Boral Limited

BLD Details

Decent Medium-Term Project Pipeline and Sufficient Liquidity Levels: Boral Limited (ASX: BLD) is engaged in the manufacture and supply of building and construction materials. As on 15 September 2020, the market capitalization of the company stood at ~$5.01 billion.

FY20 Performance Highlights: During FY20, the company reported a decline of 2% in sales revenue to $5,728 million and a decline of 29% in EBITDA from continuing operations to $715 million. In the same time span, operating cash flow of the company stood at $537 million, including strong cash generation through targeted inventory reductions. To withstand the market uncertainty, the company made efforts to preserve cash and strengthen its balance sheet position with the liquidity of ~$1.7 billion. The company has decided not to pay a final dividend because of increased uncertainty.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company seems well-positioned to flex production levels to align with demand and avoid unintended inventory builds. It is focusing on recovering and strengthening margins, delivering strong cash flows, and realizing benefits from divisional improvement initiatives. In early FY2021, the company experienced lesser disruptions, providing an opportunity for improved outcomes. The company is likely to have its AGM on 27 October 2020.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains a strong medium-term project pipeline. As per ASX, the stock of BLD gave a return of 15.54% in the past three months and a return of 8.78% in the last one month. The company seems to be well-positioned to benefit from the upcoming growth opportunities. On the technical analysis front, the stock of BLD has a support level of ~$3.217 and a resistance level of ~$4.532.

We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). Considering the attractive returns in the past three months, modest long-term outlook and decent financial performance in the times of uncertainty, we recommend a ‘Buy’ rating on the stock at the current market price of $4.120, up by 0.733% on 15 September 2020.'

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

The Star Entertainment Group Limited

SGR Details

Reduction in Operating Expenses and Decent Liquidity Levels: The Star Entertainment Group Limited (ASX: SGR) is engaged in the management of integrated resorts with gaming, entertainment, and hospitality services. As on 15 September 2020, the market capitalisation of the company stood at ~$2.99 billion.

FY20 Results Highlights: During FY20, the company reported decent performance before the outbreak of COVID-19, wherein normalized group revenue was up by 7.5% and EBITDA was increased by 12.1%. During the year, the company achieved key milestones with respect to new gaming tax agreement in Sydney and casino EGM exclusivity with compensation regime to FY2041. With the increased market uncertainty, the company strengthened its financial position and reduced its operating expenses to ~$10 million per month during closure. During FY20, the company reported decent liquidity with undrawn facilities of $507 million and gearing of 3.2x. Due to increased market uncertainty, the company preserved its cash and did not declare any final dividend for FY20.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is prioritizing to deliver solid domestic earnings growth. It is aiming to preserve its capital and is reducing its costs and recycling its assets. The company is focused on enhancing its ROA and shareholder returns and is delivering on its operating model. The company has announced that it will hold its AGM on 22 October 2020.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is working on enhancing its shareholders’ returns and is retaining efficiencies from cost management. As per ASX, the stock of SGR gave a return of 56.72% in the past six months and a return of 2.61% in the past three months. The stock of SGR is trading slightly higher than the average 52-weeks’ level of $1.525- $4.930 but retains the potential for further growth. On the technical analysis front, the stock of SGR has a support level of ~$2.822 and a resistance level of ~$3.528. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Crown Resorts Ltd (ASX: CWN), Tabcorp Holdings Ltd (ASX: TAH) and Skycity Entertainment Group Ltd (ASX: SKC). Considering the valuation, current trading levels, modest long-term outlook and key risks, we recommend a ‘Buy’ rating on the stock at the current market price of ~$3.150, up by 6.061% on 15 September 2020.

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

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