Stocks’ Details

Tabcorp Holdings Limited

Completion of Institutional Entitlement Offer: Tabcorp Holdings Limited (ASX: TAH) is engaged in the provision of gambling and other entertainment services. The market capitalisation of the company stood at $7.46 Bn as on 24^th August 2020. Recently, the company announced that it has raised around $371 million through an institutional entitlement offer with a take-up rate of around 97%. In addition, the company is likely to raise an additional $229 million from the retail entitlement offer, which will open on 28^th August 2020. The company is aiming to have a stronger balance sheet and greater financial flexibility in the current uncertain times following the completion of the entitlement offer. The company would utilise the proceeds raised to repay existing drawn bank debt facilities and support the move towards the revised target gearing range.

Sources and Uses of Funds (Source: Company Reports)

A Look at FY20 Results: For FY20, the company reported a fall of 4.8% and 11.5% in revenue and EBITDA to $5,224 million and $995 million, respectively. This was mainly due to COVID-19. The company has decided not to pay a final dividend for FY20. In addition, the company expects future payout ratio in the range of 70%-80% of NPAT on the resumption of dividends.

Future Focus: The company is focused on executing strategies that are likely to create value for shareholders. These include digital opportunity in lotteries & keno and wagering & media as well as the implementation of the operational review of gaming services.

Key Risks: The company is exposed to material business risks, such as breach of laws and licences, compliance and conduct risk, changes in laws and the regulatory environment, and consumer discretionary spending and preferences. In addition, the business is also sensitive to the rising market share of competitors and funding risks.

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: As on 30^th June 2020, the company possessed undrawn bank facilities of $910 million. The company revised its target gearing range to 2.5x – 3.0x. On technical analysis front, the stock of the company has a support level of ~A$3.304 and a resistance level at ~A$4.751. 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), SkyCity Entertainment Group Ltd (ASX: SKC), etc., and arrived at a target price of low double-digit upside (in percentage terms). Therefore, considering the recent capital raising, expected stronger balance sheet, and future focus, we give a “Buy” recommendation on the stock at the current market price of $3.630 per share, down by 1.09% on 24^th August 2020.

Boral Limited

Expected Impairment Charges: Boral Limited (ASX: BLD) is involved in the manufacturing and supply of building and construction materials. The market capitalisation of the company stood at $4.49 Bn as on 24^th August 2020. For the year ended 30^th June 2020, the company expects to report a non-cash, pre-tax impairment charge of $1,346 million following the latest review of the carrying value of its assets. The company added that a total of $1,223 million of the non-cash impairment charges are related to assets within Boral North America, which include goodwill, intangible assets and BLD’s investment in the Meridian Brick joint venture. In addition, the remaining $123 million are related to Boral Australia, which includes certain assets in Australian building products as well as Western Region construction materials businesses.

During 1H FY20, the company reported sales revenue from continuing operations amounting to $2,960 million with a rise of 2% on pcp. Reported sales revenue for the period amounted to $2,989 million, which was flat in comparison to 1H FY19.

Key Financials (Source: Company Reports)

Guidance: For FY20, the company expects earnings before interest tax depreciation & amortization before significant items in the range of $820-825 million. The company is likely to report a net profit after tax (NPAT) before significant in the ambit of $175-180 million. The company is likely to release its FY20 earnings on 28^th August 2020.

Key Risks: The company’s business activities are exposed to various industry and market risks including structural and cyclical demand changes; political and regulatory change; macroeconomic and geopolitical conditions; inflationary impacts from rising input costs, changes to construction methods and materials and movements in foreign exchange rates.

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: On 1^st June 2020, the company successfully finished new US Private Placement (USPP) note issue of US$200 million. Also, the company has wrapped up the execution of its new bilateral two-year bank loan facilities of around A$365 million and completed its new bilateral loan facilities of US$740 million. The stock of BLD has provided a return of 39.69% in the past three months. On technical analysis front, the stock of the company has a support level of ~A$2.437 and a resistance level at ~A$3.968. We have valued the stock using the Price to Cash Flow multiple based illustrative relative valuation method and have arrived at a target price of low double digit-upside (in percentage terms). For the purpose, we have taken peers like Adbri Ltd (ASX: ABC), CSR Ltd (ASX: CSR), Incitec Pivot Ltd (ASX: IPL), etc. Hence, considering the decent performance in 1H FY20, execution of debt facilities, returns in the past few months, and guidance, we give a “Buy” recommendation on the stock at the current market price of $3.680 per share, up by 0.546% on 24^th August 2020.

Super Retail Group Limited

Strong Growth in Online Sales: Super Retail Group Limited (ASX: SUL) is engaged in the operation of specialty retail stores in the automotive, tools, leisure, and sports categories. The market capitalisation of the company stood at $2.37 Bn as on 24^th August 2020. The company’s four core brands possess leading positions in attractive lifestyle categories and seem to be well-placed to take benefit from changing consumer behaviour. For FY20, the company reported total group sales of $2.83 billion, reflecting a rise of 4.2% over pcp. The online sales for the period stood at $290.5 million, showcasing the growth of 44.4% over pcp from new and existing customers as in-store shoppers shifted to the online channel in response to COVID-19. The company reported net cash inflow from operations of $205.8 million as a result of the change in the treatment of rental expenses under AASB 16 Leases and an improvement in working capital.

Online Sales (Source: Company Reports)

Uncertain Economic Outlook: The company stated that the current consumer spending patterns are volatile, and the company is uncertain about the economic outlook. For FY21, SUL anticipates capital expenditure of around $90 million.

Key Risks: The company’s business could be impacted by uncertainty in relation to the duration and further impact of the COVID-19 pandemic. In addition, the business is also exposed to competition intensity, industrial relations, and supply chain and inventory agility for omni-retail.

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 ended the year with nil net bank debt, reflecting receipt of $157.0 million institutional proceeds from equity raising, extended supplier terms, rental deferrals, and strong fourth-quarter trading performance. SUL possesses enough facilities to fund its strategy and remains comfortably within banking covenants. On technical analysis front, the stock of the company has a support level of ~A$8.431 and a resistance level at ~A$10.997. 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 Bapcor Ltd (ASX: BAP), Premier Investments Ltd (ASX: PMV), Eagers Automotive Ltd (ASX: APE), etc., and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the strong growth in online sales, and decent cash flows, we give a “Hold” recommendation on the stock at the current market price of $10.680 per share, up by 1.618% on 24^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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