Baby Bunting Group Limited

Quarterly Rebalance of S&P/ASX Indices: Baby Bunting Group Limited (ASX: BBN) is an Australia’s leading specialty retailer of baby products. As per the release dated 8^th March 2019, S&P Dow Jones Indices had announced the changes in the S&P/ASX indices, which had come into effect from the opening of trading on 18^th March 2019. According to the release, Baby Bunting Group Limited has been added to S&P/ASX 300 Index. Earlier, the company presented its trading and financial performance for 1HFY19. 

With respect to sales, BBN mentioned that it had witnessed a rise of 17.2% in 1HFY19, which was driven by strong comparable store sales (up by 9.5%), and new & annualising stores. Additionally, there was the contribution of online sales which grew by 61%.The company witnessed pro forma EBITDA of $11.6Mn, which reflects an increase of 25.0% on pcp basis. Pro-forma NPAT stood at $6.0Mn in 1HFY19, showing a growth of 25.3% on pcp basis.
 
 
Sales Comparison Chart (Source: Company Reports)

What to Expect from BBN:  Looking forward, the company anticipates EBITDA to be in the range of $25.0Mn to $27.0Mn, which would represent the growth in the range of around 34% - 45%. The company pointed out that this excludes employee equity incentive expenses. The company’s guidance assumes the comparable store sales growth to be mid to high single digits for the year and the gross margin of approximately 35% in FY19.

Stock Recommendation:In FY19,the company expects the opening of six new stores. When it comes to financial metrics, it had shown satisfying numbers. The gross margin of the company stood at 34.6% in 1HFY19 in comparison to the industry median of 23.3%, which represents the company’s capability to address the operating expenses in comparison to the broader industry.

On the stock’s performance front, it had witnessed a rise of 2.16% and 62.89% in the time span of six months and one year, respectively, proffering decent returns over the said period. Hence, considering the above-stated facts and decent outlook along with current trading level, we maintain our “Hold” recommendation on the stock at the current market price of A$2.400 per share (down 2.041% on 3 June 2019).
 

Arena REIT

Accomplishment of Institutional Placement: Arena REIT (ASX: ARF) owns, manages and develops social infrastructure properties throughout Australia. As per the release dated 3^rd June 2019, the company had offered a Security Purchase Plan to eligible securityholders, which have been registered till 20^th May 2019. The Security Purchase Plan (SPP) ensures eligible shareholders with an opportunity to contribute $2,500, $5,000, $10,000 or $15,000 in applying for new Securities. Through SPP offer, the company plans to raise up to A$5 million along with the capacity to accept oversubscriptions at the decision of the Board. The Issue Price of Securities under the SPP would be $2.63625 per Security and the company also communicated that the issue date of the securities under the SPP would be 1 July 2019. On 27^th May 2019, ARF, by release, updated the market that it had issued 18,726,592 fully paid ordinary stapled securities to institutional and professional investors under a share placement. In accordance with the company’s previous announcement dated 22^nd May 2019, ARF had announced the successful accomplishment of the A$50Mn fully underwritten Institutional Placement. The company pointed out that the Institutional Placement was priced at A$2.67 per Security, which was representing a 4.3% discount to the closing price of A$2.79 per security along with a 2.4% discount to the 5-day VWAP to 20 May 2019. Under this placement program, the company would issue ~ 18.7 Mn new securities to participating institutional investors.

In the context of Quarterly distribution, ARF had announced a distribution for the quarter ending 30 June 2019 of 3.375 cents per stapled security. The distribution is in accordance with the company’s previously announced FY19 distribution guidance of 13.5 cents per security. The company’s Dividend and Distribution Reinvestment Plan would be operating with respect to this distribution. The securityholders who are participating in the Distribution Reinvestment Plan would be issued new securities, which have been priced at a 1.5% discount to the 10-day volume weighted average trading price during the Pricing Period.

As can be seen from the following table, the Net Asset Value per security had increased predominantly because of uplift of $18.6 Mn in net property revaluation.


Financial Position (Source: Company Reports)

Future Aspects: With regards to income growth, the company is planning for four development projects with an estimated cost of $21 million at 6.7% projected yield on cost.In the context of new investment opportunities, it is planning for low gearing and additional debt capacity and it is continuing to seek avenues for the diversification.

Stock Recommendation: The company has a disciplined investment process for opportunities that meet ARF’s preferred investment characteristics. The return on equity of the company stood at 6.3% in 1HFY19 in comparison to the industry median of 5.1%, depicting that the company is providing better returns to shareholders in comparison to the broader industry.

With respect to the stock’s past performance, it had witnessed a rise of 14.11% and 25.57% in the time span of six months and one year, respectively. Currently, the stock is trading slightly towards its 52 weeks higher levels of $2.940. Hence, considering the aforesaid facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of A$2.740 per share (down 0.364% on 3 June 2019).
 

3P Learning Limited

Decent Outlook: 3P Learning Limited (ASX: 3PL) published its Macquarie Australia Conference presentation in which the company stated that ithad reinvested in strengthening the product portfolio and building a scalable digitised sales and marketing model. The company might witness growth with the help of product, customer, geographic expansion and improvements in customer retention.

A Quick Look at 1HFY19 Results: The Group revenue stood at $24.0Mn in 1HFY19, which reflected a decline of $4.3Mn or 15% as compared to the prior corresponding period due to re-phasing of APAC annual renewals. The expenses witnessed a decline of 7% in 1H FY 2019 on a YoY basis because of continued cost management and the benefits of its global operating model which is being realised.


 1HFY19 Results (Source: Company Reports)

What to Expect From 3PL: The company is expecting FY19 to be a modest year for revenue growth. The company is anticipating the stronger balance sheet with the cash to be in the range of $25Mn- $28Mn for FY19.It would enable the company to continue to support and grow the business. The company added that 2HFY19 marks the final stages of its 2017-2019 Strategic Plan.

Stock Recommendation: The company continues to expect that APAC would enjoy revenue growth ahead of cost growthand it would continue to enjoy the benefits of the reduced cost of acquiring customers.Coming to the stock performance, it had given a negative return of 5.45% and 9.57% in the time span of three months and six months, respectively. Hence, considering the aforesaid facts and looking at current trading level, we give a “Speculative Buy” rating on the stock at the current market price of A$1.030 per share (down 0.962% on 3 June 2019).
 

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