Stocks’ Details

Metcash Limited

H1FY21 Performance Update: Metcash Limited (ASX: MTS) is engaged in the wholesale distribution and marketing of food, grocery, liquor etc. The market capitalisation of the company as on 11 March 2021, stood at ~$3.67 billion. The company delivered a resilient performance with sales revenue up by 12.2% (YoY) to $7.1 billion. There was an improvement of ~43% in underlying profit after tax to $129.6 million. It reported a statutory profit after tax of $125.1 million in H1FY21, compared to a loss of $151.6 million in the previous corresponding period. The net cash from operating activities stood at $314.9 million during H1FY21, compared to $88.8 million in H1FY20. It has declared an interim dividend of 8 cents per share during the period.

H1FY21 Revenue Performance (Source: Company Reports)

Outlook: MTS has continued with its growth momentum into H2FY21, with decent growth in sales in the first five weeks of the period. It expects to benefit as more people travel domestically over the Christmas & New Year period, and given the company’s strong presence in rural areas. The food sales grew by 2.4% in the first five weeks of H2FY21, and Supermarkets sales up by 12.1%.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 company reported a comfortable net cash position of $172.5 million during the end of H1FY21 period. As per ASX, the stock of MTS is trading above its average 52-weeks’ levels of $2.170-$3.670. The stock of MTS gave a positive return of ~24.13% in the past six months and a positive return of ~2.27% in the past one month. On a technical analysis front, the stock of MTS has a support level of ~$3.515 and a resistance level of ~$3.726. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at a slight premium to its peer average P/E (NTM trading multiple), considering the decent financial performance, optimistic outlook and comfortable net cash position. For the purpose, we have taken peers such as Coles Group Limited (ASX: COL), Woolworths Group Limited (ASX: WOW), Graincorp Limited (ASX: GNC), to name a few. Considering the current trading levels, indicative upside in valuation, impressive financial performance in H1FY21, a turnaround in profit after tax and continued growth into the first few weeks of H2FY21, we recommend a ‘Hold’ rating on the stock at the current market price of $3.600, up by 0.278% as on March 11, 2021.

Wide Open Agriculture Ltd

H1FY21 Results Update: Wide Open Agriculture Ltd (ASX: WOA) is a regenerative food and agriculture company. The market capitalisation of the company as on 11 March 2021, stood at ~$69.34 million. As per a recent update, the company has announced its first-half results for FY21 and reported an improvement in revenues to $1.75 million, compared to $491,014 in the previous corresponding period. The net loss widened to $3.63 million in H1FY21, compared to a loss of $729,621 in H1FY20, driven by non-cash share-based payments. WOA reported a sequential-quarter on quarter growth of ~34% and ~29% in Q1 and Q2FY21, respectively. The revenue growth in Q2 was driven by growth across the digital, food service and retail sales channels. During the given period, the company raised ~$7 million from existing shareholders & new investors and also raised an additional $1.5 million via a Share Purchase Plan.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: On 4 February 2021, the company has announced that it has signed a Research Services Agreement with Curtin University to conduct an early-stage product development using food-grade lupin protein. The agreement will focus in product development, which includes plant-based meat & drinks, milk powder and gluten-free pasta and noodles. The demand for plant-based protein food products is surging, driven by the increasing interest in health and climate change concerns.

Key Risks: The company is exposed to liquidity risks, and it manages it by monitoring the cash reserves and forecast spending. It is also prone to the impact of foreign exchange rate fluctuations because certain transactions are denominated in foreign currency.

Stock Recommendation: The cash position of the company improved to $14.31 million during the end of H1FY21, from a level of $4.43 million on 30 June 2020. As per ASX, the stock of WOA is trading below its average 52-weeks’ levels of $0.090-$1.850. The stock of WOA gave a positive return of ~47.05% in the past nine months and a positive return of ~11.11% in the past one week. On a technical analysis front, the stock of WOA has a support level of ~$0.618 and a resistance level of ~$0.819. Considering the current trading levels, improvement in revenues, positive outlook for plant-based protein food products and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.750, up by 15.384% as on March 11, 2021.

Nutritional Growth Solutions Ltd

Launch of Healthy Height in EU: Nutritional Growth Solutions Ltd (ASX: NGS) is engaged in developing scientifically formulated nutritional products. The market capitalisation of the company as on 11 March 2021, stood at ~$22.73 million. As per a recent update, the company has announced that its product Healthy Height will be launched in the EU through a three years’ exclusive distribution agreement with product distributor, Dicofarm.

FY20 Performance Update: The company delivered revenues of US$1.9 million during the year, an increase of ~58% from FY19, driven by the growth in online sales of Healthy Height in the US through the Amazon and Shopify e-commerce platforms. It incurred a loss of US$4.4 million in FY20, owing to its investment for expansion purposes, new product development and expenses towards IPO. NGS reported net assets of US$4.3 million as on 31 December 2020, with a cash position of US$4.6 million.

FY20 Financial Performance (Source: Company Reports)

Outlook: The company got successfully listed on the ASX on 30 October 2020 after raising $7 million in its IPO. It believes it is now well-positioned to continue its growth trajectory in the US, execute its expansion plans in China and make a planned entry into the Australian market in 2021.

Key Risks: The company’s profitability depends on the successful distribution strategy of its products, and any adverse impact on the supply chains might reflect on the earnings of the company.

Stock Recommendation: On 2 March 2021, the company has announced that it has signed an agreement with child celebrity and social media influencer Gavin Thomas to promote its brand in China. As per ASX, the stock of NGS is trading below its average 52-weeks’ levels of $0.220-$0.380. The stock of NGS has corrected by ~29.23% in the past three months. On a technical analysis front, the stock of NGS has a support level of ~$0.219 and a resistance level of ~$0.240. Considering the current trading levels, increase in sales, demand for Healthy Height, launch in EU and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.230, down by 4.167% as on March 11, 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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