Stocks’ Details

United Malt Group Limited

$170.6mn Equity Raising Completed: United Malt Group Limited (ASX: UMG) is primarily involved in the production, sale and distribution of bagged malt, hops, yeast, adjuncts and related products to major brewers, craft brewers, distillers and food companies. Over the past few months, the company has significantly strengthened its balance sheet by successfully raising $170.6 million via an institutional placement ($140m) and SPP ($30.6m). This equity raising will help the company to navigate through an extended period of market disruption and maintain operational and financial flexibility to progress strategic objectives.

H1FY20 Results Highlights: For H1FY20, the company reported revenue of $664.6 million, up 9% on pcp, driven by stronger United States and United Kingdom volumes and product mix in the Processing segment. Further, the company reported an underlying NPAT of $29.3 million, up 2% on pcp. Due to higher inventory levels and higher receivables, the company’s net working capital increased ~$60 million to $489.6 million. As at 31 March 2020, the company had net debt of $502.6 million, up ~$69 million since 30 September 2019 driven by ~$35 million relating to inventory funding and ~$33 million relating to currency fluctuations.

H1FY20 Results (Source: Company Reports)

Future Focus: The company currently has a high-quality customer base diversified by product, end-market and geography, providing a sound base for long-term growth. Looking ahead, the company is focused on high-value markets where growth is expected to continue. In order to lower production costs and expand capacity, the company is reviewing opportunities across the North American footprint.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation: The stock of UMG is currently trading lower than the average of its 52-weeks price level band, offering investors a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$3.8 and resistance of $4.36. We have valued the stock using the price to earnings multiple based relative valuation method (illustrative) and arrived at a target price with an upside of high single-digit (in percentage terms). For the purpose, we have taken peers like Graincorp Ltd (ASX: GNC), Costa Group Holdings Ltd (ASX: CGC), Nufarm Ltd (ASX: NUF), etc. Considering the company’s decent H1FY20 performance, recently completed equity raising, and current trading levels, we suggest a “Hold” recommendation on the stock at the market price of $4.090, down by 1.208% on 2 October 2020. 

GrainCorp Limited

CFO Appointment: GrainCorp Limited (ASX: GNC) is a global agribusiness company focused on providing a diverse range of products and services across the food and beverage supply chain to customers in over 30 countries. The company recently informed that Norges Bank ceased to be a substantial holder in the company. On 31 August 2020, the Board of GNC announced the appointment of Ian Morrison as Chief Financial Officer of the company. Ian Morrison has held various senior roles across all areas of GNC and prior to joining GNC, she spent more than seven years working with KPMG in both the UK and Australia.

H1FY20 Result Highlights: For the half-year ending 31 March 2020 or 1H20, the company reported total revenue (continuing operations) of $1,959 million, up from $1,895 million in H1FY20. Further, the company reported underlying NPAT of $55 million, up from a loss of $48 million in the pcp, reflecting a significant repositioning of the Group’s portfolio, including the sale of the Australian Bulk Liquid Terminals business and the successful demerger of United Malt. Over the half-year, the company maintained a disciplined approach to capital management and incurred a total capital expenditure of $11 million. At the end of H1FY20, the company had a decent balance sheet with zero core debt.

Revenue Summary (Source: Company Reports)

Outlook: The company expects its FY20 capital expenditure to be in between $35-45 million. In the second half of FY20, the company is planning for higher grain exports and lower grain trans-shipments to ECA ports as domestic demand is likely to tamper with expectations of a stronger crop in FY21. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation: The stock of GNC has provided a return of 21.79% in the past six months and is inclined towards its 52-weeks low price of $2.810. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers like United Malt Group Ltd (ASX: UMG), Costa Group Holdings Ltd (ASX: CGC), Bega Cheese Ltd (ASX: BGA). On the technical analysis front, the stock has a support level of ~$3.62 and resistance of ~$4.375. Considering the current trading levels, decent returns in the past six months, decent FY20 results and decent long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $3.720, down by 2.105% on  2 October 2020.

Australian Agricultural Company Limited

2020 AGM Highlights: Australian Agricultural Company Limited (ASX: AAC) is mainly involved in the sales and marketing of high-quality branded beef into global markets. At the Annual General Meeting (AGM) held on 27 July 2020, the company’s Management highlighted that the market value of its herd has improved during FY20, reflecting both market conditions and continued investment in quality genetics and breeding. Further, the management also informed that the company is progressing on its branded beef strategy to realise the full value of its assets. During FY20, the company faced challenging conditions caused due to drought and COVID-19 restrictions.

FY20 Results Highlights: During FY20, the company generated 19.7% growth in wagyu meat sales including 8% improvement in price per kilo. The company reduced its costs by $31 million in FY20 and recorded its highest operating cash flow result in three years – at $20.1 million. For the full year, the company reported statutory EBITDA of $80.1 million, up $262.8 million on the previous year. During FY20, the company’s net assets increased by 8% to $913.4 million.

FY20 Results 9Source: Company Reports) 

Change of Director’s Interest: On 21 August 2020, the company notified that one of its Directors, Hugh William Hudson Killen, has exercised 84,561 Performance Rights under the AACo Long Term Incentive Plan, resulting in the transfer of 84,561 AACo shares to Mr. Killen’s registered holder.

Focus Areas: Currently, the company is focused on navigating through COVID-19 pandemic and positioning itself for the return to normal economic activity.

Stock Recommendation: Over the last three months, the stock of AAC has provided a return of 5.80% and it is currently trading close to the average of its 52-week trading range of $0.945 - $1.330. On the technical analysis front, the stock has a support level of ~$1.0 and a resistance of ~1.32. The stock of AAC is trading at a price to book value multiple of 0.7x as compared to the industry median (Consumer Non-Cyclicals) of 1.6x on TTM basis, demonstrating that the stock is undervalued. Considering the company’s decent FY20 results, its branded beef strategy and TTM valuation, we give a “Hold” recommendation on the stock at the current market price of $1.115, up by 1.826% on 02 October 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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