Stocks’ Details

Lovisa Holdings Limited

Strong Balance Sheet Position: Lovisa Holdings Limited (ASX: LOV) is engaged in the retail sale of fashion jewellery and accessories.

COVID-19 Update: In a recent announcement, the company updated about the impact of COVID-19 on its supply chain. The company’s stores across multiple locations, including France, Malaysia and Spain have been shut down, as directed by the government of respective countries. Most of the stores in these locations have been closed till the end of March, which has led to a decline in sales due to a large reduction in store traffic. 25 stores in the US are closed or are schedules for closure due to government directives. While other markets of the company remain open at the current stage, there has been a drastic impact on sales, which calls for the need to manage costs more efficiently so as to battle the financial adversities that the disease brings.

Highlights for the Half Year Ended 29^th December 2019: During the half, the company reported a rise of 22.2% in revenue to $162.8 million. EBIT stood at $40.4 million, up 10.7% on the prior corresponding period. Comparable store sales went up by 2.1% on pcp. Operating cash flow for the period amounted to $46 million, with a cash conversion of 98%.


1HFY20 Results (Company Reports)

Valuation Methodology:EV/Sales Multiple Based Relative Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company corrected by ~60% over a period of 1 month and is currently trading very close to its 52-week low level of $2.340. The company is focused on growth through expansion of its store network. However, it has currently held back such plans due to the external challenges. Amid the uncertainties, the company remains well supported by a resilient balance sheet with net cash of $12.6 million as at December 2019. We have valued the stock using EV/Sales based relative valuation method and have arrived at a target price with high single digit upside (in percentage terms). For the said purpose, we have considered Kathmandu Holdings Ltd (ASX: KMD), Super Retail Group Ltd (ASX: SUL), Michael Hill International Ltd (ASX: MHJ), etc., as peers. Hence, we give a “Hold” recommendation on the stock at the current market price of $2.450, down 43.807% on 19^th March 2020, due to the recently released trading update.

Kogan.com Limited

Kogan Marketplace Drives Sales:Kogan.com Limited (ASX: KGN) operates a portfolio of retail and services businesses in Australia. The company recently updated that Credit Suisse Holdings (Australia) Limited ceased to be a substantial shareholder with effect from 16^th March 2020.

1HFY20 Highlights: During the half year ended 31^st December 2019, group sales amounted to $322.9 million, representing an increase of 16.4% on the prior corresponding half. The company reported first full half contribution from Kogan Marketplace that lifted sales during the period. Gross profit went up by 10.6%, with gross margin rising by 3.3 percentage points. At the end of the period, the company reported a cash balance of $34.1 million. Inventory levels at the end of the period increased by 1.9%, with 98% of the inventory being less than 365 days old. The Board declared an interim dividend of 7.5 cents per share.


1HFY20 Results (Source: Company Reports)
 
Outlook: While the company builds Kogan Marketplace through introduction of new sellers and enhancement of both customer and seller experience, it will continue to expand its portfolio of new businesses. Although the company has currently failed to assess the impact of coronavirus on the business and earnings, it is expecting a potential impact on second half financial performance in case of closures and delays.

Valuation Methodology:EV/Sales Multiple Based Relative Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company corrected by 15.26% over a period of 1 month and is currently inclined towards its 52-week low of $3.380. The company’s brands are positioned excellently across the markets, with exclusive brands reporting YoY growth of 17% in 1HFY20 revenue. Moreover, it has delivered the desired results from all its new verticals and is looking forward to adding new business lines, going forward. We have valued the stock using EV/Sales based relative valuation method and arrived at a target price with low double-digit upside (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $4.350, up 3.081% on 19^th March 2020.

Select Harvests Limited

Select Harvests Issues Crop and Market Update: Select Harvests Limited (ASX: SHV) is engaged in growing, processing and sale of almonds to the food industry. The company also distributes edible nuts, dried fruits, seeds, and other natural health foods. The company recently updated that Vinva Investment Management ceased to be a substantial shareholder with effect from 16^th March 2020.

The company notified that the Australian January Export shipment report for the period covering March 2019 to January 2020, has been released by the Australian Almond Board. As per the date, month on month shipments have gone up by 40% and YTD shipments went up by 26%. As per the domestic and export shipment report of the Californian Almond Board, month on month shipments went up by 7.9%, with YTD shipments rising by 5%. The company updated that its 2020 crop is 65% committed for sale at the previously stated price range of $8 - $8.50 per kg. Crop harvest during the year is progressing well, with around 40% of the orchids harvested and scheduled to be completed by the end of April.

COVID-19 Impact:While the company has not reported significant short-term impact on its performance due to outbreak of coronavirus, it has identified some potential risks due to uncertainties in the global market. The company expects almond price and demand to soften in the near term, which is subject to actions taken for containment of the virus by China, which forms an important market.

During the year ended 30^th September 2019, the company reported robust growth of 42% in revenue and 84% in EBITDA.



Valuation Methodology:EV/EBITDA Based Relative Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company corrected by 27.90% over a period of 1 month and is currently inclined towards its 52-week low level of $5.190. At the end of the period, the company has a strong balance sheet with a gearing of 6.6% in FY19 as compared to a gearing of 15.9% in FY18. We have valued the stock using EV/EBITDA based relative valuation method and have arrived at a target price with lower double-digit upside (in percentage terms). For the said purpose, we have considered Elders Ltd (ASX: ELD), Tassal Group Ltd (ASX: TGR), Nufarm Ltd (ASX: NUF), etc., as peers. Hence, we give a “Buy” recommendation on the stock at the current market price of $6.300, up 0.318% on 19^th March 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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