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3 Consumer Discretionary Stocks Worth a Buy or Hold– SGR, SKC, SSG

Jun 19, 2020 | Team Kalkine
3 Consumer Discretionary Stocks Worth a Buy or Hold– SGR, SKC, SSG


 

Stock’s Details
 

The Star Entertainment Group Limited

 
Restricted Reopening of Gaming Rooms: The Star Entertainment Group Limited (ASX: SGR) is involved in the management of integrated resorts with entertainment, gaming & hospitality services. In a recent update, the company stated that National Australia Bank Limited has become a substantial holder of the company, with a voting power of 5.508%. In another update, SGR announced that it will re-open its private gaming rooms and up to 12 food and beverage venues within the casino areas of the complex, effective from 1 June 2020. This initial reopening will be restricted to up to 500 loyalty club members on an invitation basis. The re-opening will be based on a COVID-safe measure safeguarding health and safety procedures.
 
Gaming Tax Agreement: Recently, SGR and the NSW Government made an agreement, as per which gaming taxes will be applicable to The Star Sydney until the end of FY2041. The existing gaming tax provisions will apply in FY2021. Notably, the International VIP Rebate business and the domestic rebate business gaming tax remains unaltered at 10% of revenue.
 
1HFY20 Key HighlightsDuring the half-year ended 31st December 2019, the company reported a strong domestic result, with domestic EBITDA up 6% on pcp. Revenue went up by 2.4%, with margin expansion across Sydney and Queensland.
 

1HFY20 Results (Source: Company Reports)
 
What Investors Needs to Know: The company is prioritizing to improve, and de-risk returns for the shareholders by delivering on its investment strategy. The company’s Board is of the view that organisational changes and cost management measures which were implemented in 2HFY19 would be positioning SGR to deliver high-quality results in the context of unfavourable macroeconomic environment both domestically and internationally. However,increased competition and the potential effect of political or regulatory changes in Australia remain a headwind.
 
Valuation MethodologyP/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock RecommendationThe stock of the company went up by 56.25% in the last 3 months and is currently trading below the average of its 52-week trading range of $1.525 - $4.930. The company has an annual dividend yield of 6.31%. The company’s cash and undrawn debt facilities are maintained at a robust level to navigate uncertain times. We have valued the stock using P/CF multiple based illustrative relative valuation method and arrived at a target price with a low double-digit upside in percentage terms. For the purpose, we have taken peers like Crown Resorts Ltd (ASX: CWN), Tabcorp Holdings Ltd (ASX: TAH) and Skycity Entertainment Group Ltd. Considering the above factors, reopening of the business, robust liquidity position, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $3.1, down 4.615% on 18 June 2020.
 
 

SkyCity Entertainment Group Limited

 
SKY Redeems Bonds & Completes Placement Program: SkyCity Entertainment Group Limited (ASX: SKC) is in the gaming entertainment business. The market capitalisation of the company stood at $1.72 billion as on 18 June 2020. In a recent update, the company stated that it plans to redeem all the bonds at a price of $1.0280 per bond as on 28 September 2020. In another update, the company announced that it has effectively completed a $180 million institutional placement program, in connection with a $230 million equity raising declared on June 17, 2020.
               
COVID-19 UpdateIn a recent update, the New Zealand government stated that the country will be moved to alert level 1, effective from 8 June 2020. This level signifies that there will be no restrictions on mass gathering and social distancing, which includes SKC’s New Zealand properties. However, the company would reopen its New Zealand properties with additional steps to safeguard the health and wellbeing of its employees and customers.
 
1HFY20 Key Financial HighlightDuring 1H FY20, total revenues and reported EBITDA of the company stood at NZ$721.7 million and NZ$407.5 million, respectively, an increase from the year-ago figure of NZ$411.4 million and NZ$148.3 million. This was driven by positive performance from domestic NZ businesses on an LFL basis. During 1H FY20, the company declared a fully imputed interim dividend of NZ 10 cents per share, which was in line with its policy.
 

Key Financial Highlight (Source: Company Reports)
 
What Investor Need to KnowThe company has been maintaining ongoing focus towards efficient capital allocation and has been focusing on marketing, promotions and events in order to drive visitation at key Auckland property and greater emphasis is being placed on data analytics.  However, challenging, and uncertain operating environment domestically and internationally, along with economic slowdown remains a headwind.  Also, the suspension, cancellation, or expiry of any of SKC’s other casino licences might have a negative impact on its operational performance.
 
Valuation MethodologyPrice to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock RecommendationThe stock of the company went up by 12.66% in the last 3 months and is currently trading slightly above the average of its 52-week trading range of A$1.095 - A$3.990. The company has an annual dividend yield of 7.33%. Net margin of the company stood at 21.1% in 1H FY20 as compared to the industry median of 7.7%. This implies that SKC has decent capabilities to convert its top-line into the bottom line against the peer group. We have valued the stock using a P/CF multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Hence, considering the reopening of casino in New Zealand, attractive dividend yield, and positive performance from domestic NZ businesses, we give a “Speculative Buy” recommendation on the stock at the current market price of A$2.66 per share, up by 3.101% on 18 June 2020. 
 
 

Shaver Shop Group Limited

 
Business Update: Shaver Shop Group Limited (ASX: SSG), is an Australian specialty retailer of male and female personal grooming and beauty products. In a recent update, the company declared that it would distribute a $0.021 dividend per share, with an ex-date of June 24, 2020 and payment date of July 16, 2020. On June 18, 2020, the company provided a business update for 2HFY20 (1 Jan 20 to 14 Jun 20), wherein it informed that its total sales have increased by 22.3% in 2HFY20 as compared to an increase of 12.3% in 1HFY20. The company’s online sales grew 164% in 2HFY20 to date and represented ~32% of total sales during the said period. The company is progressively re-opening stores that were closed across its network during COVID-19 uncertainties. In doing so, it re-opened ~ 112 out of 116 stores in Australia and all 7 stores in New Zealand. The company expects to re-open all stores by mid-July 2020.
 

2HFY20 Key Highlights (Source: Company Reports)
 
FY20 Outlook: The company had earlier suspended its FY20 earnings guidance as a result of the uncertainty caused by COVID-19. However, in lieu of the reopening of its stores, the company’s re-instated FY20 guidance, where it expects total revenues to be in the range of $190-$195 million, as compared to FY19 figure of $167.4 million. EBITDA is expected to be between $17.25 million to $18.25 million, as compared to FY19 normalised EBITDA of $13.5 million.
 
What Investors Needs to KnowThe company remains on a growth trajectory in New Zealand by increasing brand awareness, along with opening new stores in NZ across identified key catchment zones. It continues to invest in staff training in order to ensure enhance products and increase customer engagement. However, stiff competition from retailers’ departmental stores, grocery chains, online and professional salons poses a threat to the company. Further, uncertain retail environment, change in customer’s preference and disruption in pricing and supply chain adds to the woes.
 
Stock RecommendationThe stock of the company went up by 24% in the last 3 months and is currently trading close to its 52-week high level of $0.85. The company has an annual dividend yield of 7.42%. The company aims to improve operational efficiency through optimisation of new technology platforms. On the valuation front, the stock is trading at an EV/Sales multiple of 0.6x as compared to the industry median of 1.7x on TTM (Trailing Twelve Months) basis. Hence, considering the above scenario, current trading level, attractive dividend yield, and stiff rivalry in the market, we give a “Hold” recommendation on the stock at the current market price of $0.715 per share, up by 15.323% on 18 June 2020, on the back of recent 2HFY20 business update and positive outlook for FY20.
 
 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)


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