Costa Group Holdings Limited 

CGC Details

Focused on Growth Across Segments: Costa Group Holdings Limited (ASX: CGC) is a grower, packer and marketer of fresh fruit and vegetables. The company is primarily engaged in the growing of mushrooms, berries, glasshouse grown tomatoes, citrus, avocados, and other selected fruits within Australia. CGC has recently acquired KW citrus orchards in the Sunraysia region in March 2021. The company is focusing on increasing its capacity for citrus fruits and exporting to premium markets like Japan. The company has also announced regarding near completion of 10 hectares of tomato glasshouse and 2.5 hectare of nursery project in Guyra, NSW, leading to increased capacity. The company has witnessed a strong berry pricing across all its varieties and expects it to be strong in CY21.  

Change in Director’s and Substantial Holder’s Interest: CGC has reported a change in director’s interest on 1 June 2021. The director of the company, Sean Hallahan has acquired an additional 258,695 options of ordinary shares in the company.  CGC has informed regarding the increase in interest of Perpetual Limited to 8.60% from 7.58% in the company. 

CY20 Financial Highlights: CGC has reported an increase in its top-line to $1,164.9mn in CY20 against $1,047.9mn in CY19. Similarly, the company has registered an increase in bottom-line to $67.4mn in CY20 against $27.5mn in CY19. CGC has witnessed a decline in its cash balance to $32.45mn as on 27 December 2020 against $35.96mn as on 27 December 2019.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is engaged in food production. Thus, any adverse climatic conditions may impact the business of the company. In addition, the company needs to supply food products continuously to suppliers and distributors. Therefore, any supply chain disruption may impact the financials of the company. 

Outlook: CGC expects progress on harvests in China and Morocco in 2021. The company expects its depreciation and amortisation charges to be ~$110mn for CY21. The construction work for Tomato Glasshouse and nursery is about to complete on budget. The company expects to deliver production from additional ten hectares beyond CY22. 

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

Source: 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: The stock of CGC gave a return of ~-21.98% in the last one month and a return of ~-23.71% in the last three months. The current market capitalisation of CGC stands at ~$1.33bn as of 16 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$2.745~$4.890. We have valued the stock using the EV/Sales 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 average, considering a decline in its cash balance as on 27 December 2020 and risk of disruption in supply chain. For this purpose, we have taken peers Graincorp Ltd (ASX: GNC), Australian Agricultural Company Ltd (ASX: AAC), Elders Ltd (ASX: ELD), to name a few. Considering the company has registered an increase in top line and bottom line in CY2021, expansion across food segment, robust pricing for berries in CY21, current trading levels, and valuation, we recommend a “Buy” rating on the stock at the current market price of $3.42, up by ~2.702%, as on June 16, 2021.

CGC Daily Technical Chart, Data Source: REFINITIV

MyDeal.com.au Limited 

MYD Details

Improving Customer Retention Through App Launches: MyDeal.com.au Limited (ASX: MYD) is an online retail marketplace. The company offers a range of furniture, home & garden, fashion, tools & equipment, electronics, and kids’ products. MYD has recently announced regarding a launch of native apps for IOS and android mobile to enhance customer retention. The native apps will provide additional benefits and features to its customers for a seamless experience. The mobile apps are aimed to improve return on investment of marketing costs through higher engagement and repeat transactions. 

Appointment of Chief Marketing Officer: MYD has recently appointed Mr. Ryan Gracie as its new Chief Marketing Officer. The company has introduced Mr. Gracie to drive brand and customer growth through his significant industry recognition. 

3QFY21 Business Highlights: MYD has showcased a robust 3QFY21 with growth across all key metrics. MYD has registered an increase in gross sales to $44.7mn in 3QFY21 against $21.9mn in 3QFY20. The company has witnessed a growth in its number of active customers to 883.397 as at 31 March 2021 against 813,764 as at 31 December 2020. MYD has reported an increase in returning customers in 3QFY21 with ~56.1% of all transactions coming from repeat customers up from ~48.4% in 3QFY20.

Active Customers Growth (Source: Company Reports)

Key Risks: The company is exposed to cyber security risks. Therefore, data breach from a third party may lead to breach of customer agreements and debilitate the company’s business. In addition, the company is exposed to Covid-19 related risks. Therefore, any such situation may impact the sales of the business. 

Outlook: MYD is positive for 4QFY21 considering an increase trend in adopting e-commerce and online shopping in the furniture and homewares category. The company has started 4QFY21 on a positive note with an increase in year-to-date gross sales against the same period previous year. 

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

Source: 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: The stock of MYD gave a return of ~16.82% in the last one month and a return of ~-30.55% in the last three months. The current market capitalisation of MYD stands at ~$168.23mn as of 16 June 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.520~$2.200. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering the company has incurred a loss in 1HFY21, an increase in total current liabilities as on 31 December 2020 and associated business risks. For this purpose, we have taken peers Kogan.com Ltd (ASX: KGN), Temple & Webster Group Ltd (ASX: TPW), Bikeexchange Ltd (ASX: BEX). Considering the company has registered an increase in revenues in 3QFY21, increase in active customers in 3QFY21, positive outlook for 4QFY21, current trading levels, valuation and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.625, down by ~3.847% as on June 16, 2021.

MYD Daily Technical Chart, Data Source: REFINITIV

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

Note 2: 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.

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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