Orocobre

Falling Peso counterbalances Tax vows: Orocobre Ltd.’s (ASX: ORE) share price gapped down on the bourses after the Temporary Argentina Tax changes notice was released. Under the news, temporary tax regime, a special export duty will be immediately applied to all the exporters of Orocobre’s 66.5% subsidiary Sales de Jujuy SA and Borax Argentina SA up to 31 December 2020 at a rate of AR$ 3 for each US$1. However, the increase in tax should be counterbalanced by the devaluation of Argentina Peso as the currency has devalued approximately 90% against the US dollar. As of now, 60% of Borax and 45% of SDJ’s cost of production are Australian dollar denominated. With the Peso devaluing, it would have a positive impact on the production cost of SDJ and Borax. The company posted upbeat results for FY18 with underlying net profit after tax from continuing operations coming in at US$25.7 Mn against US$13.8 Mn in FY17.


Strong Operating Metrics (Source: Company Reports)

On the other hand, the group is witnessing growth in the total production of Lithium Carbonate which was up 5% in FY18 compared to FY17. Going forward, the company is expecting the production in FY19 to be better than FY18.  Among the key metrics, Gross Margin for the company has improved significantly over the past five years indicating the better health of the company. The company has started generating positive ROE from last year with 0.5% in FY18. The company has posted a higher Gross Margin of 18.3% in FY18 compared to FY17 and Net margin also came at 11.0%, in line with the Industry median.  Meanwhile, the stock has generated a negative YTD return of 48.50% and briefly moved below its crucial support level of $3.55. However, the sudden downward movement was the after effect of Argentina Tax notice. The stock has rebounded from that level and is placed at the support level. The stock movement has been accompanied by positive relative strength indicator as the signal line moves back from the oversold zone. We recommend a “Buy” in the stock at the current market price of $3.550, expecting that the effect of the Argentina tax regime would be short-lived, and Orocobre would have the potential to unlock further value for the shareholders.  
 

Collins Foods 

Upbeat FY18: Collins Foods Limited (ASX: CKF) has recently posted strong results with revenue coming in at $770,936 in FY18 compared to $633,562 in FY17. Total comprehensive income for the reporting period came in at $39,693 in FY18 compared to $29,443 in FY17. Higher Cash flow from Operating activities at $74,523 for FY18 indicates the sound organic business of the company. Total Collins Foods’ Revenue has increased substantially over the course of past four years.

Revenue Growth Trend (Source: Company Reports)

In an update, the company revealed that Eley Griffiths Group Pty Limited has increased its stake in Collins Foods limited and the current Voting Power stands at 5.02%. The Australian KFC network of the company continues to perform well along with their European Business. Collins is focused on expanding its business as KFC Australia acquired 28 restaurants from Yum! acquiring 35% of the total restaurant footprint in the country. Similarly, the company is also committed to expanding in Europe with the acquisition of 16 KFC restaurants in the Netherlands. In FY18, the group also launched the Taco Bell brand in Australia, an already popular brand, and Taco Bell would further add the value to the shareholders. The company is a consistent dividend payer with an annual dividend yield of 2.99%. Collins has paid shareholders a final fully franked dividend of 9 cents per share, bringing the FY18 dividend to 17 cents per share, fully franked. CKF has posted a gross margin of 52.7%, in line with the industry average of 53.9%. Return on Equity at 10.8% also puts the company in the positive light with Industry average being 12.9%.

Stock Performance: Year to date, the stock has generated a positive return of 5.18% and looks poised to grow in the period to come. An aggressive push of the company in Europe and Australia would be rewarding for the shareholders in future. Its Australian KFC continues to grow with Collins being the largest franchisee of KFC in Australia. Growing global footprint and organic growth would serve the company well, going forward. We recommend a “Buy” in the stock at the current market price of $5.610 sighting further upside from the current levels.
 
 

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