Stocks’ Details
 

REA Group Ltd

1HFY20 Operating Expenses down by 4%: REA Group Ltd (ASX: REA) provides property and property-related services on websites and mobile apps throughout Australia and Asia. The market capitalisation of the company stood at $10.41 Bn as on 3^rd April 2020. Considering the uncertainties arising from the global impact of COVID-19, the company has suspended its guidance for FY20.  During 1H FY20, the company experienced continued signs of recovery in the property market, which include a gradual recovery in national listings led by Sydney and Melbourne. 

For the period, the company reported revenue amounting to $440.3 million, down by 6% on pcp. The company witnessed strong cost management and efficiencies from an organisational realignment, which resulted in a reduction of 4% in total operating expenses.


Revenue (Source: Company Reports)

Well Equipped to Operate: The company is well equipped in order to operate in a challenging environment from COVID-19 with best practice continuity measures in place. Moreover, it is in a strong position to overcome uncertainties from COVID-19.

Stock Recommendation: REA possesses a healthy balance sheet, low debt levels, and the capacity to increase debt facilities as necessary. Net margin of the company stood at 31.4%, reflecting a YoY growth of 30.9%. This reflects that the company has improved its position to convert its top-line into the bottom- line. Current ratio of the company stood at 1.60x in 1H FY20 as compared to 0.55x in 1H FY19, reflecting improved capabilities of REA to address its short-term obligations. Hence, considering improved liquidity position, healthy balance sheet and low levels of debt, we give a “Hold” recommendation on the stock at the current market price of $76.430 per share, down by 3.29% on 3^rd April 2020.

Nine Entertainment Co. Holdings Limited

Uncertainty in Fourth Quarter: Nine Entertainment Co. Holdings Limited (ASX: NEC) is mainly involved in broadcasting and program production across Free to Air television as well as metropolitan radio networks in Australia. The market capitalisation of the company stood at $2.04 Bn as on 3^rd April 2020. Revenue for Q3 FY20 were in-line with the guidance. With respect to the current global crisis, the company is focused on major short and long-term cost initiatives throughout all its businesses. The company recently announced that National Australia Bank Limited and its associated entities have made a change to their substantial holdings in the company on 20^th March 2020 and the current voting power stands at 6.220% as compared to the previous voting power of 5.161%. 

As a result of the rapid progression of COVID-19 together with uncertainty in the March quarter (Q4), the company has withdrawn its guidance for FY20. The below picture gives an idea of results for 1H FY20:


Reported Results (Source: Company Reports)

Benefits from Investment: During 1H FY20, the company has invested in technology via 9Galaxy which would allow its inventory to be traded seamlessly, and in a premium content mix which works across linear and on-demand television.

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The Company would be paying a fully franked interim dividend of 5 cents per share 20^th April 2020. We have valued the stock using P/E based relative valuation approach, and for the purpose, we have taken peer such as HT&E Ltd (ASX: HT1), Vocus Group Ltd (ASX: VOC) and Gtn Ltd (ASX: GTN) etc., and arrived at a target price, which is offering an upside of lower double-digit (in percentage  terms). Therefore, in light of expected benefits from investment and valuations, we give a “Buy” recommendation on the stock at the current market price of $1.110 per share, down by 7.113% on 3^rd April 2020.

oOh!media Limited

Successfully Completed Placement of Shares: oOh!media Limited (ASX: OML)  provides out of home advertising services with a market capitalisation of $156.34 Mn as on 3^rd April 2020. Recently, the company has successfully completed a placement to institutional and sophisticated investors and the institutional component of its 1 for 1 fully underwritten accelerated non-renounceable pro rata entitlement offer. The company expects to raise around $167 million from the offer. The Placement and the institutional component of the Entitlement Offer were closed on 27^th March 2020, and the company has raised around A$156 million.  The following picture depicts an idea of financial highlights of FY19:


Financial Highlights (Source: Company Reports)

Vigilant on Cost:  Due to the increasing uncertainties from COVID-19 and deteriorating macroeconomic conditions, the company has withdrawn FY20 earnings guidance. However, the company is vigilant on cost and is maintaining strict cost as well as a cash-flow discipline across the business.

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:Gross margin and EBITDA margin of the company stood at 71.6% and 50.4% in FY19, reflecting YoY growth of 24.8% and 27.1%, respectively.  We have valued the stock using P/E based relative valuation approach and arrived at a target price, which is offering an upside of lower double -digit (in percentage terms). Hence, considering the improvement in key margins, focus on maintaining cost discipline and completion of the placement, we maintain a “Hold” rating on the stock at the current market price of $0.610 per share, down by 5.426% on 3^rd April 2020.

Domain Holdings Australia Limited

Improvement in Material Business: Domain Holdings Australia Limited (ASX: DHG) is a real estate media and technology services business. Its core focus is on the property market of Australia. The market capitalisation of the company stood at $1.17 bn as on 3^rd April 2020. In March 2020 (Till 20^th March 2020), the company has experienced a material improvement in its residential business following a soft start to 2H FY20. The company continues to make progress towards its goal of quality audience growth. The below picture depicts an idea of underlying results for 1H FY20:



Disciplined Cost Management: DHG stated that there is uncertainty about the potential impact of COVID-19 on the Australian property market. The company is committed to maintain its track record of disciplined cost management to take account of the trading environment.

Stock Recommendation: Net margin of the company stood at 15.6% in 1H FY20 as compared to (83.9%) of 1H FY19. This reflects that the company has enhanced its capabilities to convert its topline into the bottom line. Return of equity for 1H FY20 stood at 1.7% with YoY growth of 14.4%. This reflects improved returns provided to shareholders. During the span of one month and three months, the stock has corrected 42.92% and 49.06%, respectively. Hence, in light of corrections in the past period and uncertainties from COVID-19, we have a watch stance on the stock at the current market price of $1.920 per share, down by 4.478% on 3^rd April 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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