Stocks’ Details
 

Service Stream Limited

Ten-Year Contract to Subsidiary Company: Service Stream Limited (ASX: SSM) provides essential network services, which include access, design, build, installation and maintenance. The market capitalisation of the company stood at A$1.1 Bn as on 3^rd January 2020. The company has recently appointed Ms. Linda Kow on the role of Chief Financial Officer. Ms. Kow would be joining SSM in the month of May 2020. In another update, the company announced that the consortium to which its wholly-owned subsidiary Comdain Infrastructure Pty Ltd is a participant has been given 10-year agreement by Sydney Water Corporation.

The consortium, which would be taking form of unincorporated joint venture to be known as the Delivering for Customers (D4C) Joint Venture, consists of Comdain Infrastructure Pty Ltd (having 30% participating interest), John Holland Pty Ltd (having 30%), Lend Lease Services Pty Ltd (30%) and WSP Australia Pty Ltd (with 10%). This contract comprises a mobilisation period of 6 months, which have been commenced in January 2020, followed by two five-year service delivery terms with a performance review at the end of the first five years. For the year ended 30^th June 2019, the company reported EBITDA amounting to $93.3 million, reflecting a rise of 41%.


Group Revenue (Source: Company Reports)

Growth in Energy and Water:The company is anticipating fixed communications to continue to grow as extensions to the OMMA and NMRA agreements have been secured. Backed by 13 field services agreements, which were resecured in FY19, the company is anticipating growth in Energy and Water. 
 
Valuation Methodology: P/E Multiple Approach

P/E Multiple Approach (Source: Thomson Reuters)

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

Stock Recommendation:During FY19, the company declared total fully franked dividends amounting to 9.0 cents per share, reflecting a growth of 20%. Gross margin and EBITDA margin of the company stood at 95.6% and 11.0% in FY19 as compared to the industry median of 12.9% and 6.2%, respectively. Return on equity of the company stood at 19.4% in FY19 against the industry median of 9.9%. This reflects that the company has provided decent returns to shareholders in comparison to the peer group.

We have valued the stock using the P/E based valuation approach and, for the said purposes, we have considered peers like Telstra Corporation Ltd (ASX: TLS), Vocus Group Limited (ASX: VOC) and TPG Telecom Ltd. (ASX: TPM). Therefore, we have arrived at the target price, which is offering an upside potential of higher single-digit (in percentage terms). Therefore, considering growth in key margins, decent returns to the shareholder, rise in dividend along with the expected upside, we maintain a “Hold” rating on the stock at the current market price of A$2.690 per share, down by 0.37% on January 3, 2020.

EML Payments Limited

Successfully Completed Fund Raising:EML Payments Limited (ASX: EML) is an issuer of pre-paid financial cards and has a market capitalisation of A$1.5 Bn as on 3^rd January 2020. The company has recently replaced Bellamy's Australia Limited on S&P/ASX 200, which became effective on 11^th December 2019. The company has issued around 26 million EML shares at a price of $3.55 per EML share for raising around A$93 million. The following picture provides an idea of financial performance for the financial year 2019:


Financial Performance (Source: Company Reports)

Expectation of Rise in Volumes:EML would continue to grow volumes by identifying the opportunities, which offer significant payment volumes as well as would benefit from customised payment solutions to improve their offerings or current processes. Moving forward, the company would continue to improve its product offerings and will actively target clients, presented in the high volume industries.

Valuation Methodology: P/B Multiple Approach

P/B Multiple Approach (Source: Thomson Reuters)
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:The wholly-owned subsidiary of the company named EML Payments USA, LLC has entered into a non-exclusive multi-year agreement with Simon Property Group, which happens to be a global shopping mall operator for distribution of the multiple payment card products via select Simon shopping malls as well as B2B distribution channels in the US. It was added that agreement with Simon has been signed and would be expiring on 14^th December 2024.Net margin of the company stood at 8.7% in FY19, reflecting YoY growth of 5.6%. This reflects that the company has improved its position to convert its top-line into bottom-line. We have valued the stock using P/BV Based valuation method and have arrived at the target price, which is offering an upside potential of lower double-digit (in percentage terms). Hence, in the light of the favourable valuation, recent agreement signed by its subsidiary and other factors, we maintain a “Hold” rating on the stock at the current market price of A$4.630 per share, up 0.625% on 3^rd January 2020.

City Chic Collective Limited

Transformation of CCX:City Chic Collective Limited (ASX: CCX) is engaged in the women's fashion retail sector in Australia, NZ, USA, Germany as well as the UK. The market capitalisation of the company stood at A$499.81 million on 3^rd January 2020. The company recently announced that Wilson Asset Management Group has ceased to become a substantial holder in the company on 22^nd November 2019. As per the key personnel of the company, FY19 has witnessed a new beginning for the company and its people. The completion of the sale of the 5 brands to Noni B resulted in the transformation from retail conglomerate to pure play in the women’s plus size apparel market.


Key Financial Metrics (Source: Company Reports)

Plan to Launch Store in ANZ:The company would operate avenue.com as a standalone website in the USA and fully integrate with its systems by the end of FY20. The company is planning store roll-out throughout Australia and New Zealand. It is also planning an expansion into new segments within plus size market.

Stock Recommendation:During FY19, the company declared fully franked full-year dividend amounting to 6.5 cents per share, reflecting the maximum dividend payout to the extent the dividend is fully franked. The stock of CCX has provided returns of 43.65% and 165.96% in the span of six months and one year, respectively. As per ASX, the stock of CCX is trading closer to its 52-week of A$2.920. On TTM basis, EV/Sales multiple stood at 2.6x and industry median (Consumer Cyclicals) of 1.3x and EV/EBITDA multiple stood at 15.9x and industry median (Consumer Cyclicals) of 8.3x. Thus, considering the current trading levels and stretched valuations, we give an “Expensive” recommendation on the stock at the current market price of A$2.700 per share, up 3.846% on 3^rd January 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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