Village Roadshow Limited

VRL Details

Indicative Offer from BGH: Village Roadshow Limited (ASX: VRL) is involved in providing cinema exhibition, production and distribution of film, theme parks and marketing solutions. The market capitalisation of the company stood at ~A$751.43 Mn as on 24^th January 2020. The company recently updated the market that BGH Capital Pty Ltd has given an unsolicited, non-binding indicative proposal for acquiring all of the shares in the company with the help of a scheme of arrangement with an indicative price of $4.00 cash per share. VRL added that this indicative price reflects a 25% premium to the closing share price amounting to $3.20 on 18 December 2019. However, the proposal is subject to numerous conditions, which comprises the arrangement of financing, approval of the Foreign Investment Review Board (FIRB), recommendation by the Board of the company, and completion of due diligence. The following picture depicts an idea of the financial summary of the company:


Financial Summary (Source: Company Reports)

Focus on Driving the Business:During FY20, the company would continue to focus on improving its business by delivering outstanding guest experiences. Moreover, the key marketing initiatives like its recently launched master brand campaign provide confidence in the company’s focus on driving the business. As per the key personnel of the company, it experienced a decent start to FY20 with a rise in admissions in Q1 FY20 as compared to pcp.

Valuation Methodology: P/CF Multiple Approach

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  The company is committed to redesign and dynamic refashioning of premier cinema sites in the exhibition division and focuses on new opportunities in the market with new food and beverage concepts. It added that this is expected to result in a rise in capital expenditure beginning in FY20. Gross margin and EBITDA margin of the company stood at 88.5% and 11.6% in FY19, reflecting YoY growth of 1.8% and 5.8%, respectively. We have valued the stock using P/CF based relative valuation approach and arrived at a target price, which is offering an upside of higher single-digit (in percentage terms). Thus, considering a favourable valuation, decent outlook, and improvement in key margins, we maintain a “Hold” rating on the stock at the current market price of A$4.020 per share, up by 4.416% on 24^th January 2020, possibly due to the indicative proposal from BGH Capital Pty Ltd.

 
VRL daily Technical Chart (Source: Thomson Reuters)
 

Lynas Corporation Limited

LYC Details

A Quick Look at Q2 FY20: Lynas Corporation Limited (ASX: LYC) is engaged in the integrated extraction and processing of Rare Earth minerals, mainly in Australia and Malaysia. The market capitalisation of the company stood at A$1.63 Bn as on 24^th January 2020. The company recently released its operational and financial results for the quarter ended 31^st December 2019 and stated that the production for the quarter was in line the guidance with NdPr production of 1,270 tonnes. Total REO production for the quarter stood at 3,592 tonnes. The company reported invoiced sales revenue amounting to A$85.8 million. With respect to Malaysian regulatory update, the company experienced decent progress on planning and documentation on all actions during the quarter, which were required to fulfill the new conditions specified by the AELB on 16 August 2019 for Lynas Malaysia’s licence renewal.


Sales Revenue (Source: Company Reports)

Five-Year Growth Plan: In May 2019, the company announced its 2025 (five-year growth plan), which is progressing well. Key elements of the growth plan primarily include growth in earnings, improved portfolio pricing, and continued flow sheet and cost efficiencies.

Stock Recommendation: Net margin of the company stood at 22.0% in FY19 as compared to the industry median of 10.9%. This reflects the company has decent capabilities to convert its top-line into the bottom-line against the broader industry. ROE of the company stood at 16.6% in FY19 against the industry median of 12.0%. At the end of the quarter, closing cash balance of the company stood at A$111.8 million following the payment of the final instalment amounting to A$11.6 million for the AELB PDF deposit. The stock of LYC is trading at a price to book multiple of 3.1x as compared to the industry median (Metals & Mining) of 1.6x on TTM basis. Therefore, in light of valuation and current trading levels, we advise the investors to closely watch the stock at the current market price of A$2.360 per share with a rise of 0.855% on 24^th January 2020.

 
LYC Daily Technical Chart (Source: Thomson Reuters)

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