Are these 2 beaten down shares on some revival track – MYR and JHC?

Myer Holdings Limited

Smitten by challenging retail trading environment: Myer Holdings Limited (ASX: MYR) is Australia's largest full line department store group, with more than 60 stores in prime retail locations across Australia. The stock was down by 1.3% on March 27, 2018 while statutory net loss after tax of the company was recorded at $476.2 Mn for the first half of the year that was driven by non-cash impairment charges after tax of $500.2 Mn on the carrying value of Myer Goodwill and brand name intangibles on the Company’s balance sheet and other asset impairments of $6.4 million (post-tax). Total sales declined by 3.6% to $1,719.7 Mn in 1HFY18 and sales on comparable store basis declined by 3.0% during the same period. Earnings per share (EPS), pre-implementation costs and individually significant items were 4.9 cps in 1H18 as compared to 7.7 cps in 1H17. At the end of the period, inventory was $31.1Mn and Net Debt was $27.9 million higher than last year leading the group to be in a net-debt position of $19.9 million with available liquidity of $400 million. However, as per media releases, the group seems to have ruled out the possibility of falling into voluntary administration in an attempt to manage lease agreements.

On the other hand, MYR stock has been removed from S&P/ASX 200 Index effective from March 19, 2018 as per the March 2018 Quarterly Rebalance of the S&P/ASX Indices. It is the first time that the department store operator has posted a loss in the first-half period which includes the lucrative Christmas and poor January sales trading period. While the group is hoping to revamp its overall growth on the back of improving customer services, focus on product portfolio and competitive pricing factor, the stock has fallen 47.6% in the past six months and is further down by 11.63% in last five days as on March 26, 2018. We give a “Hold” recommendation on the stock at the current market price of $0.375


Financial Performance Trend (Source: Company Reports)
 

Japara Healthcare Limited

Acquisition Synergy Can Be Key for Growth: Japara Healthcare Limited’s (ASX: JHC) stock rose 5.026% on March 27, 2018 as the company announced that it is acquiring Riviera Health (“Riviera”) residential aged care portfolio and has executed the appropriate contracts. This will help to build Japara’s strategy to grow further through selective acquisitions that meet its strict investment criteria and identifiable improvement opportunities. In addition to this, the acquisition includes four aged care facilities at Brighton-Le-Sands, Chatswood, Doonside and Wyong. In this regard, Brighton-Le-Sands facility incorporated newly built 73 bed home which is expected to open in August 2018, while, Doonside is also a new facility with finished construction. The acquisition also includes vacant possession of closed aged care facility in Toukley on freehold land and 4.3 hectares of development land in Wyong.

Moreover, the company has immediate focus to complete and commission the Brighton-Le-Sands home and integrate the Riviera portfolio into the company’s high-quality care and operating model. In the medium-term period, the company will seek to develop a new 120 bed home on the Wyong site as a replacement for the exiting Wyong aged care facility. The acquisition adds 507 bed licenses, of which 265 are currently operational. The acquisition will be funded from a mix of internal accrual and debt facility. It is expected to add $3.5 million to $4 million of operating EBITDA in FY19 after integration into the Japara model. At the last, this acquisition will accelerate Japara’s strategy to build a strong position in the Sydney market which includes brand new homes at Brighton-Le-Sands, Doonside and Belrose as well as a new replacement home in Wyong. While there are regulatory risks and the full year FY18 can be impacted by operational costs, we give an “Expensive” recommendation on the stock at the current market price of $1.985


1HFY18 EBITDA Performance (Source: Company Reports)

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