three months and six-months, respectively. During the half, procurement and technology led business simplification projects delivered cost efficiencies. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like JB Hi-Fi Ltd (ASX: JBH), Harvey Norman Holdings Ltd (ASX: HVN) and Metcash Ltd (ASX: MTS) and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a “Hold” rating on the stock at the current market price of $9.60 per share, up 5.379% on 20^th February 2020, on account of the announcement of H1FY20 results.
 
 
SUL Daily Technical Chart (Source: Thomson Reuters)

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