Stocks’ Details
 

Zoono Group Limited

Well Placed to Meet Continued Demand: Zoono Group Limited (ASX: ZNO) is engaged in the development and sale of antimicrobial products. As on 5 May 2020, the market capitalization of the company stood at $244.97 million. During April 2020, the company invoiced business to business sales of more than NZ$11.0 million and has also signed several new distribution agreements in the UK and Europe in the hygiene and sanitization markets. ZNO is well placed to meet the continued demand for its Z-71 Microbe Shield surface sanitizer products.

During the quarter ended 31 March 2020, the company reported a substantial increase in revenue to NZ$15.7 million and positive operational cash flow of ~NZ$3.1 million. In the same time span, the company had cash resources of ~NZ$5.7 million.


Quarterly Cash Flows from Operations (Source: Company Reports)

JLG Signs Agreement with ZNO: The company has entered into an exclusive agreement an initial five-year term with Johns Lyng Group wherein JLG will provide ZNO Nationwide distribution and warehousing into all B2B sectors and access to a very large customer base.

What to Expect: The company is working on several significant potential transactions for the distribution and/or supply of its products. ZNO is coping well with the impact of the coronavirus outbreak and is working hard to increase its production and order fulfilment capabilities. 

Stock Recommendation: As per ASX, the stock of ZNO gave a return of 65.75% in the past three months and is inclined towards its 52-weeks’ high level of $2.44. During 1H20, gross margin of the company stood at 52.1%, higher than the industry median of 30.4%. In the same time span, current ratio of the company was 3.31x as compared to the industry median of 1.28x. Considering the returns in the past three months, current trading levels, continued demand for the company’s products and decent outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $1.805, up by 20.333% on 5 May 2020, owing to its recent company update. 

Orora Limited

Orora Completes Sale of Australasian Fibre Business: Orora Limited (ASX: ORA) is a leader in innovative packaging solutions and is engaged in supplying a broad range of fibre, metal and glass packaging solutions, as well as packaging services. As on 5 May 2020, the market capitalization of the company stood at $3.04 billion. The company has recently completed the sale of its Australasian Fibre Business to Nippon Paper Industries Co., Limited for an enterprise value of A$1,720 million.

During 1H20, sales revenue of the company witnessed an increase of 13.3% to $1,835.2 million and a growth of 8.9% in operating cash flow to $127.2 million. In the same time span, EBIT of the company stood at $133.1 million with a NPAT of $76.6 million.


1H20 Financial Highlights (Source: Company Reports)

Outlook: The company is prioritizing to implement the improvement programs in North America. ORA expects challenging market conditions in the short term, but will continue to invest in efficiency, growth, and innovation. 

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

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of ORA is inclined towards its 52-week’ low of $2.230, proffering a decent opportunity for accumulation. During 1H20, EBITDA margin of the company witnessed an improvement over the previous half and stood at 11.9%, up from 9.1% in 2H19. In the same time span, Return on Equity of the company went up to 4.7% from 2.9% in 2H19. Considering the trading levels, positive outlook in the long term and decent financial performance, we have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $2.480, down by 1.587% on 5 May 2020.

Brickworks Limited

Interim Financial Highlights: Brickworks Limited (ASX: BKW) manufactures a diverse range of building products and is engaged in the development and investment activities and participates in diversified investments as an equity holder. As on 5 May 2020, the market capitalization of the company stood at $1.92 billion. During 1H20, underlying EBITDA of the company went down by 25% to $170 million and underlying profit witnessed a decline of 37% to $100 million. This resulted in a decrease of 37% in underlying EPS of 67 cents.


1H20 Financial Highlights (Source: Company Reports)

What to Expect: The company has a diversified portfolio and conservative balance sheet which provides resilience to overcome short term challenges. The company has a long history of total value creation and dividend growth.  

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

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

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

Stock Recommendation: As per ASX, the stock of BKW gave a negative return of 30.85% on the YTD basis and a negative return of 3.03% in the past one month. The stock is also trading close to its 52-weeks’ low level of $11.76. During 1H20, gross margin of the company stood at 26.6%, lower than the industry median of 36.3%. In the same time span, net margin of the company was 14.4% as compared to the industry median of 4.7%. Considering the volatility in returns, trading levels, conservative balance sheet and decline in financial performance, we have valued the stock using EV/EBITDA multiple approach and have arrived at a downside of lower single digit (in percentage terms). For the said purposes, we have considered Reliance Worldwide Corporation Ltd (ASX: RWC), GWA Group Ltd (ASX: GWA), Adelaide Brighton Ltd (ASX: ABC) as peers. Hence, we have a watch stance on the stock at the current market price of $13.19, up by 3.047% on 5 May 2020. 
 
 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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