Stocks’ Details

Resolute Mining Limited

Approval of New Mining Lease to Support Ravenswood Expansion Project: Resolute Mining Limited (ASX: RSG) is engaged in the business of Gold mining, development of the Syama underground mine and exploration for minerals. The company recently announced that the Queensland Government has approved 9 new mining leases in the areas that will support the REP (Ravenswood Expansion Project). The new leases include areas within the operational footprint of the proposed Buck Reef West open pit and nearby land required for infrastructure including roads, water management and noise bunding.

The company recently released its Quarterly Activities Report for the period ended 31 March 2019. In the quarter, the company produced Gold of 98,105oz at an AISC of A$1,039/oz (US$740/oz).Gold production at Syama during the quarter was 84,552oz at an AISC of A$839/oz (US$598/oz) with YTD gold production at 177,860oz. Syama quarterly production was up more than 50% on the December 2018 quarter.


Syama Operations Performance (Source: Company Reports)

Financial Performance in FY18: Revenue for the company in FY18 was $223 million from gold sales of 128,275oz at an average realised price of A$1,734/oz (or US$1,253/oz) which compares favourably to the average spot price over the period of A$1,690/oz (US$1,220/oz). RSG reported a net loss after tax of $5 million (inclusive of an adverse movement in the valuation of net realisable inventory of $29 million which was offset by $15.5 million of unrealised foreign exchange gain on intercompany loans). The company incurred higher capex in FY18 which amounted to $175 million and exploration and evaluation expenditure of $10 million.

Outlook: The management reaffirms the guidance for FY19 of 300,000oz at an AISC of A$1,280/oz (US$960/oz). RSG will come up with new production and cost guidance in July 2019. The company expects oxide ore will continue to be supplied from the Tabakoroni Open Pit Mine. Mined grades are likely to move towards the modelled resource grade and will be lower in the June quarter. Waste stripping for Stage 2 of the Namakan Pit is underway and will continue in the June 2019 Quarter. Ore from Stage 2 of the Namakan Pit will be available in H2 CY2019.

Stock Recommendation: During the last three months, the stock has generated a positive yield of 6.10% and is trading at P/E multiple of 28.54x. Based on the foregoing, we give a “Buy” recommendation on the stock at the current market price of A$1.160 per share (up 2.655% on 14 May 2019).
 

Propel Funeral Partners Limited

Gross Profit Margin Inched Up To 70.2% In 1HFY19: Propel Funeral Partners Limited (ASX: PFP) is one of the largest private provider of death care services in Australia and New Zealand with 28 cremation facilities and 9 cemeteries. The company recently confirmed that it has completed the acquisitions of the Morleys Group, Waikanae Funeral Home and the Kaitawa Crematorium. For the purpose, the company issued 344,828 ordinary shares to multiple vendors (subject to voluntary escrow arrangements for up to 3 years). Following the issue of the above ordinary shares, PFP will have 98,507,917 ordinary shares on issue.

Highlights of 1H FY19 Results: The performance in the first half of 2019 was resilient, despite below trend death volumes experienced in most markets, the company is present into. However, the management understands that the trend is temporary. Revenue in 1HFY19 increased by 20.9% to $47.1 million driven by 15% revenue growth from funeral operations and revenue from cemetery, crematoria and memorial gardens which came in at $5.18 million. The higher growth in funerals (11.7%in 1H FY19) was on account of the part period impact of Newhaven Funerals NQ and the full period impact of Seasons Funerals and the Brindley Group.

The gross profit margin increased from 69.4% in 1H FY18 to 70.2% in 1H FY19 mainly on the back of financial and operating metrics of acquisitions by the company. The operating EBITDA grew 6.4% to $11.66 million in 1H FY19, however, operating EBITDA margin was 1.8%, lower than FY18 on the back of below trend death volumes, higher occupancy costs, financial contributions of acquisitions, etc. Cash conversion in 1HFY19 was ~ 93%.


Key Financial Metrics (Source: Company Reports)

What To Expect From PFP: The company is well placed to benefit from the acquisitions completed during FY18 and 1H FY19. Propel is constantly considering other potential future acquisitions, however, timing is not certain. The management expects funeral volumes reverting to long term trends, thus supporting the bottom-line of the company.

Stock Recommendation:  At thecurrent market price of $3.00 per share, the stock is trading slightly towards the 52-week high level of $3.140 with P/E multiple of 10.68x. Looking at the historical price performance, the stock has gained 17.90% in the last 6-months. With like for like average revenue per funeral growth at 3%, expected recovery in death volume in coming months, positive momentum from recently completed and announced acquisitions, strong and conservative balance sheet, the company is well placed to excel in terms of business growth.

Considering the above-stated factors, we give a “Hold” recommendation on the stock at the CMP of $3.000 per share (down 0.99% on 14 May 2019).
 

Baby Bunting Group Limited

Total Number of Store Network at 52: Baby Bunting Group Limited (ASX: BBN) operates Baby Bunting retail stores and its online store babybunting.com.au. BBN is the largest specialty retailer of baby goods in Australia. 

Financial Performance in 1HFY19: Total sales grew 17.2% in 1HFY19 to $177.7 million, driven by strong comparable sales. Private label and exclusive products contributed 25.3% of total sales, up from 18.4% in 1HFY18 and 23% in 2HFY18. The company intends to increase this segment as a % of total sales to 50%. Online remains the largest trading unit for the company with online sales at 11.5% of total sales in 1HFY19, as compared to 8.4% of total sales in 1H FY18. Click and collect sales grew 97% in the period and now represent 47% of online sales.

Sales - Market Share Growth Continues (Source: Company Reports)

Pro forma EBITDA (excluding employee equity incentive expenses) witnessed a growth of 25.0% to $11.575 million with EBITDA margin at 6.5% of sales in 1H FY19.Baby Bunting opened five new stores during 1H FY 2019 with a total number of stores to 52.The company opened new stores at Toowoomba, Chatswood, Hobart, Bankstown and Chadstone. One further new store is expected to be opened in FY19 at Shellharbour, NSW.

Outlook: The management expects FY19 EBITDA in the range of $25.0 million to $27.0 million, representing growth of ~34%-~45% (excludes employee equity incentive expenses). The gross margin is expected at ~35% in FY2019, slightly higher as compared to 34.6% in 1HFY19.

Stock Recommendation: At the current market price of $2.290 per share, the stock is trading at price to earnings multiple of 28.050x.With securing prime sites for store network, the company is constantly capitalizing on market share opportunities from competitors. The size of baby goods market in Australia stands ~$5.1 billion, of which estimated the addressable market for Baby Bunting comes in at $2.4 billion. With the available opportunity for the company, the management has been investing to grow sales from existing stores, digital delivering growth, opening new stores, etc. However, in the past 3 months and 1 month, the returns stood at 5.61% and -3.83%, respectively which reflects the volatility.

Considering the aforesaid facts, we have a “Speculative Buy” rating on the stock at the current market price of $2.290 per share (down 0.435% on 14 May 2019).


Comparative Price Chart (Source: Thomson Reuters)   
 

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