Stocks’ Details

Asaleo Care Limited

Revenues Up 10% on Y-o-Y in 1HFY20: Asaleo Care Limited (ASX: AHY) is engaged in the manufacturing, marketing, and distribution of consumer products in relation to feminine hygiene. The market capitalisation of the company stood at ~$545.83 million as on 30 November 2020. Recently, the company announced that Marathon Asset Management UP, a substantial holder of the company, has decreased its voting power from 7% to 6.99%.

1HFY20 Key Highlights: During the period, EBITDA from continuing operations stood at $49.4 million, as compared to $39.8 million reported in the year-ago period. Statutory NPAT came in at $18.8 million, up 158% year over year. Revenues for the period came in at $214 million, up 10% year over year, due to continuous investment in AHY’s brands, which, in turn, delivered market share growth. Further, augmented sales owing to COVID-19 panic in March/April, ease back in May/June and successful NPD ranging & activation during the period were key positives. Net debt at the end of the period went down 14% on a year over year basis and came in at $118.9 million.

1HFY20 Results (Source: Company Reports)

Outlook: For FY20, the company expects underlying EBITDA to be at the upper range of $84 - $87 million. Further, the company aims to reduce its net debt position, in order to strengthen its financial position during COVID-19 led uncertainties.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company’s strong brands, diverse business model and local manufacturing footprint are key positives during the coronavirus led uncertainties. As per ASX, the stock of AHY is trading close to the average of its 52-weeks’ trading level. The stock of AHY went down 8.9% in the past three months but gave a positive return of 5% in the last one month. On a technical front, the stock of AHY has a support level of ~$0.68 and a resistance level of ~$1.5. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the current trading levels, modest long-term outlook, healthy liquidity position, and decent financial position, along with key risks associated with its business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.00, down by 0.498% as on 30 November 2020.

Bubs Australia Limited

FY20 Sneak Peek: Bubs Australia Limited (ASX: BUB) is engaged in the manufacturing of infant milk formula. The market capitalisation of the company stood at ~$432 million as on 30 November 2020.  During FY20, the company reported gross revenue of $62 million, up 32% year over year. The company witnessed a growth of 69% year over year in infant formula gross revenues, during the period. Contribution share of Infant Formula stood at 55%. China FY20 direct revenue soared 32% from the prior corresponding period, depicting 23% of Group revenue.

1QFY21 Quarterly Update: During Q1FY20, BUB reported gross revenues of $9.4 million. Bubs® Infant Formula sales increased by 9% on pcp across all channels and Bubs® Goat Formula direct export sales to China increased by a whopping 76% on a year over year basis.  Further, the company finalised an Institutional Share Placement of $28.3 million and Share Purchase Plan of $3.8 million. Notably, Bubs Australia is the fastest-growing Infant Formula manufacturer and reported 44% value growth on pcp. The company exited the quarter with a cash balance of $42.6 million. 

1QFY21 Key Highlights (Source: Company Reports)

What to Expect: BUB remains focused to achieve robust growth in FY21 through accelerated revenue streams. The company expects to leverage opportunities for international growth and product extensions through its strategic partners. The company aims to accelerate profitable growth across all key channels and markets for Bubs® Infant Formula and has set aside a revenue goal of $400 million and gross margin floor of 40% by 2025. 

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

P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is focused on its fundamental drivers for its long-term growth, via its sustainable leadership in vertical supply chain value creation, deepening consumer brand connection to generate scale & improved margin. As per ASX, the stock of BUB is inclined towards its 52-week low of $0.4. The stock of BUB went down 24% in the past three months but gave a positive return of 7.75% in the last nine months period. On the technical analysis front, the stock of BUB has a support level of ~$0.55 and a resistance level of ~$0.92. We have valued the stock using the Price to Book Value multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as A2 Milk Company Ltd (ASX: A2M), Synlait Milk Ltd (ASX: SM1), Bega Cheese Ltd (ASX: BGA), to name few. Thus, considering the robust FY20 and Q1FY21 results, decent liquidity position, capital raising program and encouraging long-term growth, along with key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.69 per share, down by 2.128% as on 30 November 2020.

Keytone Dairy Corporation Limited

Half Yearly Results for the Period Ended 30 September 2020: Keytone Dairy Corporation Limited (ASX: KTD) is a manufacturer, packer, and exporter of dairy and nutritional products. During the period, the company recorded sales growth across all its key divisions. Total sales revenue increased by 233% to $24.5 million on a year over year basis. The company witnessed robust sales growth in the Australian business, which was up 336% on pcp and came in at $19.2 million. Also, sales from New Zealand business increased significantly by 79% on pcp and came in at $5.3 million. Reported gross profit increased 241% year over year, during the period. The company exited the period with a cash balance of $9 million.

Key Financial Highlights (Source: Company Reports)

Increase in Sales forecast: On 24 November 2020, the company announced that it has received an increased sales estimate for CY21 from Nouriz (Shanghai) Fine Food Co., Ltd (Nouriz China) in relation to the manufacturing of whole and skim milk powder. The sales forecast stood for CY 2021 stood at NZ$3.1 million, with production to commence in 1Q of 2021. Notably, the forecast sale for CY 2021 depicts a 24% uplift of KTS’s 12 months sales to October 2020.

Stock Recommendation: The company has built strong foundations across all business units and expects to grow and scale up its operation to capitalise on the demand for its products and services. The company has a strong product development pipeline to come through the balance of the FY21 year. The company also completed the buyout of the assets of AusConfec, at a 35% discount to the fair market value. The stock of the company has corrected by 10.5% in the last six months. As per ASX, the stock of KTD is trading below the average of its 52-week trading range. On a technical analysis front, the stock has a support level of ~$0.199 and a resistance level of ~$0.322. On a TTM basis, the company has an EV/Sales multiple of 3.1x, lower than the industry average (Food & Tobacco) of 8.3x. Considering the company’s decent first-half performance, growth across all its key divisions, modest outlook, and TTM valuation, along with key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.26, up by 4% as on 30 November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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