NEXTDC Limited

Exuberant Growth in 1HFY19: NEXTDC Limited (ASX: NXT) operates independent data centres in Australia. On 04 June 2019, the company notified the exchange that it has raised $200 million in senior unsecured debt. The funds were raised through an additional fixed and floating rate tranche of its $300 million Notes IV (Notes IV-2). The funding will be deployed for the pipeline of the company in the coming years.

Financial Highlights: For the six months ended 31 December 2018, the company reported revenue of $90.8 million, up 17% on prior corresponding period revenue of $77.5 million. Underlying EBITDA went up to $42.2 million, displaying an increase of 26% on pcp underlying EBITDA of $33.6 million. Cash and undrawn debt facilities as at 31 December 2018 totalled to $644 million. The company strengthened its balance sheet by making acquisitions, hence, saving approximately $15 million on annualised rent. The number of customers went up by 25% to 1,090 as compared to 875 in 1H18.

1H19 Highlights (Source: Company Reports)

FY19 Guidance: Based on the performance during 1H19, FY19 revenue guidance has been given in the range of $180 million to $184 million (formerly, $183 million to $188 million). FY19 Underlying EBITDA is expected in the range of $83 million and $87 million with no change and Capital expenditure is forecasted at $430 million and $470 million, unchanged.

Stock Performance and Recommendation: The stock of the company yielded returns of 10.16% and 10.70% over a period of 1 month and 3 months, respectively. On the financial front, the company delivered results in-line with the plan and depicted strong fundamentals reflecting inherent operating leverage of the business. The period saw an unprecedented level of sales and an increase in customers traffic that demonstrated its strength in the market. For 1H19, it had an EBITDA margin of 53.8% against the industry median of 29.1%. The stock experienced a short interest of ~11.99% (as per the ASIC report of 11 June 2019). Based on the foregoing, we give a “Buy” rating on the stock at a current market price of $6.730 (down 1.464% on 17 June 2019).
 

JB HI-FI Limited

Highest FY19 Revenue Guidance for JB HI-FI Australia: JB HI-FI Limited (ASX: JBH) is engaged in the retailing of home consumer products. Its offerings include consumer electronics, software, whitegoods, and appliances. Recently, the company announced that Ellerston Capital Limited ceased to be a substantial shareholder of the group since 13 June 2019. In another announcement on 12 June 2019, the company issued 7,595 Unquoted Executive Share Options (ESOP) over ordinary shares.

JB HI-FI Group Model (Source: Company Reports)
 
Financial Highlights: During Q3FY19, the total sales for JB HI-FI Australia division grew at a rate of 2.6% as compared to the Q3FY18 growth rate of 7.5%. YTD FY19 total sales growth in the region was at a rate of 4.1% whereas YTD FY18 total sales grew by 9.8%. For JB HI-FI New Zealand, the total sales went down by 1.2% while in Q3FY18, the decline was at a rate of 4.4%. YTD FY19 sales in the region grew at a rate of 3.7% while YTD FY18 sales declined at a rate of 1.7%.  For The Good Guys segment, total sales growth for Q3FY19 was 2.2% as compared to a decline of 1.3% in Q3FY18. YTD FY19 total sales grew by 2.6% as compared to 1.2% in YTD FY18.
 
FY19 Guidance: The guidance was reaffirmed with total group sales to be approximately $7.1 billion with JB HI-FI Australia sales at $4.73 billion, JB HI-FI New Zealand sales at $0.24 billion and The Good Guys sales at $2.15 billion. The FY19 Group NPAT is expected in the range of $237 million to $245 million, an increase of 1.6% to 5.1% on pcp.
 
Stock Performance: The company’s stock yielded positive returns of 19.19% over the period of 6 months, YTD 23.06%. EV/EBITDA for the company stands at 7.8x against the industry median of 6.8x. Also, it is trading at price-to-earnings ratio of 12.640x, which is higher than the industry median of 10.3x. Moreover, the stock experienced a short interest of over 15.33% (as per the ASIC report of 11 June 2019). Hence, consideringthe above-mentioned facts, stretched valuations in comparison with industry, price appreciation seen in recent 6 months, etc, we give an “Expensive” recommendation to the stock at a current market price of $26.620 (up 0.15% on 17 June 2019).
 

