Stocks’ Details

Altium Limited 

Acquisition Proposal Rejected: Altium Limited (ASX: ALU) is engaged in the development and sales of computer software for the design of electronic products. ALU has received a non-binding, indicative, formal and unsolicited proposal from Autodesk Inc. for 100% acquisition of ALU at the price of $38.50 per share. ALU has rejected the proposal made by Autodesk Inc. as the company believes the proposal has not considered the prospects and the valuation was below their expectations. ALU is positive on achieving its transformational strategy for electronics industry by 2025. 

Termination of a Substantial Holder: Vanguard Investments Australia Ltd. has been terminated to be an investment manager for Vanguard Group. As a result, Vanguard Investments Australia Ltd. ceased to be a 4.67% substantial holder in Altium Limited and the holding is directly owned by the Vanguard Group. 

1HFY21 Financial Highlights: ALU has registered a decline in revenue to US$79.97mn in 1HFY21 against US$83.12mn in 1HFY20. The company has seen a decline in its profit to US$16.61mn in 1HFY21 against US$18.90mn in 1HFY20. ALU has witnessed a decline in its liquidity position with cash balance decreased to US$88.31mn as on 31 December 2020 against US$93.08mn as on 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is mainly present in the technology segment. Thus, any technology failure may impact the financials of the company. In addition, the company requires regulatory approvals to conduct its business smoothly. Therefore, any delay in regulatory approvals may impact the business of the company. 

Outlook: The company is looking to become a dominant provider for PCB design software tools. ALU is committed to achieve targets of US$500mn in revenue and 100,000 subscribers by 2025.

Stock Recommendation: The stock of ALU gave a return of ~50.17% in the last one month and a return of ~45.50% in the last three months. The current market capitalisation of ALU stands at ~$3.57bn as of 7 June 2021. On the technical analysis front, the stock has a support level of ~$35.08 and a resistance of ~$40.88. The stock is currently trading above the average 52-weeks’ price level range of ~$23.66~$40.21. On a TTM basis, the stock of ALU is trading a P/BV multiple of 14.7x higher than the industry (Technology) average of 8.0x, thus seems over-valued. Considering the company has registered a decline in its top line and bottom line in 1HFY21, volatile price movement in the past months, associated business risks, and valuation on TTM basis, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $37.83, up by ~39.029% as on 7 June 2021. The company has rejected an indicative, non-binding proposal from Autodesk Inc. at an offer price of $38.50. ALU expects further potential for its business growth and to achieve transformational strategy for growth in the electronics industry by 2025.  

Orora Limited 

Share Buyback: Orora Limited (ASX: ORA) provides a range of packaging solutions and displays in Australia. The company operates in two segments: Orora Australasia and Orora North America. ORA has been continuing with the share buyback program since September 2020. ORA has plans to buyback up to 10% of its issued share capital, representing 96.5mn shares. The total buyback is expected to cost ~$230mn and to be completed by FY21. The company has announced on 7 June 2021 that ~17.60mn more shares may still be bought back. 

1HFY21 Financial Highlights: ORA has registered a decline in its sales revenue to $1,814.1mn in 1HFY21 against $1,835.2mn in 1HFY20mainly due to a decline in North American Revenue. Despite a decline in sales revenue, the company has posted an increase in its profit to $84.6mn in 1HFY21 against $76.6mn in 1HFY20 due to lower cost of sales. ORA has seen a decline in its cash balance to $83.4mn as on 31 December 2020 against $107.3mn as on 30 June 2020.

Revenue Trend; Analysis by Kalkine Group

Key Risks: The company is exposed to adverse foreign exchange price movement risks. In addition, the company holds interest bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company. 

Outlook: ORA expects increased earnings in FY21 against prior year. ORA expects 2QFY21 EBIT to be negatively impacted by lower wine bottle exports for its Australasia segment. On the other hand, the company expects EBIT in 2HFY21 to be higher than 2HFY20 for its North American segment. ORA’s ongoing shares buyback is expected to be completed in FY21.

Valuation Methodology: Price/Earnings based Relative Valuation Method (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of ORA gave a return of ~1.24% in the last one month and a return of ~8.33% in the last three months. The current market capitalisation of ORA stands at ~$2.90bn as of 7 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.19~$3.519. On the technical analysis front, the stock has a support level of ~$3.032 and a resistance of ~$3.47. We have valued the stock using the P/E multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit downside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in profit in 1HFY21 and a decline in cost of sales in 1HFY21. For this purpose, we have taken peers Secos Group Ltd (ASX: SES), Incitec Pivot Ltd (ASX: IPL), Pro-Pac Packaging Ltd (ASX: PPG). Considering the company has registered a decline in sales volume in 1HFY21, decent stock price movement in the past months, current trading levels, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $3.25, down by ~0.307% as on 7 June 2021. 

SkyCity Entertainment Group Limited  

Notice for Regulatory Investigations: SkyCity Entertainment Group Limited (ASX: SKC) is engaged in tourism, leisure, and entertainment segment in New Zealand. Its segments include SKYCITY Auckland, Rest of New Zealand, SKYCITY Adelaide and International Business. SKC has announced on 7 June 2021, regarding an investigation conducted by AUSTRAC’s Regulatory Operations. The company came under investigation scanner on non-compliance issue by SkyCity Adelaide Pty Limited with the Australian Anti-Money Laundering and counter terrorism financing act 2006. AUSTRAC has not taken any decision on the compliance issue yet but continue to seek information from SkyCity as part of its investigation. 

1HFY21 Financial Highlights: SKC has registered a decline in its revenue to NZ$315.71mn in 1HFY21 against NZ$412.53mn in 1HFY20. Similarly, the company has registered a decline in its profit to NZ$78.41mn in 1HFY21 against NZ$327.98mn in 1HFY20 due to Covid-19 impacts. The company has registered an increase in its cash balance to NZ$58.07mn as on 31 December 2020 against NZ$52.83mn as on 31 December 2019.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is mainly operating casinos in New Zealand and Australia. Thus, SKC requires regulatory approvals to conduct its business smoothly. In addition, the company is exposed to the risks from Covid-19 led uncertainties. 

Outlook: The company expects its normalised EBITDA for FY21 to be above FY20, considering no major impacts from Covid-19. The company is likely to implement new information and communications technology systems in FY21. SKC continues to optimise its cost for operational efficiencies.  

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of SKC gave a return of ~-2.45% in the last one month and a return of ~6.71% in the last three months. The current market capitalisation of SKC stands at ~$2.58bn as of 7 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.14~$3.44. On the technical analysis front, the stock has a support level of ~$2.936 and a resistance of ~$3.495. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a decline in revenue in 1HFY21 and concerns on an ongoing investigation from AUSTRAC. For this purpose, we have taken peers Star Entertainment Group Ltd (ASX: SGR), Crown Resorts Ltd (ASX: CWN), Tabcorp Holdings Ltd (ASX: TAH) to name a few. Considering the company has registered a decline in profits in 1HFY21, investigation from a regulatory body against anti-money laundering, volatile price movement in the past months, current trading levels, and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $3.18, down by ~6.471% as on 7 June 2021.

Comparative Price Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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