Stocks’ Details

REA Group Ltd

A Look at FY20 Results: REA Group Ltd (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 $14.94 billion as on 10^th August 2020. During FY20, the company managed to deliver resilient performance against unprecedented market conditions. Revenue for the period stood at $820.3 million, down by 6% on the previous year. On a reported basis, net profit amounted to $112.6 million, up 7% on the previous year, reflecting one-off impacts. The company witnessed a robust sign of recovery in the Australian property market at the start of 2H FY20. This includes improvements in national residential listings led by Melbourne and Sydney.

The company declared a fully franked final dividend of 55.0 cents per share, taking the total dividend for FY20 to 110.0 cents per share. The company will pay a final dividend on 17^th September 2020.

Revenue and EBITDA (Source: Company Reports)

Outlook: With respect to the property segment, the company is focused on improving the way properties are displayed on its sites and apps. This is likely to create more opportunities for customers to continue growing their business while creating personalised experiences for consumers. The company is scheduled to release its Q1 FY21 results on 6^th November 2020.

Key Risks: The company’s business is sensitive to the performance of the Australian property market as its business foundation is online advertising of property listing. Any fluctuation in the property market may impact the business. In addition, the business is also exposed to other material risks, including strategic, operational, compliance regulatory, and credit risk.

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: At the end of FY20, the company had a decent balance sheet with low debt levels and a cash balance of $223 million. For FY20, the company’s gross margin and EBITDA margin stood at 93.0% and 55.5%, respectively. 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 News Corp (ASX: NWS), Seven West Media Ltd (ASX: SWM), Chorus Ltd (ASX: CNU), etc., and arrived at a target price of high single-digit upside (in percentage terms). Thus, considering the recovery in the Australian Property market, decent balance sheet, low debt levels and valuation, we give a “Hold” recommendation on the stock at the current market price of $114.660 per share, up by 1.093% on 10^th August 2020.

Tabcorp Holdings Limited

Binding Term Sheet Signed with Jumbo: Tabcorp Holdings Limited (ASX: TAH) is engaged in the provisioning of gambling and other entertainment services. The market capitalisation of the company stood at $7.21 billion as on 10^th August 2020. In a recent response to media coverage regarding a potential capital raising, TAH clarified that it has not made any decision to undertake a capital raising. Further, the company assured that it has continued to review its balance sheet and potential funding options.

In another update, the company advised that it has inked a binding term sheet with Jumbo Interactive Limited, which largely include an agreement with Jumbo for resale of Tabcorp lottery products for a 10-year term until on or about July 2030 and fixed extension fee of $15 million payable by Jumbo to Tabcorp upon commencement. The below picture gives an overview of the financial performance of 1H FY20:

Key Financials (Source: Company Reports)

Guidance: For FY20, the company expects to incur non-cash goodwill impairment charges in the ambit of $1,000 million to $1,100 million. Also, the company is likely to report EBITDA for the period in the range of $990 million to $1,000 million and net profit after tax (before significant items) of between $267 million to $273 million. The company is expected to release its FY20 results on 19^th August 2020.

Key Risks: The material business risks include breach of laws and licences, and changes in laws and the regulatory environment. Also, the business could be impacted by the rising market share of competitors.

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 is optimistic about the strength and resilience of its diversified portfolio of assets. 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 Aristocrat Leisure Ltd (ASX: ALL), Star Entertainment Group Ltd (ASX: SGR), Crown Resorts Ltd (ASX: CWN), etc., and arrived at a target price of low double-digit upside (in percentage terms). Hence, in light of the agreement with Jumbo, strength and resilience of portfolio of assets and guidance, we give a “Buy” recommendation on the stock at the current market price of $3.500 per share, down by 1.408% on 10^th August 2020.

The Star Entertainment Group Limited

Tax Agreement with NSW Government:  The Star Entertainment Group Limited (ASX: SGR) is engaged in the management of integrated resorts with gaming, entertainment and hospitality services. The market capitalisation of the company stood at $2.62 billion as on 10^th August 2020. Recently, the company noted an announcement made by the NSW Government Public Health department, which amends COVID-19 related restrictions that apply to hospitality venues, including The Star Sydney. The new restrictions imply that whilst The Star Sydney is required to continue complying with the minimum of 4 square metres per patron, each separate area within the casino will also be subject to a maximum of 300 patrons. On 1^st June 2020, the company reached an agreement with the NSW Government on gaming taxes applicable to The Star Sydney until the end of FY41. The company added that the new 20-year arrangements would commence in FY22 comprising flat rates of tax as a percentage of revenue. The below picture provides an overview of 1H FY20 financials:

1H FY20 Financials (Source: Company Reports)

Reduced Capital Expenditure: For FY20 and FY21, the company has reduced expected Group capital expenditure by around $25 million and $175 million, respectively. The company is likely to release its FY20 results on 20^th August 2020.

Key Risks: The company’s business could be impacted by increased competition in its key markets of Sydney, Brisbane and Gold Coast. In addition, the business is also exposed to the risk created from the Geo-political and regulatory change.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow 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: SGR has executed an additional debt funding facility with existing relationship banks for $200 million, which bolsters the company’s liquidity position. We have valued the stock using a P/CF multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Crown Resorts Ltd (ASX: CWN), Tabcorp Holdings Ltd (ASX: TAH), and Nine Entertainment Co Holdings Ltd (ASX: NEC). Therefore, considering a new 20-year tax agreement with NSW Government, a strong liquidity position, we give a “Buy” recommendation on the stock at the current market price of $2.770 per share, up by 0.362% on 10^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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