Stocks’ Details

Super Retail Group Limited

Strong Momentum in Digital Channels: Super Retail Group Limited (ASX: SUL) is involved in the operation of specialty retail stores in the automotive, tools, leisure, and sports categories. The market capitalisation of the company stood at $2.32 billion as on 11^th November 2020. Despite the impact of COVID-19 restrictions, which include lockdowns in Melbourne and Auckland, SUL reported 25% YoY growth in both total and like-for-like sale in the first 17 weeks of FY21. In addition, the company maintained strong momentum in digital channels, with online sales growth of 132% in October 2020.

Key Financials (Source: Company Reports)

FY20 Financial Highlights: For the year ended 27^th June 2020, the company reported total group sales of $2.83 billion, reflecting a rise of 4.2% as compared to the year ended 27^th June 2019.  The online sales for the period witnessed a growth of 44% to $290.5 million over pcp. This was supported by the shift of customers to the online channel in response to COVID-19. In addition, the company’s investment in omni-retail capability is placed in a decent position to tap future growth and recorded a strong CAGR of 66% in online sales within the span of the last four years.

Outlook: For FY21, the company is planning to make additional investment to improve its digital capability and modernize its technology infrastructure. Consequently, the company anticipates the capital expenditure for the year to be around $100 million.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company stated that its four core brands operate in attractive lifestyle categories and are in a decent position to take advantage of increased demand for domestic tourism and leisure. As on 27th June 2020, the cash and cash equivalents of the company stood at $285.1 million. The stock of SUL has provided a return of 7.31% and 48.88% in the last three and six months, respectively. Also, the stock is inclined towards its 52-week high level of $12.890. On the technical analysis front, the stock of SUL has a support level of ~A$8.913 and a resistance level at ~A$11.902. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as JB Hi-Fi Ltd (ASX: JBH), Harvey Norman Holdings Ltd (ASX: HVN), and Metcash Limited (ASX: MTS), etc. and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the growth in online sales, strong momentum in digital channels, further investment plans, strong returns in the past few months, and current trading levels we give a “Hold” rating on the stock at the current market price of $10.020 per share, down by 2.719% on 11th November 2020.

Vita Group Limited

A Look at Q1 Trading Update: Vita Group Limited (ASX: VTG) provides telecommunications, computers and related products and services through retail and business channels. The market capitalisation of the company stood at $161.36 Million as on 11^th November 2020. In a recent trading update, the company stated that the ICT channel (Information and Communication Technology) experienced continued restrictions related to COVID-19, which are affecting traffic and capacity to service customers in-store. ICT also experienced softer trade in Q1 FY21 due to the delay in the launch of iPhone 12 from September to the end of October 2020. However, ICT witnessed enhanced efficiency in labor and other cost lines. On the other hand, the SHAW (Skin-health and Wellness) experienced strong trading in Q1, supported by a rise in visits and average visit value.

For the year ended 30^th June 2020, the company reported revenue amounting to $773.1 million, reflecting a rise of 3% over pcp. EBITDA (excluding the impact of AASB 16) for the year experienced a rise of 9% to $49.9 million. This was supported by strong performance in ICT channel (particularly up to March 2020), and improved productivity in SHAW.

Key Financials (Source: Company Reports)

Outlook: For FY21, the company plans to focus on driving continued organic growth through course consulting, client retention and client acquisition. For 1H FY21, the company is expecting a decline of 18%-22% in revenues mainly due to disruption in the performance of ICT channel in Q1. However, EBITDA for 1H FY21 is expected to witness the growth of 23%-31% to $32.5 to $34.5 million.

Valuation Methodology: Price to Sales Multiple Based Relative Valuation (Illustrative)

Price to Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As on 30^th June 2020, the cash balance of the company stood at $36.8 million as compared to $26.7 million as on 30^th June 2019. The 52-week low-high range for the stock stands at $0.555 - $1.630, respectively. On a technical analysis front, the stock of VTG has a support level of ~A$0.967 and a resistance level at ~A$1.096. We have valued the stock using the P/Sales multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Eagers Automotive Ltd (ASX: APE), Michael Hill International Ltd (ASX: MHJ), and Metcash Limited (ASX: MTS), and arrived at a target price of low double-digit upside (in percentage terms). Therefore, in light of the strong trading in SHAW, rising cash position, current trading levels, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.995 per share, up by 1.530% on 11^th November 2020.

Retail Food Group Limited

Growth in Bottom Line During FY20: Retail Food Group Limited (ASX: RFG) is the largest multi-brand retail food franchise owner and a roaster and supplier of high-quality coffee products of Australia. The market capitalisation of the company stood at $156.88 Million as on 11^th November 2020. For the year ended 30^th June 2020, the company reported revenue (including discontinued operations) amounting to $264.0 million against $349.0 million in FY19. Statutory EBITDA for the year amounted to $32.3 million, indicating growth of 124.8%. RFG reported a rise of 31.8% in underlying NPAT to $14.1 million. During FY20, RFG experienced decent progress in the various turnaround initiatives, which were implemented to stabilize business performance and to establish a firm platform for a return to future profitability and growth.

Key Metrics (Source: Company Reports)

Outlook: During FY21, the company continues to build a strong foundation via executing further strategic initiatives which primarily focus on generating top-line growth and establishment of new outlet amongst its retail brands. The company has scheduled to conduct its 2020 Annual General Meeting on 27^th November 2020.

Stock Recommendation: At the end of FY20, the cash reserves of the company stood at $40.2 million as compared to $13.3 million as of 30^th June 2019. In the past one month, the stock has corrected 19.99%. RFG has an EV/Sales multiple of 1.2x as compared to the industry average of 8.4x on a TTM basis. In addition, the stock has an EV/EBITDA multiple of 2.3x against the industry average of 6.7x on a TTM basis. Thus, it seems that the stock is undervalued at current trading levels. On a technical analysis front, the stock of RFG has a support level of ~A$0.052 and a resistance level at ~A$0.692. Hence, considering the growth in the bottom line, focus on strategic initiatives, an increase in cash reserves, and risks associated, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.084 per share, up by 13.513% on 11^th November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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