Stocks’ Details

REA Group Limited

Continued Recovery of Real-Estate Market: REA Group Limited (ASX: REA) provides property and property-related services on websites and mobile apps in Australia and Asia. The market capitalisation of the company stood at $13.8 Bn as on 13^th July 2020. For the nine months ended 31 March 2020, the group reported revenue and EBITDA from core operations amounting to $640.2 million and $390.8 million. During the quarter ended 31^st March 2020, the group managed to deliver an improved performance, which reflected the continued recovery of the real estate market prior to the effects of COVID-19 emerging in mid-March. The Australian property market showcased strong signs of recovery during the quarter, which included improvements in national residential listings led by Melbourne and Sydney. Moreover, the Australian residential revenue was in line with the previous quarter.

Key Financials (Source: Company Reports)

Impact on Revenue: The company expects its revenue to be negatively impacted by the softness in new listing volumes and the measures undertaken by the Group to support its customers in challenging times caused by COVID-19. The company has scheduled to release its FY20 results on 6^th August 2020.

Key Risks: As of now, the company is dealing with challenges in the property market presented by COVID-19, and these may impact the financial performance of the company in the near term. In addition, the company is also exposed to the risk created from the development of new technologies and increased competition from existing or new sites and apps, which could affect the existing business model.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company possesses a decent balance sheet position with low debt levels and a cash balance of $135 million as of 30 April 2020. REA has also cemented its liquidity position by entering into an additional $149 million loan facility which matures in December 2021. Net margin of the company stood at 31.4% in 1H FY20, reflecting YoY growth of 30.9%. This indicates that the company has improved its capabilities to convert its topline into the bottom line. The stock of REA has provided a return of 21.49% in the last three months. We have valued the stock using the P/E multiple based illustrative relative valuation method. For the purpose, we have taken peers such as News Corp (ASX: NWC), Chorus Ltd (ASX: CNU) etc., and arrived at a target price of high single-digit upside (in percentage terms). Therefore, considering the improvements in national residential listings, decent balance sheet and liquidity position, we give a “Hold” rating on the stock at the current market price of $105.210 per share, up by 0.439% on 13^th July 2020.

Tyro Payments Limited

Growth in Transactions Values: Tyro Payments Limited (ASX: TYR) provides Electronic Funds Transfer at Point of Sale (EFTPOS) payments solutions, small business loans and banking products to Australian businesses. The market capitalisation of the company stood at $1.9 Bn as on 13^th July 2020. As per the recent quarterly rebalance of S&P Dow Jones Indices, the company has been added to the S&P/ASX 300 Index, which became effective on 22^nd June 2020. During 1H FY20, the company reported a record $11.1 billion in transactions processed by Tyro merchants, which moved up by 30%. The company achieved EBITDA amounting to $1.5 million in 1H FY20 as compared to the EBITDA loss of $3.0 million in 1H FY19. The following picture gives an overview of the latest transaction value update:

Transaction Value (Source: Company Reports)

Suspension of Guidance: Previously, the company had suspended its guidance for FY20 considering the escalation of the measures being implemented by the federal, state and territory governments in response to COVID-19, increasing adverse impact on its merchants’ businesses, together with the uncertainty in relation to the spread and duration of the COVID-19 pandemic.

Key Risks: The company is mainly exposed to credit risk, which arises from its operating, lending and investing activities, including deposits with banks and financial institutions, foreign exchange transactions and financial investments in floating-rate notes. Moreover, the business is also sensitive to market risks, such as interest rate risk and foreign currency risk. Market risk is influenced by the fluctuation in fair value of future cash flows of a financial instrument due to changes in market prices.

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

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

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

Stock Recommendation: The company is in a decent financial position, with cash, cash equivalents and financial investments of $154 million at the end of February 2020 against $149 million as of 31 December 2019, due to relatively higher December trade receivables received in January 2020. The company possesses a simple capital structure with no corporate debt. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Afterpay Ltd (ASX: APT), Bravura Solutions Ltd (ASX: BVS), etc., and arrived at a target price of high single-digit upside (in percentage terms). Therefore, considering the growth in transaction value, decent financial position, and a simple capital structure with no corporate debt, we maintain a “Hold” rating on the stock at the current market price of $3.800 per share, down 0.262% on 13^th July 2020.

Catapult Group International Limited

No Impact on Long-Term Sales Trajectory: Catapult Group International Limited (ASX: CAT) is involved in the development and sale of wearable tracking solutions and analytics to elite sporting teams, leagues, and associations. The market capitalisation of the company stood at $232.89 Mn as on 13 July 2020. Recently, the company has appointed Ms. Yana Bulva as its Senior Vice President of Product. Around 75% of CAT’s revenue is subscriptions-based, which is supported by long term contracts and customer relationships. The company is actively switching non-recurring revenue to recurring revenue, and it is focused on driving continued growth in recurring revenue. The company started 2H FY20 in a position of financial strength after delivering a positive free cash flow of $13.6 million in 1H FY20. CAT believes that COVID-19 would not impact its long-term sales trajectory.

Annual Recurring Revenue (Source: Company Reports)

Impact on New Growth Sales: Considering the delays and temporary closures of many sporting bodies, the company expects that new sales growth for Q4 FY20 is likely to be adversely impacted. However, CAT reaffirmed its commitment to positive free cash flow by FY21.

Key Risks: The company’s business is primarily exposed to economic risk, as the operations of the company can be affected by the changes in the broader economic and financial climate.  CAT is also sensitive to Industry and competition risk influenced by the increase in competitors’ market share.

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

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

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

Stock Recommendation: The company is well-capitalised and has drawn down USD$5 million from an existing debt facility, resulting in a current cash position of over A$30 million. Debt to equity multiple of the company stood at 0.05x in 1H FY20 as compared to the industry median of 0.31x. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method. For the purpose, we have taken peers such as Citadel Group Ltd (ASX: CGL), RPMGlobal Holdings Ltd (ASX: RUL), etc., and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the decent financial strength, well-capitalised position and deleveraged balance sheet along with key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.225, up by 0.41% on 13^th July 2020. 

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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