Stocks’ Details
 

Zoono Group Limited

Improvement in 1HFY20 Losses:Zoono Group Limited (ASX: ZNO) develops and sells antimicrobial products. The company recently received reports pertaining to the laboratory tests undertaken against COVID-19, which stated that the company’s Z-71 Microbe Shield is >99.99% effective against COVID-19 virus. During the studies, Zoono’s products were tested for up to 30 days against multiple pathogens. As a result, the company has transported around 4 tonnes of the product to Eagle Health Holdings Limited, under the existing Distribution Agreement for distributing Zoono’s products in China. Eagle will be distributing the products to its existing channels, thereby creating a good business opportunity amid rising tensions around COVID-19.

First Half Performance: During the first half ended 31^st December 2019, the company reported revenue amounting to NZ$1.71 million, supported by an increase in the orders received. Net loss after tax also improved in comparison to the prior corresponding half and stood at NZ$0.73 million. During the half, the company signed new distributor agreements and reported continuous improvement in online sales across New Zealand and Australia. Moreover, the company has also seen month on month improvement in online sales in the UK.


Income Statement (Source: Company Reports)

Stock Recommendation: The stock of the company witnessed positive returns of 277.63% over a period of 3 months and is currently trading above the average of its 52-week trading range of $0.063 - $2.440. Considering the performance in 1HFY20, improvement in losses, update on the distribution agreement, and current trading levels, we give a ‘Speculative Buy’ recommendation on the stock at the current market price of $1.360, down 5.226% on 16^th March 2020.

Flight Centre Travel Group Limited

New Strategic Initiatives to Cope with COVID-19:Flight Centre Travel Group Limited (ASX: FLT) is primarily engaged in travel retailing in the leisure and corporate travel sectors.

Recent Update: In a recent announcement, the company notified that it has suspended the guidance issued for FY20, amid the uncertainty due to coronavirus outbreak. Due to the significant drop in demand and uncertainty about recovery, the company has withdrawn the guidance for FY20 PBT, which was earlier expected in the range of $240 million - $300 million. Moreover, the company has devised new strategies to fight the challenges imposed on the business. The company is now aiming to implement cost reduction strategies to maintain a resilient balance sheet, as demand continued to soften at least till April. The company is also looking to tap a larger portion of the leisure market through investment in sales and marketing. Moreover, it also making investments to offer new and attractive products to customers to drive the demand.

During the half-year ended 31^st December 2019, the company reported growth of 5.8% in revenue at $1,546 million, with total transaction value continuing to increase since 10 prior corresponding period halves.The below picture reflects the growth in TTV that has recorded a CAGR of 9.5% over the past 10 years.


Growth in TTV (Source: Company Reports)

Valuation Methodology:Price to Earnings Multiple Based Relative 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: The stock of the company corrected by ~50% over the past one month and is currently trading close to its 52-week low level of $15.885. While the business is currently battling the challenges put forward by COVID-19, it has depicted a clear history of success, both operationally and financially. We have valued the stock using Price to Earnings based relative valuation method and have arrived at a target price with single-digit upside (in percentage terms). For the said purpose, we have considered Corporate Travel Management Ltd (ASX: CTD), Helloworld Travel Ltd (ASX: HLO), Webjet Ltd (ASX: WEB), etc., as peers. Hence, we give a “Hold” recommendation on the stock at the current market price of $16.120, down 15.822% on 16^th March 2020.

Qantas Airways Limited

Significant Reduction in Capacity:Qantas Airways Limited (ASX: QAN) is an airline operator in Australia. Due to the spread of coronavirus, the company has recently announced a capacity cut by almost a quarter for the next six months, due to a sudden fall in demand from the affected regions, including Asia, Europe and North America. Rather than taking a complete exit from the routes, the company is now using smaller aircrafts and has reduced the frequency of flights for capacity reduction. While the company has refused to issue any financial guidance due to the impact of coronavirus, it is taking the necessary steps for cost reduction to withstand the pressure on demand. Recently, the company has also cancelled the off-market buyback to preserve $150 million in cash.

1HFY20 Results: During the half year ended 31^st December 2019, the group reported statutory PBT amounting to $648 million, down 6.2% on the prior corresponding half. Statutory EPS went up by 3.2% to 28.8 cents per share. The company reported a strong half on the domestic front, supported by an increasing market share. The international segment also performed well with earnings rising by ~3%.


Key Metrics (Source: Company Reports)

Stock Recommendation: The stock of the company corrected by ~50% over the past one month and is currently trading close to its 52-week low level of $2.830. The company announced a capacity cut out to mid-September with anticipation of lower demand for the next several months. As a result, the company has more potential to cut costs and maintains a strong position in a challenging environment, with a strong balance sheet and low debt levels. Considering the above factors along with current trading levels, we give a “Hold” recommendation on the stock at the current market price of $3.020, down 5.031% on 16^th March 2020.

Lovisa Holdings Limited
Focused on Expanding Store Network:Lovisa Holdings Limited (ASX: LOV) is engaged in the retail sale of fashion jewellery and accessories. In a recent announcement to the exchange, the company notified that one of its Directors named, Shane Fallscheer, has bought 1,687,764 fully paid ordinary shares under the Equity Incentive Plan, for a total consideration of $3,544,304.

1HFY20 Results and Trading Update: During the half year ended 29^th December 2019, the company reported revenue amounting to $162.8 million, up 22.2% on the prior corresponding half. EBIT stood at $40.4 million, up 10.7% on pcp. The company reported a cash conversion ratio of 98% with an operating cash flow of $46 million. The company has reported a decline in comparable store sales for the second half, with the highest impact reported in the Singapore and Malaysian markets. However, the company is also witnessing a revival as a result of the stringent measures taken by the Chinese government to Combat COVID-19.


1HFY20 Results (Source: Company Reports)

Valuation Methodology:Price to Earnings Multiple Based Relative 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: The stock of the company corrected by ~38% over the past one month and is currently trading close to its 52-week low level of $5.990. In the coming months, the company expects to see further impact on sales due to current disruptions in operations. The company is preparing itself for the consequences by maintaining adequate stock levels in stores and is focused on expanding its store network. We have valued the stock using Price to Earnings based relative valuation method and have arrived at a target price with high single-digit upside (in percentage terms). For the said purpose, we have considered Kathmandu Holdings Ltd (ASX: KMD), City Chic Collective Ltd (ASX: CCX), Super Retail Group Ltd (ASX: SUL), etc., as peers. Hence, we give a “Buy” recommendation on the stock at the current market price of $6.27, down 10.043% on 16^th March 2020.
 
Comparative Price Chart (Source: Thomson Reuters)

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