Vita Group Ltd

VTG Details
Optimising portfolio within footprint: Vita Group witnessed another fall of over 7.5% on May 15, 2017 post tumbling over 30.5% on May 11, 2017. The group recently highlighted about Telstra’s (ASX: TLS) decision to organize its own and licensed stores into geographic clusters. Under the new proposal, expandable Telstra licensees will be invited to apply to build their Telstra store networks within a particular geographical region. However, given Vita’s scale and position as Telstra’s only Master Licensee, it expects to retain a sizeable portion of the network, of which it currently owns and runs 107 retail stores, with representation in 35 of the 48 Telstra-determined geographic clusters. Further, the company announced that discussions are going on with Telstra over commercial terms as the remuneration terms agreed during December and February were still impacting both, Telstra’s profit margins and its NBN rollout on business. Importantly, Vita has suspended its plans to expand the number of stores in its network until these discussions are concluded. However, on the guidance front, the group expects to report a record EBITDA of $63m-$66m in FY17 against $62.0m in FY16, with H2FY17 EBITDA to be softer than the H1FY17 EBITDA of $35.0m. There have been concerns rising about suspension of VTG’s plan to expand the stores in its retail network and impact of earlier remuneration reduction from Telstra on H2FY17. We maintain a “Hold” on the stock at the current price of $ 1.375


VTG Daily Chart (Source: Thomson Reuters) 

CSR Ltd

CSR Details
Results impacted by lower realizations in Aluminum prices: For full year ending March 2017, CSR reported a revenue growth of 7% year on year (yoy) to $2.47 billion while posting net profit growth of 25% yoy at $177.9 million. Net profit growth was driven by a substantial increase in earnings from building products as it reported a record EBIT of 21% yoy at $202.8 million, led by the robust market for residential housing on the east coast of Australia.  However, Aluminum segment reported EBIT fall of about 11% to $93.1 million led by 4% yoy decline in realizations and subdued volumes growth of 1% yoy. Further, the growth in earnings led to a 5% yoy increase in operating cash flow to $264.8 million and an 11% increase in the full-year dividend to 26.0 cents per share. For FY18, company expects that earnings will be supported by steady demand from detached housing and high-rise construction on the east coast coupled with improvement in Viridian’s earnings due to restructuring initiatives to reduce costs in certain regions and growing position in higher-margin commercial projects.
 

Financial summary (Source: Company reports)
 
CSR Ltd.’s stock has moved up 8.5% over the last six months (as at May 12, 2017) in the anticipation of better results. However, the stock declined by 15.8% in last five trading sessions after announcing the moderate results for FY17, while the street was expecting a better performance. Further, the company also expressed that residential construction markets appear to have peaked from recent record levels of activity.  We give an “Expensive” recommendation on the stock at the current market price of $ 4.29


CSR Daily Chart (Source: Thomson Reuters) 

Ten Network Holdings Ltd

TEN Details
Expects to report EBITDA loss of $25-30m for FY17:Recently, the Australian government announced a media reform package and proposed for abolishing commercial television license fees and expects to provide immediate financial relief to all commercial free-to-air television broadcasters, while addressing community concern around gambling advertising in live sport. Further, key ownership laws (including the 75% reach rule) and broadcasting fees have been proposed to be excluded with an aim to bring a wave of consolidation across the sector. This move by the government had helped TEN surge higher on a short-term basis. On the other hand, the company reported a A$232 million loss in H1FY17, and informed it requires a loan to continue operations. Further, it has indicated that the group’s future is in the hands of debt guarantors while becoming a takeover target due to new reforms. Notably, it is expected to report a EBITDA loss of $25-30 million for FY17. However, it has commenced a transformation program to improve all facets of the business and expects to improve revenues through a range of initiatives while achieving significant cost savings, most of which will fall in the FY2018 onwards.
 

H1 FY17 Summary (Source: Company reports)
 
Although TEN stock surged up 20.45% on May 08, 2017 over the proposed reform media measures, it has declined by 55.5% in last one month and slipped by 11% in last five days on account of huge operating losses. Given the competition in the industry and operating environment, we give an “Expensive” rating on the stock at the current market price of $ 0.225
 

TEN Daily Chart (Source: Thomson Reuters) 

Myer Holdings Ltd

MYR Details
Q3FY17 sales impacted by challenging market conditions: For Q3FY17, Myer Holdings Ltd reported 3.3% yoy decline in sales to $653.0 million, while it was down 2.0% on a comparable store basis. Moreover, sass & bide’s subdued performance continued during the quarter led by $1.5 million of Myer’s shortfall in Q3FY17. However, the group’s sales per square meter on a rolling 12 months’ basis was up 5.1% compared to July 2015 and MYR witnessed a strong growth of 36% yoy in online sales driven by substantial investments in improving omni-channel offer. Further, as part of productivity improvement across all assets, company decided to hand back approximately 50% of the space at the Richlands Distribution Centre in Queensland which will significantly improve productivity of that center. The stock lost over 27% over last three months (as at May 12, 2017) due to overall bleak sentiment about the industry coupled with subdued third quarter sales and rising headwinds due to Amazon’s entry. We maintain an “Expensive” recommendation on the stock at the current price of $ 0.915


MYR Daily Chart (Source: Thomson Reuters) 

Quintis Ltd

QIN Details 
Galderma’s contract termination is weighing on stock:The Board of Quintis was informed on May 09, 2017 that Galderma (subsidiary of Nestle) had terminated the supply arrangements with Santalis (wholly-owned subsidiary of Quintis) on 16 December 2016. Further, under the termination agreement, Galderma had retained an option to recall the license and supply arrangements on or prior to 1 July 2017. However, the board was not informed on the contract termination and the latest announcement has come as a huge negative surprise as it appeared to be a corporate governance issue by investors and shareholders. The contract was signed in February 2014 with Galderma, which covers the licensing of acne products created by Santalis and the supply of pharmaceutical-grade East Indian sandalwood oil (‘EISO’) to be used as a key ingredient in the products. From the operational point of view, the group delivered timely progress at Santalis regarding plantation put option extension and received the grant of an Australian patent relating to sandalwood oil compositions to treat a variety of cancers including leukemia and solid tumors, such as bladder cancer. Further, the company has selected its preferred off-take counterparty in China, however no final sales agreement has been signed yet.
Recently, credit rating agency S&P Global Ratings downgraded the company’s corporate credit rating and senior secured notes from B+ to B while Moody’s downgraded the Company’s corporate rating and senior secured debt rating from B2 to B3. Shares of Quintis Ltd crashed 58.5% over the past five days as on May 12, 2017, after announcing about the termination of Galderma’s licensing and supply arrangements with Santalis.The stock has been placed under a trading halt at the request of the Company, pending the release of an announcement, until the earlier of the commencement of normal trading on May 17, 2017 or when the announcement is released to the market.
 

QIN Daily Chart (Source: Thomson Reuters) 

The Reject Shop Ltd

 
TRS Details
Challenging retail conditions:The Reject Shop Ltd witnessed a stock price fall of 7.4% on May 15, 2017 and has been on a downtrend post reporting that the company expects a net operating loss of at least $5 million in the second half of 2017 owing to the continuous challenging retail conditions, with all states experiencing negative store growth in the third quarter. Particularly, WA and ACT stores have come under immense pressure. TRS now expects its full year net profit to reduce to $12.5 million. TRS’ attempt to broaden the product range and penetrate into fresh products with less focus on bargains has adversely affected the foot traffic. We maintain our “Expensive” recommendation at the current price of $ 3.65


TRS Daily Chart (Source: Thomson Reuters)

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