Stocks’ Details
 

Coca-Cola Amatil Limited

Growth in Volume and Revenue: Coca-Cola Amatil Limited (ASX: CCL) is involved in the manufacturing, distribution, and marketing of beverages. The market capitalisation of the company stood at $6.22 Bn as on 18^th May 2020. Recently, the company appointed Greg Barnes as its Chief Financial Officer, effective from 1^st June 2020. The company entered the COVID-19 crisis with good momentum in all its businesses. Despite the challenging conditions in Australia and the early impacts of COVID-19 in all its markets, the company managed to deliver low single-digit percentage growth in Volume during Q1 FY20, relative to 1QFY19. The below picture gives an overview of key financials for FY19:


Key Financials (Source: Company Reports)

Suspension of Payout Guidance: Coca Cola Amatil has a strong foundation, which will help the company to navigate COVID-19 crisis. However, CCL has suspended its dividend payout ratio guidance due to the uncertainties from the pandemic. The company is focused on medium to long-term planning.

Valuation Methodology:Price 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 Recommendation: The company has deferred non-critical projects, which is supporting CCL to reduce capital expenditure from $300 million to $200 million for FY20. The company ended the March 2020 quarter with the debt and cash balance of around $1.8 billion and $920 million, respectively. In addition, the Group also possesses strong credit ratings. The healthy balance sheet, ample liquidity and solid credit rating provide strong operational and financial position to CCL. We have valued the stock using P/CF multiple based illustrative relative valuation methodand arrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like JB Hi-Fi Ltd (ASX: JBH), Elders Ltd (ASX: ELD) and Harvey Norman Holdings Ltd (ASX: HVN). Thus, in light of decent foundation to navigate through COVID-19, healthy operational and financial position and performance in Q1FY20, we give a “Buy” recommendation on the stock at the current market price of $8.710 per share, up by 1.397% on 18^th May 2020.

3P Learning Limited

No Interruption on Operations:  3P Learning Limited (ASX: 3PL) is engaged in the development, sales and marketing of online educational programs to schools and parents of school-aged students. The market capitalisation of the company stood at $105.31 Mn as on 18^th May 2020. Recently, the company notified the market with the business update for Q3 FY20, wherein it stated that despite the uncertainty caused by COVID-19, the company experienced no interruption on its operations including sales, marketing, and product development. It added that the technology suite is scaling well with increased usage and demand. The below picture gives an overview of financial performance for 1H FY20:


Financial Performance (Source: Company Reports)


Positive Operating Cash Flows Expected: For FY20, 3PL anticipates producing positive operating cash flows. The company also forecast to achieve higher cash at the end of FY20 against pcp. The company expects an increase in deferred revenue for FY20 against pcp, which is a positive indicator for FY21.

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

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The current ratio of the company stood at 0.95x in 1H FY20, reflecting YoY growth of 6.5%. This implies that 3PL has improved its position to pay its short-term obligations. The stock of 3PL is trading below its 52-week low-high average.We have valued the stock using EV to Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, considering the improved liquidity position, decent outlook, and no interruption on the operations from COVID-19, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.755 on 18^th May 2020.

Fonterra Shareholders' Fund

A Decent Rise in Normalised Earnings: Fonterra Shareholders' Fund (ASX: FSF) provides an economic exposure to the performance of Fonterra Co-operative Group Limited. The market capitalisation of the company stood at $345.88 Mn as on 18^th May 2020. The company recently provided a global dairy update and stated that the New Zealand milk production went down by 1.9% on a litres basis in March 2020 as compared to March 2019 due to continued drought conditions in many locations throughout New Zealand. However, milk production in Australia experienced a rise of 8.1% in February compared to the same period last year. During 1H FY20, the normalised earnings amounted to $584 million, reflecting a rise of $272 million, driven by stable underlying earnings from its Ingredients business, improving gross margins in Foodservice as well as reductions in the operating expenses.


Global Milk Production (Source: Company Reports)

Earnings Guidance: For FY20, the company expects earnings in the range of 15-25 cents per share in light of the potential impact of COVID-19 on global demand, geo-political risks in key markets, and ongoing dry weather conditions in New Zealand.

Stock Recommendation: Debt to equity of the company stood at nil as compared to the industry median of 0.22x. The company has recently entered a partnership with YFood, which is one of the fastest-growing start-ups of Germany. FSF would provide research and product development expertise to support the expansion of YFood. Therefore, in considering the decent earnings growth in 1H FY20, partnership with YFood and deleveraged balance sheet, we give a “Buy” recommendation on the stock at the current market price of $3.350 per share, down by 0.593% on 18^th May 2020.

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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