Michael Hill International Limited

MHJ Details
 
A Rise in Same Store Sales: Michael Hill International Limited (ASX: MHJ) is primarily engaged in the retail sale of jewellery and related services sector in Australia, New Zealand and Canada. The market capitalisation of the company stood at A$257.87 Mn as on 19^th December 2019. Recently, the company has notified the market with the results for Q1FY20, wherein it stated that the positive sales momentum has continued in the quarter. As compared to the previous year, the company’s same store sales rose by 11.9%. It was added that pressure on gross margin has started to alleviate as there are early signs of the positive movement as well as a slight recovery from Q4FY19, however, not yet recovered to the historic levels. The company mentioned that retail environment is volatile and challenging. During the quarter, the company has opened one new store and closed three under-performing stores. As at 29^th September 2019, the company has a total of 304 stores.

Turning the needle to the performance of FY19, the company has progressed well in executing its strategic initiatives. Also, the company is on a multi-year journey to transform from a traditional to a modern retailer. MHJ has also continued to make investments in critical components for retail success. 


Revenue for Retail Operations for Q1 FY20 (Source: Company Reports)

Focus on Long-Term Value Growth:The company is focussed on retail fundamentals in order to build on the positive sales momentum from the last year. The company is focusing to drive greater operational efficiencies as well as restoring its gross margin levels via a sustainable model to deliver long-term growth.

Valuation Methodology: Price to Earnings Multiple Based Valuation

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation:As compared to prior year, for Q1 FY 2020, the same store sales rose 16.4% in Canada, whereas in New Zealand, the growth stood at 10.1%. In Australia, there was an increase of 6.8%. The strength of its brand is being reflected by the positive result in New Zealand segment, which happens to be the most mature segment of the company. Gross margin and EBITDA margin of the company stood at 62.0% and 7.4% in FY19 as compared to the industry median of 24.2% and 6.9%, respectively. During the span of three months and six months, the stock delivered the return of 30.39% and 23.15%, respectively. We have valued the stock using P/E multiple based valuation methodology and arrived at a target price with lower double-digit upside (in percentage terms). Thus, considering the opening of new store, decent performance in Q1 FY20 and returns in the past period, we maintain a “Hold” rating on the stock at the current market price of A$0.670 per share, up 0.752% on 19^th December 2019.


MHJ Daily Technical Chart (Source: Thomson Reuters)

Oliver's Real Food Limited

OLI Details
 
Renewal of Facility with Commonwealth Bank of Australia:Oliver’s Real Food Limited (ASX: OLI) is engaged in the business of providing healthy fast food alternative for the travellers on Australia’s major arterial highways. The market capitalisation of the company stood at A$14.04 Mn as on 19^th December 2019. The company recently announced that it has received confirmation from Commonwealth Bank of Australia in relation to the renewal of its existing facility amounting to $1 million for a period of 18 months to 21^st July 2021. Also, the company announced that OLI has continued its profitable journey with an EBITDA amounting to $162K for the month of October, indicating the commencement of third quarter of continuous profitability.

In FY19, the company reported a total loss for the year amounting to $14.9 million, which primarily comprised trading loss of $5.4 million and asset impairment charges of $4.5 million. During the financial year 2019, new company owned stores were opened and 5 company-owned stores were closed. The company operated 25 company-owned retail stores in Australia as at 30^th June 2019. However, in Q1 FY20, the company reported a positive unaudited EBITDA amounting to $466k, which has been helped by the strong trading and tight management controls.


Comparison of Net Sales (Source: Company Reports)

What to Expect From OLI:The company is expected to build revenue as well as manage business for the profitability.
Stock Recommendation:The stock has corrected 42.86% and 37.78% in the last one year and on YTD basis, respectively. Thus, considering the financial performance in the last year and recent stock performance, we suggest investors to book profit and recommend a “Sell” rating on the stock at the current market price of A$0.057 per share, up 1.786% on 19^th December 2019. 

 
OLI Daily Technical Chart (Source: Thomson Reuters)

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