Stocks’ Details

Millennium Services Group Limited

Top line boosted by the acquisition:Millennium Services Group Limited (ASX: MIL) is a company that is into the business of providing services ranging from security to cleaning and serves commercial property, retail shopping centers as well as State Government and Commonwealth sectors. In FY 2018, the company’s top line amounted to $282 million which implies the YoY growth of 24.1%. This increase was helped by the acquisition of the Airlite business. In FY 2018, the entire year revenues from the acquired business were considered while in the previous year, revenues for 8 months were considered from the same business. The company has two major operating segments named: Cleaning and Security. Of the total revenues that Millennium garnered in FY 2018, $242.2 million was contributed from the cleaning segment while the remaining $39.8 million was garnered from the security segment. The company’s cleaning segment’s gross profit witnessed the decline to $36.4 million in FY 2018 from $38.6 million in FY 2017. This YoY decline was witnessed because of intense competition with regards to prices as well as tendering mix. The company’s security segment was primarily helped by the sectors like information technology or IT, finance as well as banking sectors. The segment has also started serving 71 new sites. This segment has opportunities amounting to $27.7 million in its pipeline.

A Look at Millennium Strategic Initiatives and Outlook: Millennium Services Group plans to execute 4 strategic initiatives i.e., Consolidate, Grow, Enhance and Centralise. The company’s management has a favorable outlook on the back of strong business fundamentals which could help the company in generating strong returns. Moving forward, the company’s management focuses on its overheads and it believes that it could be witnessing a downward trend. The company’s top and bottom line numbers are expected to be between $290 million-$310 million and $15.5 million-$17.5 million, respectively in FY 2019.

On the valuation front, the price-to-earnings ratio of Millennium Services stood at 5.41x on NTM (next twelve months) basis as compared to the industry average of 15.29x which implies its discounted valuation. The company is expected to witness favorable momentum moving forward on the back of bid price modelling and with the focus on improving the gross margin. However, adoption of robotics technology could also help in witnessing a favorable trend in the efficiencies. Since, the company has discounted valuation as well as positive outlook, we maintain our “Speculative Buy” rating on the stock at the current market price of $0.745, (up by 33.036% on September 25, 2018, owing to the strong performance in FY18).


 
MIL Daily Chart (Source: Thomson Reuters)
 

Thorney Opportunities Ltd

Top Line Saw Substantial Decline on Year-on-Year basis: Thorney Opportunities Limited (ASX: TOP) recorded revenues amounting to $18.8 million in FY 2018 implying the YoY fall of 47%. However, the company’s profit after tax or PAT amounted to $11.1 million in FY 2018 implying the decline of 45% on the YoY basis. In FY 2018, the company’s net tangible assets stood at $154.1 million while in FY 2017 it was $121.3 million.

Results (Source: Company reports)

From the analysis standpoint, it has a return on equity or ROE of 8.1% as at FY 2018 which implies the fall from 18% in 2017. The company has a current ratio of 38.21x in FY 2018 reflecting the substantial increase from 20.00x in 2017. Moreover, Thorney Opportunities has a gross margin of 70.3% in FY 2018 as compared to 79.1% in 2017. However, in FY 2018, the company’s earnings before interest, tax, depreciation, and amortization or EBITDA margin stood at 68.0% while in the previous year it was 78.2%. While the financials are yet to be on a positive side, the share price has risen 7.41% in the past three months as at September 24, 2018 and traded at higher level. Given the backdrop of the group trying to retain decent fundamentals and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.745. 


 
TOP Daily Chart (Source: Thomson Reuters)
 

Paragon Care Limited

FY18 was a transformational Year - A Quick Recap of FY 2018 Results: For Paragon Care Limited (ASX: PGC), the FY 2018 was a transformational year. The company managed to close 9 acquisitions reflecting the strategy of inorganic growth. On a pro forma basis, the company had revenues amounting to $238 million in FY 2018 while the company garnered earnings before interest, tax, depreciation, and amortization or EBITDA of $30 million.
What’s Ahead for Paragon Care: The top management of Paragon Care plans to initiate the restructuring with regards to the sales team and it would also adopt steps which would help in improving the IT infrastructure. These factors might help the company achieving the organic growth. The positive performance in July 2018 for the revenues might help in boosting revenues moving forward.


 
Revenue and EBITDA Trend (Source: Company presentation)

The company is expected to garner revenues amounting to $260 million in FY 2019. This target could be achieved on the back of acquisitions which have been done in FY 2018. In addition, upcoming mergers and acquisitions, as well as organic growth, could also help in achieving the revenue target. The company plans to achieve organic growth of around 10% in FY 2019. During the same period, the company is expected to post EBITDA of $36 million which is expected to achieve from the cost reduction as a result of the business transformation. Meanwhile, the share price has fallen 15.12 percent in the past three months as at September 24, 2018 and traded at reasonable PE level of 13.52x. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.745, considering aforesaid fact and trading level. 


 
PGC Daily Chart (Source: Thomson Reuters)
 

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