Stocks’ Details

WiseTech Global Limited

Reaffirmation of FY20 Guidance:WiseTech Global Limited (ASX: WTC) is a provider of software solutions to the logistics industry. For the three months to 31^st March 2020, the business reported continued growth in revenue, operating cashflow and onboarding of additional users. This was however offset by COVID-19 related disruptions, including the deferment of new product rollouts and slowdown in business growth.

1HFY20 Highlights: Total revenue for the six months ended 31^st December 2019, increased by 31% to $205.9 million. Net profit went up by 160% to $59.9 million. The Board declared a fully franked interim dividend of 1.70 cents per share, up 13% on the pcp. 99% of the revenues from the CargoWise platform were recurring in nature.


1HFY29 Results Summary (Source: Company Reports)

Outlook: The company will continue to invest in technology and take advantage of the economic recovery, going forward. For FY20, revenue is expected in the range of $420 million - $450 million, representing growth in the range of 21% - 29%. EBITDA is expected in the range of $114 million - $132 million, representing YoY growth in the range of 5% - 22%.

Stock Recommendation:The stock of the company gave positive returns of 14.83% in the last one month. The company has a strong financial position to support its strategic and operational initiatives, with a net cash position of $230 million as on 31^st March 2020 and an undrawn debt facility of $190 million.It is committed to keep the global supply chains moving across the world with its critical logistics execution technology and will continue to build its competitive position by serving the world’s largest logistics providers. Considering the above factors along with the impact of COVID-19 on the business, we give a “Hold” recommendation on the stock at the current market price of $16.090, up 16.763% on 22^nd April 2020, owing to the release of business update.

Telstra Corporation Limited

Strong Balance Sheet Position:Telstra Corporation Limited (ASX: TLS) provides telecommunications and information services, including mobiles, internet, and pay television. The company has been responding well to the pandemic and has put on hold any job reduction in the workforce. In order to boost call centre volumes, it has decided to recruit 1,000 temporary roles in Australia. It is also serving its customers in the best possible way while they work remotely. Moreover, the company has further strengthened its balance sheet through a $860 million bond issue, which will support general corporate expenses and pre-funding of future debt maturities.

Half Yearly Performance: During the first half ended 31^st December 2019, the company reported total income amounting to $13.4 billion, down 2.8% on the pcp. The company reported strong progress against the T22 strategy with continued positive financial momentum. Progress on the strategy helped reduce underlying fixed costs by 12.1%.


Financial Summary (Source: Company Reports)

Guidance: The company expects free cash flow for FY20 to be at the bottom end of the range of $3.3 - $3.8 billion. Underlying EBITDA is also expected to be at the bottom end of the guidance range of $7.4 - $7.9 billion.

Valuation Methodology:EV/Sales Based Relative Valuation Method

EV/Sales Based Relative Valuation Method (Source Thomson Reuters)

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

Stock Recommendation:The stock of the company corrected by 20.79% in the last 3 months. The company’s access to low-cost capital and a healthy credit position demonstrated the resilience of the business during such volatile times. The management of the company is confident about the long-term success of the business. We have valued the stock using EV/Sales based illustrative relative valuation method and arrived at a target price with low double-digit upside in percentage terms. Hence, we give a “Buy” recommendation on the stock at the current market price $3.03, down by 0.329% on 22^nd April 2020.

EML Payments Limited

Diversified Revenue and Earnings Profile:EML Payments Limited (ASX: EML) is an issuer of prepaid financial cards and delivers prepaid payment services in Australia, Europe and North America. Recently, the company has completed the acquisition of Prepaid Financial Services (Ireland) Limited, with the financial results of the latter consolidated 1 April 2020 onwards. The company stated an upfront enterprise valuation of around $252.3 million for the acquisition.
In a recent trading update, the company stated that the performance for the first 8 months of the year to 29^th February 2020, has been strong and in line with the upper end of the guidance range. Revenue for the period stood at $79.6 million, up 25% over pcp. However, due to the unpredictability associated with the impact of COVID-19, the company has suspended forward earnings guidance for FY20. To safeguard the business from the rising economic uncertainty, the group will make adjustments to lower the expenses and improve cash flow conversion.

During the six months ended 31^st December 2019, the company reported record group GDV at $6.62 billion, up 60% on the pcp. Group revenue stood at $59.2 million, up 25% on the prior corresponding half. Group NPATA came in at $16 million, up 70% on the pcp.


Performance Summary (Source: Company Reports)

Valuation Methodology:EV/Sales Based Relative Valuation Method

EV/Sales Based Relative Valuation Method (Source Thomson Reuters)

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

Stock Recommendation:The stock of the company gave positive returns of 19.64% in the last one year and is currently trading below the average of its 52-week trading range of $1.2 - $5.7. The company will continue to launch new programs and sign new contracts, that will provide incremental revenue in FY21 and beyond. The group has a diversified revenue and earnings profile, that will be a key catalyst for growth. The company has a track record of EBITDA growth with 5-year first half EBITDA CAGR of 59%. We have valued the stock using EV/Sales based illustrative relative valuation method and arrived at a target price with low double-digit upside in percentage terms. Hence, we give a “Buy” recommendation on the stock at the current market price of $2.36, up 0.855% on 22^nd April 2020.

REA Group Limited

Resilient Performance in 1HFY20:REA Group Limited (ASX: REA) is a digital advertising business, specialising in residential, commercial and share property businesses. In response to the uncertainties arising from the impact of COVID-19, the company has withdrawn its guidance for FY20.

First Half Performance:During the half year ended 31^st December 2019, the company delivered a resilient performance in a challenging operating environment, with declines in new residential listing volumes and new project commencements. The company witnessed a 4% reduction in operating expenses as a result of strong cost management and efficiencies, with speedy delivery of products across the business.


1HFY20 Performance (Source: Company Reports)

Current COVID-19 Scenario: The company has seen an accelerated impact of COVID-19 on the business and is keeping a check on the potential impact of the restrictions imposed on the performance.Therefore, it has delayed the timing of the contracted price changes in its residential business which was due on 1 July 2020.

Stock Recommendation:The stock of the company gave positive returns of 7.95% in the last one month and is currently trading below the average of its 52-week low and high level of $62.050 - $117.3. The company possesses a healthy balance sheet, low debt levels and a capacity to avail debt, if required. Hence, the business is well equipped to deal with the challenges with best practices in place. Moreover, the company has a record number of customers sticking to its premium listing products which will add to the positives. Considering the above factors and the potential impact of COVID-19, we recommend a “Hold” rating on the stock at the current market price of $80.090, down 0.719% on 22^nd April 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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