Stocks’ Details

Ardent Leisure Group Limited

FY20 Key Financial Update: Ardent Leisure Group Limited (ASX: ALG) is engaged in investing and operating leisure and entertainment businesses in Australia and the USA. Recently, the company informed the market that the Commonwealth Bank of Australia ceased to become a substantial holder of ALG, effective from 7 December 2020. During FY20, the company reported revenues of $398.3 million, compared to $483.3 million in FY19. The decrease in the top line was primarily owing to COVID-19 pandemic. There was an improvement in the EBITDA from $11.7 million in FY19 to $25.7 million in FY20. However, net loss increased to $136.6 million in FY20, compared to the loss of $60.9 million in FY19. ALG exited the period with cash balance of $161.6 million as on 30 June 2020. There was a reduction in net debt to $78.4 million as at 30 June 2020 as compared to $87.3 million at the end of June 2019.

FY20 Key Highlights (Source: Company Reports)

What to Expect: As per the company, it has witnessed an improvement in the sales trend in the recent months and has opened 43 centers across 16 states as at 30 June 2020. It dedicated a part of its marketing cost to safety and health measures. ALG will continue to review operations and cost base in view of the current scenario.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales 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 Recommendation: As per ASX, the stock of ALG is trading below its average 52 weeks’ trading range of $0.105-$1.650, proffering a decent opportunity for the investors to enter the stock. The stock of ALG gave a return of ~5% in the past three months. The company has continued to preserve cash to see through the difficult and uncertain period in the short term and capitalise on the expected tourism flourish later on.  On a technical front, the stock of ALG has a support level of ~$0.544 and a resistance level of ~$0.876. We have valued the stock using an EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms) Considering the current trading levels, easing of operating restrictions, reduction in net debt, valuation and key risk associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.675, down by 0.736% as on 14 January 2021.

Ainsworth Game Technology Limited

Growth in Online Sales: Ainsworth Game Technology Limited (ASX: AGI) is engaged in designing, developing, and manufacturing of gaming machines, software and related equipment supplies. Recently, the company announced that Spheria Asset Management Pty Ltd, a substantial holder of the company, has increased its voting power from 6.19% to 7.35%

FY20 Key Highlights: For FY20, the company reported revenue amounting to $149.4 million as compared to $234.3 million in FY19 because of negative impact on outright and gaming operation due to closure of customers’ venues in 2H FY20.  However, the company reported a rise of 10% in online revenue. During the same period, statutory loss after tax amounted to $43.4 million, which includes an impairment charge of $12.0 million.

Key Financials (Source: Company Reports)

Outlook: With respect to the North America Segment, the company is well-placed to roll out A-Star^TM Curve cabinet in FY21. In addition, AGI is in a decent position with the strengthening of portfolio content in Class III, Class II, and online segments.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As on 30^th June 2020, the cash and a debt balance of the company stood at $26.5 million and $17.5 million, respectively. The stock of AGI has given a positive return of ~27.3% in the past one month. The stock is trading above the average of its 52-weeks’ low and high level of $0.275 and $0.77. On the technical analysis front, the stock price of AGI has a support level of ~$0.523 and a resistance level of ~$0.735. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, considering the expansion of HHR products, increased strategic co-operation with Novomatic, expanding online capabilities, focus on R&D activities along with the roll out A-Star^TM Curve cabinet in FY21, we recommend a “Hold” rating on the stock at the current market price of $0.625, up by ~2.459% on 14 January 2021. 

Shine Justice Ltd

Revenues Up Year Over Year: Shine Justice Ltd (ASX: SHJ) is the holding company of several firms which provide legal services. Recently, the company announced that Rodney Michael Douglas, a Director of the company, has acquired 63,768 fully paid ordinary shares for a consideration of $56,116. In another update, the company advised the market that 19,211 performance rights granted under the company’s Performance Rights Plan (Plan) for the year ended 30 June 2020 have lapsed owing the departure of a Plan participant.

FY20 Key Highlights: During the period, the company reported revenues of $183.03 million, up ~2.9% year over year. NPAT for the period came in at $21.55 million, up 53.6% year over year. Underlying EBITDAI for the period increased 7.8% year over year and came in at $42.52 million. The company paid a final dividend of 2.75 cents, up 10% year over year. This in turn, bring the total dividend to stand at 4.25 cents. Earnings per share for the period stood at 12.4 cents, up 53.8% year over year. The company exited the period with cash balance of $32.8 million, with borrowings amounting to $52.5 million.

Key Financials (Source: Company Reports)

Outlook: For FY21, the company expects to focus on growth prospects, especially organic growth in its PI and Class Action Practice Areas. Further, the company remains on track to improve on client communication offerings and utilise digital platforms for greater client access.

Stock Recommendation: As per ASX, the stock of SHJ is trading slightly above its average 52 weeks’ trading range of $0.58-$1.020. The stock of SHJ gave a return of 35.9% in the past six months. On a technical front, the stock of SHJ has a support level of ~$0.63 and a resistance level of ~$0.925. On a TTM basis, the stock of SHJ is trading at an EV/Sales multiple of 1.2x, lower than the industry median of 2.4x. Considering the current trading levels, decent FY20 performance, enhancement of shareholder’s value via dividend, decent FY21 outlook, potential valuation upside and key risk associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.870, up by 0.578 % as on 14 January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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