Angel Seafood Holdings Ltd

Acquired Additional Coffin Bay prime water- Support Its Growth Objectives: Consumer Staples company, Angel Seafood Holdings Ltd (ASX: AS1) focuses on producing fresh, clean and high-quality produce. It has grown from a traditional oyster-grower to an innovative & organically certified premium producer of Coffin Bay Oysters.

The company recently announced its agreement with Mr. Anthony Guidera to acquire an additional 0.5 Ha of water for $125,000.It is in the extremely productive Beacon Zone in Coffin Bay. This will help the company to increase its fishing capacity by 360,000 oysters per year, from its current 10.75 Ha of water holding in Coffin Bay. Under the agreement, 10% the amount is payable upfront, and the balance would be payable till January 31, 2020 with an accruing interest of 5% p.a.

In half-yearly results, the company reported an increase in its sales by 184% pcp to $2.48 Mn in H1FY19, predominantly driven by sale of around 3 Mn oysters. Despite an increase in total overheads by 27% pcp, its EBITDA increased by 128% pcp to $271,545. This was due to positive results from the investments made in building substantial scale in the business, growing water holdings and oyster stocks over the period along with delivering on key capital projects. Its normalised net loss before tax decreased by 91% pcp to $103,127 in H1FY19.


H1FY19 Financial Metrics (Source: Company Reports)

What to expect from the company:In the second half period, summer season draws to a close and with little coolers months, the company expects good stock levels in the key operations areas of Cowell and Coffin Bay. Angel remains positive over cashflow for the FY2019 with operation pick-up in the second half.

Stock Recommendation:Angel’s share generated positive YTD return of 29.63%. Its gross margin for H1FY19 stood at 88.7% better than the industry median of 41.8%. Its current ratio stood at 1.7x in H1FY19 better than the industry median of 1.57x, displaying decent liquidity position to address its short-term obligations. Its DE ratio stood at 0.41x in 1HFY19 which is better than the prior corresponding period where the same was 0.51x. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $0.175 (up 12.903% on 5 April 2019).
 

Australian Agricultural Company Limited

Recent Heavy Rainfall & Flooding Might Impact Financial Earnings for FY19: Integrated cattle and beef producer, Australian Agricultural Company Limited (ASX: AAC) operates on around 7 Mn hectares of properties in Queensland and the Northern Territory.
The company recently announced that heavy rain and severe flooding in North-Western Queensland has affected 4 out of its 21 properties. The management is monitoring the situation closely and expects that the full assessment of the impact on livestock and infrastructure will be possible only after the complete receding of the water levels. The preliminary estimate for the repair of the damage across ~800,000 hectares of infrastructure (i.e., property, plant, fencing, station, and water infracture) is in the range of $6 Mn to $8 Mn. However, AAC remains fully committed to its current strategy and continues to benefit from a robust balance sheet with its overall financial position remaining strong. A further update will be provided as part of the Company’s upcoming full-year results in May 2019.

In its half yearly result ending in September 2018, it reported an increase in its revenue by 11.1% pcp to $219.2 Mn, majorly driven by an increase in meat revenue by 2.3% pcp. Its statutory EBITDA loss stood at $82.9 Mn, due to a decrease in market value of livestock including a decline in the lower value composite cattle numbers.


H1FY19 Financial Metrics (Source: Company Reports)

What to expect from the company:Recent damage by the heavy rain and flooding is expected to impact the company’s second-half earnings as the operating expenses such as grain, feeding and transport cost will rise. However, the company expects that the current operating conditions will not affect its supply obligations.

It is expected that the increase in global beef supply in 2019 will put pressure on pricing, affecting the company’s margins. As per the company report, AAC is looking for new opportunities in the Dubai market along with implementing cost efficiency initiatives.

Stock Recommendation: AAC’s share generated negative YTD return of 1.36%. Its current ratio for H1FY19 stood at 6.43x better than the industry median of 1.57x, implying better ability to meet its short-term obligations than its peer group. Its DE ratio for H1FY19 stood at 0.37x, which implies better debt servicing by the company. On the valuation front, its PB ratio stands at 0.7x better than the industry median of 1.3x on a TTM basis, which indicates an undervalued position at the current juncture. Hence, considering the aforesaid facts and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of $1.085 (up 1.402% on 5 April 2019).  

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