Orocobre Limited

Record Production in March Quarter: Orocobre Limited (ASX: ORE) is primarily engaged in exploration, development and production of lithium at its flagship Olaroz Lithium Facility and operation of Borax. On 11 June 2019, the company made an announcement for the issue of 727,722 performance rights pursuant to the terms of the Orocobre Performance Rights and Options Plan.

The company recently presented its business prospects at the Macquarie‘Australia Conference’and highlighted about business performance. As per the presentation, it achieved the highest March quarter production to date despite rainfall and lower evaporation rates and expects FY19 production to be similar to FY18. The company’s Project Debt reduced by US$82 million as a result of repayment causing a 43% reduction in Project Debt. Chinese exports also witnessed growth due to weak domestic prices.

In Q3FY19, the company witnessed the best March quarter production of 3,075 tonnes at Olaroz. In comparison to the prior corresponding period, the production went up by 10% and year to date production at Olaroz stood at 9,150 tonnes. Sales revenue for the quarter amounted to US$ 33.4 million, up 4% Q-o-Q. After incurring expenditure on expansion activities, corporate expenses, debt repayment, etc., the company had US$265.7 million cash as at 31 March 2019.


Key Highlights of Q3FY19 (Source: Company Reports)

By the end of the quarter, the Final Investment Decision for the Naraha Lithium Hydroxide Plant was approved by Toyota Tsusho Corporation and Joint Venture Boards. 75% of economic interest in the project will be held by Orocobre. Stage 2 expansion of its Olaroz Lithium Facility is under process with the construction of new roads, new evaporation, and harvest ponds, etc. In case of Borax Argentina, the Sales revenue increased by 4% Q-o-Q. Overall sales volume in the March quarter increased by 44% to 13,041 tonnes as compared to pcp. This also accounted for 2,312 tonnes of low value mineral sold during the period.

FY19 Guidance: FY19 production is expected to be approximately the same as FY18 production of 12,470 tonnes.

Stock Performance: The stock of the company yielded returns of -4.52% and -6.49% over a period of 1 month and 3 months, respectively. Currently, the stock of the company is trading at P/E multiple of 34.530x. The stock experienced a short interest of ~12.72% (as per the ASIC report of 11 June 2019). Besides this, Q3FY19 proved to be a record March quarter with the highest production levels along with the development and expansion of business through investments. Stage 2 expansion of Olaroz Lithium Facility is also expected to diversify the company’s production strategy, which will help to accelerate the growth momentum in the coming future. Hence, we give a “Buy” recommendation to the stock at a current market price of $3.060 (down 3.47% on 17 June 2019).
  

Bellamy’s Australia Limited

1H19 Profit Impacted by Lower Revenue Revised Group Guidance: Bellamy’s Australia Limited (ASX: BAL) offers a range of organic food and formula products for babies and toddlers. In an announcement to the exchange, the company notified that SAMR approved a label and artwork change to the existing registered ViPlus Dairy’s bovine formula series. Approval for Bellamy’s organic formula-series application is still on-hold.

Financial Highlights: During 1H19 ended 31 December 2018, the company reported a group revenue of $129.6 million, down 25.9% on 1H18 revenue of $174.9 million. Group EBITDA for the period amounted to $26 million, down 25.5% on prior corresponding period EBITDA of $34.9 million. Net profit after tax was equal to $16.5 million, down 26.3% on 1H18 NPAT of $22.4 million. The decline in revenue was a consequence of four major factors including SAMR registration delay, trade inventory reduction, market factors characterised by slower growth in China and Camperdown external order timing. Despite the above factors, the company showcased a strong balance sheet position with $95 million in cash with group cash balance reporting an increase of $7 million. Also, it continues to maintain zero debt levels with access to a $40 million debt facility.


Profit & Loss Statement (Source: Company Reports)

FY19 Guidance: The company anticipates revised group revenue for FY19 to be in the range of $275-300 million. FY19 group EBITDA margin was also revised in the range of 18-22%.

Stock Performance: The stock generated returns of -14.98% and -25.65% over a period of 1 month and 3 months, respectively. On the financial front, the company witnessed declining revenues and profits due to a variety of reasons but at the same time depicted a strong balance sheet position with adequate cash balance. The stock experienced a short interest of over 11.096% (as per the ASIC report of 11 June 2019). By looking at the above factors and current trading level, we give a “Hold” recommendation on the stock at a current market price of $7.860 (down 1.75% on 17 June 2019).  

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