Stocks’ Financial Details (Source: Company Reports and Thomson Reuters)

Rural Funds Group

Strategic Deal to Acquire New England Cattle Farm “Dyamberin”: Rural Funds Group (ASX: RFF) is an agricultural real estate investment trust (REIT) that leases properties to agricultural operators and processors. Recently, the company has contracted to acquire Dyamberin who has a 1,728-hectare cattle property in the New England region of New South Wales with the total consideration of $13.4 Mn. This deal is expected to close in October 2018 with its existing debt facilities used to fund the purchase. The objective of this deal is to get benefit from productivity improvements, add to the frequency of rent reviews, and development prospects in the cattle and cotton sectors in which the group has an expertise and enhanced diversification. As of now, the guidance remains unchanged for FY19 FFO at 13.2 cents per unit and DPU at 10.43 cents per unit. From analysis standpoint, the company has a price-to-earnings ratio of 14.93x and has posted a return on equity (RoE) ratio of 9.8 per cent, return on invested employed (ROIC) of 6.1 per cent and has a debt-to-equity ratio of 0.72x and account receivable turnover ratio of 10.2x which is below the industry average of 15.7x.


Leases with Market Rent Reviews (Source: Company Reports)

Recently, the company has released its dividend/distribution update in which the Board of Directors declared an unfranked ordinary dividend of A$ 0.0260750 per share and it will be payable on October 31, 2018 with the record date of September 28, 2018. Further, the dividend reinvestment plan (DRP) will be available to shareholders for ordinary dividends and the plan has been said to operate at a A$2.50 discount. Meanwhile, RFF stock has risen 4.46% in three months as on October 16, 2018 and traded close to the average of 52 week high and low prices. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $2.120, considering the trading level and aforesaid facts.

Dicker Data Limited

Intact Decent Fundamentals: Dicker Data Limited (ASX: DDR) was listed in 2011 on the ASX with the current market cap of $469.08 Mn (as at October 17, 2018). The group has achieved consistent top and bottom line growth for more than 15 years and recorded revenue growth at CAGR of 9.0% during 1HFY15-1HFY18. Further, the company garnered bottom line growth at CAGR of 8.7% during the same period. Resultantly, the EBITDA margin, gross margin, and NPAT margin came in at 9.39%, 3.80%, and 2.97%, respectively on a 3.5-year average basis (1HFY15-18) and the group is on track to improve its PAT margin from the current level. However, in FY18, PAT margin was moderately down by 10 bps to 3.0% from 3.1% in the prior corresponding year which is below the industry median of 11.0%. The company has generated a positive return of shareholders’ fund with ROE at 20.8%, higher than the industry average of 8.9%. On the balance sheet front, the company has significantly increased working capital investment from $83 Mn to $124.4 Mn in 1HFY18 over the prior corresponding period given the onboard new vendors noted during the same period. As a result, Net debt-to-equity ratio increased from 1.34x to 1.54x in FY18 over the prior corresponding period while Debt Service Cover Ratio stood at 7.50x in 1HFY18. In the long run, the company has a positive outlook underpinned by uplifting demand across its four key pillars i.e., Hybrid IT, IOT, Digital Transformation, and Wireless Technology.


Financial Trends – Half Year (Source: Company Reports)

Moreover, Mary STOJCEVSKI who had a Direct and Indirect interest in the company, had acquired 5,000 fully paid ordinary shares at the price of $ $2.918316 per share via on-market purchase. Meanwhile, the share price declined by 3.95 percent in the past three months as of October 16, 2018. Currently, the stock traded at a 9.9% discount to a 12-month high of $3.24 against a 14.5% premium to a 12-month low of $2.55. Based on foregoing, we maintain our “Hold” rating on the stock (with dividend yield of 6.03%) at the current market price of $2.92.

Adairs Limited

Strong Balance Sheet Position to Sustain its Growth Trajectory: Adairs Limited (ASX: ADH) has recently presented its business prospects at the Morgans Queensland Conference and highlighted about FY18 activity and its outlook. As per the presentation, it was observed that the company has expanded its product range materially over the last 5 years along with increase conversion rate, traffic growth on the website and maintained average transaction value. As a result, expansion categories delivered 19.8% like for like growth in FY18 and have delivered a 3-year CAGR of about 20%. Core category recorded 11.3% like for like growth in FY18 and contributed 60.7% sale in total sale of the company. On the balance sheet front, net debt declined to $12.2 Mn in FY18 from $27.6 Mn in FY17. Resultantly, net debt/EBITDA was down to 0.24x in FY18 over the prior year which was at 0.75x. Based on overall growth, the operating cash flow was up 42% to $39.1 million, in line with the growth in EBITDA. On the back of strong balance sheet position, a substantial rise in cash flows and a positive outlook for continued growth, the Board of Directors increased the final FY18 fully franked dividend to 8.0 cents per share which were paid on 26 September 2018. Adairs’ total FY18 dividend grew by 68.8% to 13.5 cents per share fully franked as compared to the previous year. The stock has a good dividend yield around 5.87% as on October 17, 2018.


Enhanced Product Range (Source: Company Reports)

Meanwhile, the share price has risen 8.49% in the past three months as at October 16, 2018 and traded around 52-week higher level of $2.710. On the analysis front, the company has PE of 12.50x and beta of 0.33x on a 5-year basis, signifying undervalued scenario at the current juncture. In addition to this, the group has achieved LFL sales growth of +5.4% YoY in the first 7 weeks of FY19E and expects to generate 5 – 8% like for like sales growth for FY19E underpinned by growth in both store and online channels. As of now, we maintain our “Hold” recommendation on the stock at the current market price of $2.200 (down 4.4% on October 17, 2018) as it traded close to the higher level.
 

Stocks’ Dividend Yields (Source: Thomson Reuters)
 
 

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