Woolworths Group Limited

WOW Details

Acquisition Update: Woolworths Group Limited (ASX: WOW) is engaged in retail operations across Australia and New Zealand. The market capitalisation of the company as on 05 January 2021, stood at ~$50.62 billion. As per a recent update, ACCC will make a final decision regarding Woolworths’ proposed acquisition of a 65% interest in PFD Food Services, by 22 April 2021.

Q1FY21 Highlights: During the quarter, the company witnessed increased traction in sales to $17.9 billion. Group e-commerce sales increased by 86.7% to $1.5 billion in Q1FY21, when compared to Q1FY20. Australian food sales increased during the quarter by 12.9% as customers consumed more being at home.

Q1FY21 Financial Performance (Source: Company reports)

Outlook: The company operates in an uncertain business environment. Due to COVID-19 impact and cost pressure, it has set material productivity targets for itself in FY21. However, given the decent first quarter FY21 performance, the company will expect an increase in top-line as the economy gradually reaches the pre-COVID levels.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation:  The company has delivered strong sales growth, with high customer metrics in the first quarter of FY21. WOW gave a return of 8.47% in the past three months and a return of 6.49% in the past one month. The stock of WOW is trading above its average 52 weeks’ trading range of $32.120-$43.960. On a technical front, the stock of WOW has a support level of $36.94 and a resistance level of $41.865. We have valued the stock using a P/CF multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Coles Group Limited (ASX: COL), Wesfarmers Limited (ASX: WES), JB Hi-Fi Limited (ASX: JBH), to name a few. Considering the current trading levels, steady returns in the past months and decent Q1FY21 performance, we recommend a ‘Hold’ rating on the stock at the current market price of $40.17, up by 0.399% as on January 5, 2021.

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

Tassal Group Limited

TGR Details

TGR Completes Billy Creek Acquisition: Tassal Group Limited (ASX: TGR) is engaged in the farming of Atlantic Salmon and Tiger Prawns.  The market capitalisation of the company as on 05 January 2021, stood at ~$714.30 million. As per a recent update, the company has completed the acquisition of Billy Creek, which is a ~1,300-hectare property.

FY20 Financial Update: The company has delivered decent financial performance during FY20. There was an increase of 13.4% in operating NPAT to $64.2 million in FY20 as compared to FY19. Operating cash flow during FY20 decreased to $49.9 million from $89.9 million in FY19.

Improved Performance (Source: Company Reports)

Outlook: COVID-19 has impacted the company’s operations. However, it expects positive consumer trends in FY21, that supports further growth in salmon and prawn volumes.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Tassal is well placed to take advantage of any market opportunity and an additional $100 million debt facility provides further flexibility to the company. TGR gave a negative return of 4.23% in the past three months and a negative return of 3.41% in the past one month. The stock of TGR is trading below its average 52 weeks’ trading range of $2.770-$4.700. On a technical front, the stock of TGR has a support level of $3.323 and a resistance level of $3.449. We have valued the stock using a P/CF multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as Huon Aquaculture Group Limited (ASX: HUO), Inghams Group Limited (ASX: ING), Eclipx Group Limited (ASX: ECX), to name a few. Considering the current trading levels, decent financial performance in FY20 and positive consumer trends, going forward, along with acquisition synergies, we recommend a ‘Buy’ rating on the stock at the current market price of $3.390, up by 0.295% as on January 5, 2021.

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

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