Super Retail Group Limited

Strong Segmental Growth & Improving Efficiencies: Super Retail Group Ltd. (ASX: SUL) stated via a release that the UBS Group AG and its related bodies corporate have increased their stake from the erstwhile 6.64% comprising of 13,106,017 shares of the company to the currently reported 7.67% which consisted of the 15,142,382 shares as on the 17 December 2018.
 
The trading update for the 16 weeks ended 24 October 2018, stated that the all its business segments are doing well, particularly their ‘MacPac’ business which has witnessed an 8.4% like for like growth.In FY 2018, EBIT grew by 5.9% on pcp to reach at $219.6 Mn. The company’s cash conversion cycle has witnessed a fall from 88 days in FY 2017 to 79 days in FY 2018, representing an improvement in the working capital management via improved supply chain efficiencies and improving trade partner payment terms.
 

Key Financial Metrics for the FY 2018 (Source: Company Reports)
 
Focus on Market Share Expansion: In future, the company will be concentrating on expanding its market share in order to preserve its market position. Further, the company will look into optimizing its costs in the era of increasingly competitive Retail sector market.

Moreover, on the valuation front as the company is a retailer, the Net Cash Flows is an important performance metric. The company is trading at a price/ cash flow ratio of 5.0 times, which is at a relative discount with the Industry average of 6.9 times hence, from the cash flows generation aspect the stock seems to have potential upside at the current valuation. Also, the dividend yield stood at 7.18% which outperforms the Industrial average of 6.1%, this signifies that the company is undervalued as compared to the industry as a whole. In the meantime, the stock price has receded by 18.81% in the past six months as on January 8, 2019 and is trading close to the 52-week lower level of $6.420. However, considering strong segmental performance, improving efficiencies and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of $6.660 (down 2.346% on January 09, 2019).
 

Villa World Ltd

Robust Dividend Yields but Subdued Markets a Dampener: Villa World Ltd. (ASX: VLW) stated via a release that it has received payment of $5.5 million from the purchaser 960 Blueways Pty Ltd, as required under the contract for the sale of 960 Donnybrook Road, Victoria. The sale of the adjoining 1030 Donnybrook Road to Satterley Property Group Pty Ltd, remains conditional on approval of the Shenstone Park Precinct Structure Plan which continues to progress.
 
The company had released its FY 2019 Guidance which stated that the company is targeting a NPAT of $40 Mn for FY 2019.For the first half of the FY 2019, the Company has provided with guidance of $16 million - $17 million related to the Net Profit After Tax, and it is also expecting to shell out a half-year dividend of 8 cents/share.

In recent past, the residential housing market conditions in the Adelaide and Sydney suburbs have significantly deteriorated. The revenues and the enquiries took a toll on account of the tightening of the credit coupled with the delayed in the approvals regarding lending. Due to the above-mentioned looming factors, the Company feels that it will not achieve its FY19 NPAT guidance of ~$40 million. Moreover, with an uncertain outlook for the sector, the Company considers it prudent to provide no guidance for FY19 at this point of time.
 

 
VLW’s Financial Highlights (Company Reports)
 
On the valuation front, the company is trading at a price/ cash flow ratio of 2.4 times, which is at a relative discount with the Industry average of 29.0 times, hence from the cash flows generation aspect the stock seems to have potential upside at current valuations. Also, the dividend yield stood at 10.82% which outperforms the Industrial average, this signifies that the company is undervalued. Meanwhile, the stock has receded by 21.56% in the past six months as on January 8, 2019 and is trading below the 52-week average of $2.175. By looking at a decent outlook and maintaining its dividend yield of above or around 8.0%, we maintain our “Hold” recommendation on the stock at the current market price of $1.710 per share.
 

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