Tabcorp Holdings Limited

TAH Details

Retail Entitlement Offer: Tabcorp Holdings Limited (ASX: TAH) provides gambling and other entertainment services and has three operating business units being Lotteries and Keno, Wagering and Media, and Gaming Services. As on 10 September 2020, the market capitalization of the company stood at ~$7.64 billion. The company has offered an underwritten 1 for 11 pro-rata accelerated renounceable entitlement offer for new ordinary shares in Tabcorp at an offer price of $3.25 per share to raise ~$600 million. The retail component of the offer is expected to be closed on 10 September 2020. The company has also announced the extension of its long-term reseller agreements for the next ten years to 25 August 2030. This agreement will offer growth in lottery sales to Jumbo Interactive.

FY20 Financial Highlights: During FY20, the group reported revenue of $5,224 million and a decline of 11.5% in EBITDA to $995 million. In the same time span, the group delivered a NPAT before significant items of $271 million. During the year, the company undertook several capital management initiatives to preserve cash and maximize financial flexibility. As a result, no final dividend for FY20 was declared, and interim dividend was 11.0 cents per share.

FY20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including the risks related the Government restrictions due to COVID-19 pandemic, law and license risks, Changes in laws and the regulatory environment, customer and supplier compliance with regulatory requirements, Competition, funding risks, Counterparty credit risks, to name few.

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

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

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

Stock Recommendation: Despite the material headwinds from COVID-19, the company demonstrated its strength and delivered a decent performance. The company is targeting gearing in between 2.5x to 3.0x and is focused on maintaining its investment grade. It is also aiming to increase returns to cost of capital levels over time and targeting a dividend of 70% – 80% of NPAT. As per ASX, the stock of TAH gave a return of 6.65% in the past six months and a return of 2.69% in the last one month. On a Technical Front, the stock of TAH has a support level of ~$2.145 and a resistance level of ~$3.83. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered peers like Aristocrat Leisure Ltd (ASX: ALL), Star Entertainment Group Ltd (ASX: SGR), Crown Resorts Ltd (ASX: CWN), to name few. Considering the decent returns in the past six months, resilient performance in the softer market conditions and extension of its agreement with JIN, we recommend a ‘Buy’ rating on the stock at a current market price of $3.5, down by 1.685% on 10 September 2020.

TAH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Orora Limited

ORA Details

Resilient Financial Performance and Stable Balance Sheet: Orora Limited (ASX: ORA) is a leader in innovative packaging solutions and supplies a broad range of fibre, metal and glass packaging solutions, as well as packaging services. As on 10 September 2020, the market capitalization of the company stood at ~$2.15 billion. Despite the significant headwinds from COVID-19, the company reported a resilient performance during FY20 with an increase of 5.2% in revenue to $3,566 million. In the same time span, underlying EBIT stood at $224.3 million, and underlying NPAT was $127.7 million. During FY20, ORA reported a healthy balance sheet with a reduction in net debt to $292 million and a leverage ratio of 0.9x. The decent financial and operational performance enabled the Board to declare a final dividend of 5.5 cents per share, with an ex-date of 7 September 2020. It will be paid on 12 October 2020.

FY20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including the risks related to counterparty, Changes in the legal and regulatory regimes in which ORA operates, changes in behavior of its major customers and competitors, the impacts of foreign currency exchange rates and general changes in the economic conditions.

Outlook: The company is enhancing and expanding its core products and services to enhance its customer value proposition. It is also planning to enter new segments that are complementary to its capability set. ORA continues to focus on optimizing manufacturing processes and is assessing opportunities to leverage core capabilities in adjacent markets in ANZ. The company’s open market buyback purchase program is effective from 14 September 2020.

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 is working on stabilizing its business and is pursuing further business model enhancements to accelerate investments in digital capabilities to enhance customer proposition. As per ASX, the stock of ORA is trading very close to its 52-weeks’ low level of $2.190, proffering a decent opportunity for accumulation. On a Technical Front, the stock of ORA has a support level of ~$2.20 and a resistance level of ~$2.87. 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 percentage terms). For the said purposes, we have considered peers like Pact Group Holdings Ltd (ASX: PGH), Orica Ltd (ASX: ORI), Incitec Pivot Ltd (ASX: IPL), to name a few. Considering the current trading levels, modest long-term outlook, and decent financial performance in the wake of the global pandemic, we recommend a ‘Buy’ rating on the stock at the current market price of $2.27, up by 1.794% on 10 September 2020.

ORA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Charter Hall Social Infrastructure REIT

CQE Details

Resilient Performance and Ample Liquidity: Charter Hall Social Infrastructure REIT (ASX: CQE) is engaged in the ownership of established freehold early learning centers. As on 10 September 2020, the market capitalization of the company stood at ~$958.59 million. During FY20, the company reported resilient performance through COVID-19 pandemic. During the year, it reported an increase of 7.9% in net property income to $64.3 million and an increase of 10.9% in net operating income to $68.9 million. This was driven by higher lease income, non-recoverable outgoings, valuation fees and NZ income tax expense. In the same time span, the company reported a healthy balance sheet with a liquidity of $289.6 million. The decent financial and operational performance enabled the Board to declare a final dividend of 3.475 cents, which was paid on 21 July 2020.

FY20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to a variety of risks including the risks related to Property cycle risk and adverse market or economic conditions, Tenant Risk, Concentration Risk, Strategic challenges posed by COVID-19, Debt and equity capital management, Climate change, to name few.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow 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 is focused on a diversified social infrastructure portfolio to enhance income sustainability and resilience. It has confirmed the guidance for distribution for FY21 and expects it to be around 15.0 cpu. As per ASX, the stock of CQE gave a return of 12.71% in the past one month and is trading on its average 52-weeks’ level of $1.485- $3.860. On a Technical Front, the stock of CQE has a support level of ~$1.92 and a resistance level of ~$3.15. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target upside of higher single-digit (in percentage terms). For the said purpose, we have considered peers like Arena REIT No 1 (ASX: ARF), Hotel Property Investments Ltd (ASX: HPI), ALE Property Group (ASX: LEP), to name few. Considering the current trading levels, decent returns in the past one month, resilient performance despite the COVID-19 crisis and ample liquidity, we recommend a ‘Hold’ rating on the stock at the current market price of $2.72, up by 2.256% on 10 September 2020.

CQE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.