Stocks’ Details
 

Bapcor Limited

Record Results Across All Key Measures: Bapcor Limited (ASX: BAP) is engaged in the sale and distribution of motor vehicle aftermarket parts, accessories and servicing. As on 12 February 2020, the market capitalisation of the company stood at ~$1.91 billion. The company has recently released its interim results for the period ended 31 December 2019, wherein it stated that it achieved record results across all key measures. During 1H20, the company witnessed a CAGR of 20% in revenue that went up by 10.4% to $702.5 million. In the same time period, NPAT witnessed a growth of 5.1% and stood at $45.3 million. As a result, EPS increased by 4.0% to 15.94 cps. The company has also declared a fully franked dividend of 8 cents per share on ordinary fully paid shares which is to be paid on 13 March 2020.


Key Performance Indicators (Source: Company Reports)

Guidance: The company expects FY20 pro-forma NPAT to increase by middle single-digit (in percentage terms) as compared to FY19 and anticipates record full-year result in revenue, earnings and EPS. The addition of the commercial vehicle business of Truckline is expected to improve the performance in future years and achieve an ROI of at least 15% in FY21.
 
Stock Recommendation: As per ASX, the stock of BAP gave a return of 5.02% on YTD basis and a return of 9.84% in the past six months. The stock is also inclined towards the 52-week high level of $7.525. During FY19, EBITDA margin and net margin witnessed a slight increase from the previous year and stood at 12.6% and 7.4%, up from 11.9% and 6.8%, respectively. In the same time span, current ratio was 2.29x as compared to 1.96x in FY18. Considering the returns, trading levels, improvement in margins and decent outlook, we recommend a “Hold” rating on the stock at the current market price of $7.11, up by 6.119% on 12 February 2020, owing to the release of interim results. 

IDP Education Limited

Strong Operating and Financial Performance: IDP Education Limited (ASX: IEL) provides placement to international students into educational institutions in various countries. As on 12 February 2020, the market capitalisation of the company stood at ~$4.24 billion.The company has recently declared its interim results for the period ended 31 December 2019 wherein it stated that revenue went up by 25% to $379 million. This was mainly due to multi-destination student placement. This resulted in NPAT to increase by 42% to $57.7 million. 

During 1H20, the company placed 33,800 students and witnessed strong margins and cash flow performance. The decent financial performance enabled the Board to declare an interim dividend of 16.5 cps, up by 37% on pcp.


1H20 Financial Highlights (Source: Company Reports)

What to Expect: The company headed in FY20 with a great start and is leveraging new operating processes. It is focusing on delivering superior customer service and aims to empower institutions to be more strategic about attracting a globally diverse student lot. It is also prioritising on investment in the IELTS test taker.

Stock Recommendation: As per ASX, the stock of IEL gave a negative return of 10.95% in the past one month and is trading very close to its 52-week high of $22.0. During 1H20, net margin of the company was 15.2% as compared to the industry median of 17.2%. In the same time span, ROE of the company stood at 34.5%, higher than the industry median of 4.5%. On TTM basis, the stock is trading at an EV/Sales multiple of 6.5x, higher than the industry median (Professional & Commercial Services) of 2.6x. Considering the returns, trading levels, higher ROE and valuation, we have a watch stance on the stock at the current market price of $21.42, up by 28.417% on 12 February 2020, owing to the release of interim results.

Downer EDI Limited

Decent Increase in Revenue: Downer EDI Limited (ASX: DOW) designs, builds and sustains assets, infrastructure and facilities, and is a leading provider of integrated services in Australia and New Zealand. As on 12 February 2020, the market capitalisation of the company stood at ~$4.44 billion. The company has recently released its half-yearly results for the period ended 31 December 2019, wherein it reported an increase of 3.3% in group revenue. In the same time span, EBITDA fell by 19.9% to $214.8 million. This was due to contract losses in the EC&M service line. The company has also declared an interim unfranked dividend of 14 cents per share on ordinary fully paid shares, which is to be paid on 25 March 2020.


1H19 Financial Performance (Source: Company Reports)

Guidance and Expectations: Downer EDI Limited expects to report a cash conversion of approximately 40-50% of EBITDA for FY20. The company also anticipates its FY20 NPATA to be around $300 million. The mining division of the company has performed well and is expected to achieve EBITA between $90 million - $100 million in FY20.

Valuation Methodology: EV/Sales Based Valuation 

EV/Sales Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of DOW is inclined towards its 52-weeks’ low level of $6.450, proffering a decent opportunity for accumulation. During FY19, gross margin of the company stood at 45.3%, higher than the industry median of 38.6%. This indicates that the company is managing its costs well and is capable of converting its revenue into profits. Considering the trading levels, higher gross margin and decent outlook, we have valued the stock using EV/Sales based relative valuation method and arrived at a target price offering an upside of lower double-digit (in percentage terms). Hence, we recommend a “Buy” rating on the stock at a current market price of $7.270, down by 2.677% on 12 February 2020. 

Blackmores Limited

Adverse Effect of Corona Virus: Blackmores Limited (ASX: BKL) is engaged in the development, sales and marketing of natural health products for humans and animals. As on 12 February 2020, the market capitalisation of the company stood at ~$1.56 billion. The company has recently lifted its trading halt on the ordinary shares. During 1H20, revenue of the company went down by 5% to $302.7 million and EBIT witnessed a decline of 44% and stood at $26.7 million, down from $50.5 million in 1H19. In the same time span, NPAT went down to $18.3 million from $34.3 million in 1H19.


1H20 Financial Performance (Source: Company Reports)

What to Expect: The company has revised down its full-year profit expectations, reflecting the adverse costs in addition to challenges associated with Coronavirus. Full-year NPAT is expected to be in the range of $17 million to $21 million. BKL is also expecting 2-3 months of supply challenges from China. The company expects similar revenue in the second half with significantly higher costs. Despite the challenging second-half, the management remains confident and optimistic about the future of Blackmores. The company is exploring several new ventures and growth opportunities to deliver quality earnings in FY21 and beyond.

Valuation Methodology: Price to Earnings Based Valuation

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of BKL gave a return of 5.96% in the past 6 months and a return of 3.59% in the past one month. During FY19, gross margin of the company was 60%, and net margin stood at 8.8%. Considering the returns and effect of coronavirus on earnings, we have valued the stock using Price to Earnings based relative valuation method and arrived at a downside of higher single-digit (in percentage terms). Hence, we have a watch stance on the stock at the current market price of $78.0, down by 12.791% on 12 February 2020, owing to its recent trading update and revised guidance.  

 
Comparative Price Chart (Source: Thomson Reuters)

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