Ingenia Communities Group 

INA Details 

Business Highlights: Ingenia Communities Group (ASX: INA) owns, operates, and develops a lifestyle and holiday communities’ portfolio across urban and coastal markets in Australia. The company invests in rental properties. INA has announced on 3 May 2021 regarding entering an unconditional contract to acquire 16.2 hectares of a greenfield site in Queensland. The site is a tourist location with an approval to develop 344 home lifestyle community facilities. The company expects to develop the site in FY22. In addition, the company has expanded in Victoria with an accumulation of three parks at a tourist location. The company is well-positioned to benefit from the increasing tourism after opening domestic and international travel completely. 

Notice of Substantial Initial Holder: INA has informed on 22 June 2021 that Blackrock Group has become a substantial initial holder, with 5.37% holdings in the company. 

1HFY21 Financial Highlights: INA has registered an increase in revenue to $121.96mn in 1HFY21 against $116.94mn in 1HFY20, due to increased Lifestyle and Holiday’s increase rental income by 18% YoY. Similarly, the company has increased net profits to $32.45mn in 1HFY21 against $23.60mn in 1HFY20, mainly on improved capitalisation rates. The cash balance has improved to $14.89mn as on 31 December 2020 against $10.75mn as on 30 June 2020. In addition, INA has witnessed an increase in non-current borrowings to $160.68mn as on 31 December 2020 against $83.54mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to Covid-19 uncertainties that may impact the business severely. In addition, the company holds interest-bearing liabilities. Therefore, severe interest rates may impact the financials of the company.  

Outlook: INA continues to invest in new rental homes for the growth of its rental base in FY21. The company expects to benefit from rebound on domestic and international travel on the back of investments in tourism cabins. The company has enough liquidity to fund any growth opportunities in the future. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of INA gave a return of ~11.77% in the last one month and a return of ~22.66% in the last three months. The current market capitalisation of INA stands at ~$2.02bn as of 29 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$4.27-~$6.44. On the technical analysis front, the stock has a support level of ~$5.7 and a resistance of ~$6.3. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering the company has seen an increase in non-current borrowings as on 31 December 2020 and business risks due to Covid-19 uncertainties. For this purpose, we have taken peers Cromwell Property Group (ASX: CMW), Mirvac Group (ASX: MGR), APN Property Group Ltd (ASX: APD) to name a few. Considering the decent stock price movement in the past few months, current trading levels, key risks associated with the business, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $6.17 as on Jun 29, 2021.

INA Daily Technical Chart, Data Source: REFINITIV 

Servcorp Limited 

SRV Details

Operational Highlights: Servcorp Limited (ASX: SRV) is engaged in the provision of executive serviced and virtual offices, and information technology (IT), communications and secretarial services. SRV has set up 125 floors in 43 cities across 21 countries. During 1HFY21, two floors were closed at Park Avenue, New York and Al Hugayet, Al Khobar. The company has witnessed 71% floors occupancy on like-to-like basis as on 31 December 2020, as compared to 69% as on 30 June 2020. Like-to-Like revenue declined across all the regions in 1HFY21 against 1HFY20. 

Change in Interest of a Substantial Holder:  SRV has informed that, FMR LLC has increased its holding to 8.25% from 7.17% earlier in the company on 23 March 2021. 

1HFY21 Financial Highlights: SRV has posted a decline in revenue to $141.99mn in 1HFY21 against $178.26mn in 1HFY20. Despite a decline in revenue, the company has seen an increased profit to $15.42mn in 1HFY21 against $14.81mn in 1HFY20, due to lower operating cost. The cash balance has declined to $87.06mn as on 31 December 2020 against $99.88mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to Covid-19 uncertainties. Therefore, such situation may lead to lower occupancy. The company needs to maintain liquidity to pay off its liabilities. Therefore, lack of liquidity may impact the business of the company.  

Outlook:   The company remain focused on cost optimization, maintaining strong liquidity and looking for future growth opportunities in mature markets. Net capacity is expected to reach at 5,134 in FY21 from new openings in Manila and Parramatta. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of SRV gave a return of ~46.06% in the last nine months and a return of ~14.28% in the last six months. The current market capitalisation of SRV stands at ~$329.18mn as of 29 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.00-~$3.77. On the technical analysis front, the stock has a support level of ~$2.90 and a resistance of ~$3.90. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering the company has posted a decline in total revenue in 1HFY21 and a decline in cash balance as on 31 December 2020. For this purpose, we have taken peers LendLease Group (ASX: LLC), Cedar Woods Properties Ltd (ASX: CWP), to name a few. Considering the volatile stock price movement in the past few months, current trading levels, and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $3.52, as on Jun 29, 2021, 12:30 PM (GMT+10), Sydney, Eastern Australia.

SRV Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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