Stocks’ Details
 

Helloworld Travel Limited

Recent Trading Results and Liquidity Position: Helloworld Travel Limited (ASX: HLO) is engaged in the selling of international and domestic travel products and services and the operation of retail distribution networks of travel agents. As on 24 June 2020, the market capitalization of the company stood at ~$333 million. During the quarter ended March 2020, HLO’s TTV went down by 17.6% to $1.28 billion, and EBITDA witnessed a significant decline to $2.0 million. The company reduced its cash operating costs and reported total cash of $150 million at the end of April 2020.

Organic Growth in TTV: During 1H20, the company reported record TTV of $3,560 million and decent revenue growth of 9.8% to $200 million from continued business expansion, both from acquisition and organic.  


1H20 Financial Highlights (Source: Company Reports)

Key Risks: Given the rapid de-escalation of international and domestic travel, demand for HLO’s services has declined. The company’s TTV has been dramatically impacted by COVID-19 across all business units, with a possibility of incurring cash losses for the next six months. 

What to Expect: HLO is committed to managing the adverse impact on its business. It undertook various cost reduction measures and is preserving cash. It expects to see the re-opening of the domestic travel market by September 2020 and of the trans-Tasman markets in October or November 2020. It may move to a break-even position in Q2 FY21 and towards a small profit in the second half of FY21.  

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

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

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

Stock Recommendation: The company retains sufficient liquidity to maintain operations and is not intending to undertake a capital raising in the near term. The stock of HLO gave a return of 281.43% in the past three months and a return of 61.82% in the last one month. We have valued the stock using EV/Sales multiple based illustrative Relative Valuation Approach and have arrived at a target upside of higher single-digit (in percentage terms). For the said purposes, we have considered Corporate Travel Management Ltd (ASX: CTD), Flight Centre Travel Group Ltd (ASX: FLT) and Webjet Ltd (ASX: WEB) as peers. The stock is trading slightly below the average 52-week trading range of $0.67-$5.180 and thus holds the potential for further growth as depicted by EV/Sales multiple based illustrative relative valuation method. Considering the current trading levels, attractive returns in the past one month, decent financial performance despite the global pandemic and modest long-term outlook, we suggest investors to wait for the growth catalysts to drive the stock for further upside and recommend a ‘Hold’ rating on the stock at the current market price of $2.610, down by 2.247% on 24 June 2020.

oOh!Media Limited

Strong Track Record of Revenue Growth: oOh!Media Limited (ASX: OML) is a leading Out of Home media company, which offers the ability to create deep engagement between people and brands across Australia and New Zealand. As on 24 June 2020, the market capitalization of the company stood at ~$603.62 million. For the first quarter of 2020, revenue of the company was steady in comparison to Q1 FY19 revenue, which had increased 6% on Q1 FY18. Over the span of 5 years from FY14 to FY19, the company has witnessed a CAGR of ~20% in revenue, indicating growth in investment across technology platforms. It also reported a healthy balance sheet with debt covenant head room provided by banking syndicate increased to Net Debt/EBITDA of 4.0x.


Growth in Revenue (Source: Company Reports)

Growth Opportunities: During FY19, Out of Home channel has enjoyed strong audience growth as well as growth in market share out of total media ad spend. OML is well-positioned to capitalize on structural growth of the Out of Home market. As COVID-19 restrictions ease, the company is seeing upward trends in audiences. 

Key Risks: With the restrictions imposed by the Government because of COVID-19, the company has seen a significant decline in the revenues. Combined with a slowdown in advertising generally, this may result in challenging business conditions.

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

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

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

Stock Recommendation: The company reduced its discretionary spend and has equipped itself to manage through the short-term volatility. OML retains a strong competitive position for the medium term. As per ASX, the stock of OML gave a return of 68.6% in the past three months and is trading close to its 52-weeks’ low level of $0.550, proffering a decent opportunity for accumulation. We have valued the stock using EV/Sales multiple based Illustrative Relative Valuation Approach and have arrived at a target upside of lower double-digit (in percentage terms).Considering the attractive trading levels, decent returns in the past three months, a track record of revenue growth and positive long term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.02 on 24 June 2020.

MGC Pharmaceuticals Limited

MXC Awarded 3-year EU GMP Manufacturing Licence: MGC Pharmaceuticals Limited (ASX: MXC) is a European based bio-pharma company, specializing in the production and development of phytocannabinoid-derived medicines. As on 24 June 2020, the market capitalization of the company stood at ~$34.66 million. The company has recently received a three-year GMP license from EU authorities. The GMP license is essential for the production and manufacturing of pharma grade medicinal products.

Surpassed the Milestone of 3,250 Prescriptions: The company has recently surpassed the milestone of 3,250 prescriptions and has prescribed 1,338 patients with MGC Pharma products. Despite the outbreak of COVID-19, the company achieved strong sales growth.


Growth in MGC Patients Numbers (Source: Company Reports)

What to Expect:MGC Pharma aims to secure a significant share in the global Cannabis Pharmaceutical Medicine Market. It is working to achieve values over time and is targeting 5,000 Prescriptions per month in the first quarter of FY21.

Key Risks: The company is exposed to various risks that might impact future results. These include resource risk, volatility in metals price, currency fluctuations, increased production costs and variances in ore grade or recovery rates. The debt balance of the company is almost the double of its cash balance and may face liquidity concerns given the current market scenario

Stock Recommendation: The company has delivered higher than expected sales despite the outbreak of COVID-19. It also has a decent pipeline of orders. As per ASX, the stock of MXC gave a negative return of 29.03% in the past six months and a negative return of 12% in the last one month. On a Trailing Twelve- Month basis, the stock is trading at an EV/Sales multiple of 15.7x, higher than the industry median (Healthcare) of 10.3x, and thus seems overvalued. The stock is trading at attractive levels but holds a limited potential for growth. Considering the current trading levels, volatility in returns in the past six months, and risks due to the softer market conditions, we suggest investors to keep an eye on the business activities and have a watch stance on the stock at the current market price of $0.022 on 24 June 2020. 

 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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