Stock’s Details

Sandfire Resources Limited

Double-digit Revenue Growth aided by Higher Gold Realization: Sandfire Resources Limited (ASX: SFR) is engaged in the mining and exploration of gold and other base metals.

H1FY20 Business Highlights for the Period ended 31^st December 2019: SFR declared its half-yearly results, wherein the company reported sales revenue of $313.1 million, up 15% on pcp terms, aided by a stronger gold price during the half. Production of copper and gold stood at 34,988 tonnes and 19,370 oz, respectively. The company’s strong operational and financial performance was underpinned by robust production and cost management at its DeGrussa operations in Western Australia. The half-year results include production from the new satellite Monty Copper-Gold Mine, which resulted in an additional amortisation expense of $34.2 million related to the Monty CopperGold Mine purchase price. The company reported its NPAT at $33.286 million as compared to $48.329 million in pcp.


Key Income Statement Highlights for H1FY20 (Source: Company Reports)

Outlook: FY20 is likely to face challenges due to the impact of the coronavirus and potential impact on metals demand and global logistics, and trade. Medium-term outlook for copper seems positive, which remains fundamental as an essential ingredient for a sustainable, low-carbon future. FY2020 production guidance is expected at ~70kt to72kt for contained copper and 38koz to 40koz of contained gold. 

The Board of Directors announced a fully franked dividend of $0.0500 per share with a payment date of 11^th March 2020. 
 
Valuation Methodology: Price to Earnings Based Valuation

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of SFR is trading at $4.63 with a market capitalisation of $859.88 million. The stock is trading at the lower of its 52-week trading range of $4.62 to $7.670. The stock has generated negative returns of 13.90% and 12.66% in the last three months and six-months, respectively.  The company holds an excellent position with its debt-free balance sheet and intends to fund the next stage of its growth and diversification. The business primarily focuses to execute the optimisation of the feasibility study and permit for the T3 development project, located in Botswana. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like OZ Minerals Ltd (ASX: OZL), IGO Ltd (ASX: IGO), Western Areas Ltd (ASX: WSA) and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $4.630 per share, down 4.141% on 25^th February 2020.
 

Flexigroup Limited

Strong Volume Growth Aided by Improved Performance Across all Regions: Flexigroup Limited (ASX: FXL) operates in point of sale lease and rental finance for the IT equipment, electrical appliance and other retail segments. The company has partnerships with 69,000 sellers and now serves over 1.87 million customers across Australia, New Zealand and Ireland.

H1FY20 Business Highlights for the Period ended 31 December 2019: FXL declared its half-yearly results, wherein the company reported net income of $181.8 million, down from $185.9 million in H1FY19. FXL reported strong volume growth of 23%, driven by market penetration and merchant integrations across Australia, New Zealand and Ireland. The business witnessed a 12% growth in its total customers of 1.87 million and a 28% growth in transaction volume of $1.3 million. Cash NPAT stood at $34.5 million, up 8.2% on pcp terms, majorly driven by strong growth in interest income and lower cost of funds, which was offset by a reduction in fee income. The business witnessed higher total expenses on account of investments across marketing technology, digital advertising and brand repositioning, as well as restructuring costs.


Key Highlights for H1FY20 (Source: Company Reports)

Outlook: For FY20, the business expects transaction volume to grow between 10% to 15%, driven by new product launches. The company also expects to balance margin with growth and to maintain a double- digit return on equity.

Valuation Methodology: Price to Book Value Based Valuation 

Price to Book Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of FXL is trading at $1.83 with a market capitalisation of $723.71 million. The stock made a 52-weeks high and low $2.71 and $1.160. The stock has generated negative returns of 14.25% and 11.78% in the last one month and three months, respectively. The company is increasing its investment for future growth while looking to invest in brands, people, high-performance digital marketing, and streamlining of operations taking place in the current financial year. Considering the current trading levels and business prospects, we have valued the stock using Price to cash flow based relative valuation method and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.83, down 0.272% as on 25^th February 2020.
 

AUB Group Limited

Robust Organic Growth aided Higher Business Performance: AUB Group Limited (ASX: AUB) is a financial company, engaged in insurance broking, underwriting agency and risk management businesses.

H1FY20 Operational Highlights for the Period ended 31 December 2019: AUB reported its half-yearly results, wherein the company reported underlying revenue of $272.1 million, up 5.9% on y-o-y basis. The top-line growth was driven by 17.9% organic growth and acquisition growth of 7.1%, which was marginally offset by the impact of reduced interest rates. Underlying EBIT margin stood at 23%, improved from 22.1% in H1FY19. Adjusted NPAT came in at $21.3 million, depicting a growth of 25.3% on pcp terms. The period was highlighted by excellent workflow solutions, which were implemented via hub-and-spoke servicing model and reported a robust technology platform which is available to limited Austbroker members.


Key Operational Highlights for H1FY20 (Source: Company Reports)

Guidance: As per the FY20 guidance, the company expects its adjusted NPAT to grow at 16% to 18% on y-o-y basis. For Q2FY20, the company expects premium rates to increase by 5% to 6%. 

The Board of Directors has announced a fully franked dividend of $0.145 per ordinary share with a payment date of 23 April 2020.

Valuation Methodology: Price to Book Value Based Valuation 

Price to Book Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of AUB is trading at $13.50 with a market capitalisation of $954.93 million. The stock is trading at the upper band of its 52-week range of $10.15 and $13.71. The stock has generated positive returns of 8.74% and 10.6% in the last three months and six months, respectively. The outlook for Health & Rehabilitation Services is potentially volatile while the Management expects further outperformance in the coming half. Considering the current trading levels and business prospects, we have valued the stock using Price to Book based relative valuation method. For the purpose, we have taken peers like QBE Insurance Group Ltd (ASX: QBE), Steadfast Group Ltd (ASX: SDF) and PSC Insurance Group Ltd (ASX: PSI) and arrived at a target price of higher single-digit upside (in % terms). Hence, we recommend a “Hold” rating on the stock at the current market price of $13.50 per share, up 4.328% as on 25^th February 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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