The A2 Milk Company Limited
A2M Details
Key Positives:
High Gross Margin (46.2% in 1HFY22 Vs 38.1% of Industry Median), High Current Ratio (2.71x in 1HFY22 Vs 1.27x of Industry Median)
Key Negatives:
Falling Revenue ($660.5 Mn in 1HFY22 Vs $677.4 Mn in 1HFY21), Declining Net Margin (8.5% in 1HFY22 Vs 17.7% in 1HFY21)
Key Investment Risks:
COVID-19 Led Disruptions, Demand & Supply Instability, Regulatory Risk, etc.
Insights of 1HFY22: The A2 Milk Company Limited (ASX: A2M) is a premium branded dairy nutritional company which is focused on products containing the A2 beta-casein protein type. The below picture provides a broader idea of the company’s financial performance in 1HFY21.
Financial Summary (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to risks arising from the instability in the demand and supply of the products. In addition, rising costs could impact the operations.
Outlook: Looking forward, the company is focused on generating online new user growth. The company believes that revenue for 2HFY22 would be higher than 2HFY21.
Valuation Methodology: P/E Multiple Based Relative Valuation (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 A2M is trading near its 52-week low level of $4.330, offering a decent opportunity for accumulation. The stock has been corrected by ~18.36% in the past one month. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers’ average, considering the COVID-19 uncertainties and rising costs etc. For the purpose of valuation, a few peers like Costa Group Holdings Ltd (ASX: CGC), Bega Cheese Ltd (ASX: BGA), United Malt Group Ltd (ASX: UMG), and others have been considered. Considering the expected upside in valuation, decent liquidity position, expected revenue growth, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $4.370, down by ~0.455% as on 28 April 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
A2M Daily Technical Chart, Data Source: REFINITIV
Baby Bunting Group Limited
BBN Details
Key Positives:
Rising Sales ($239.1 Mn in 1HFY22 Vs $217.3 Mn in 1HFY21), High Gross Margin (39.3% in 1HFY22 Vs 26.6% of Industry Median)
Key Negatives:
Low ROE (7.5% in 1HFY22 Vs 11.8% of Industry Median), High Debt to Equity Ratio (1.52x in 1HFY22 Vs 0.30x of Industry Median)
Key Investment Risks:
Supply Chain Disruptions, COVID-19 Uncertainties, Competition from Peers, etc.
1HFY22 Financial Summary: Baby Bunting Group Limited (ASX: BBN) is engaged in the retailing of baby goods, mainly catering to parents with children from newborn to three years of age. Despite challenging conditions, the company delivered exceptional performance in 1HFY22.
Financials (Source: Analysis by Kalkine Group)
Key Risks: BBN’s operational and financial performance could be impacted by the uncertainties in relation to the COVID-19 pandemic. In addition, the business could be affected by supply chain disruptions.
Outlook: Looking forward, the company is focused on enhancing its market share. BBN would continue to leverage investments in its transformation program and growing product range, including exclusive relationships with suppliers and its own private label offering.
Valuation Methodology: P/E Multiple Based Relative Valuation (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 BBN is trading below its 52-week low-high average of $4.330 - $6.350, respectively. The stock has been corrected by ~7.63% in the past one month. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average, considering supply chain issues and high leverage on balance sheet, etc. For the purpose of valuation, peers such as Lovisa Holdings Ltd (ASX: LOV), City Chic Collective Ltd (ASX: CCX), and Super Retail Group Ltd (ASX: SUL) have been considered. Considering the expected upside in valuation, rising online sales, increasing topline and earnings, optimistic outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $4.580, down by ~0.865% as on 28 April 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
BBN Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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