G8 Education Limited

GEM Details

Revenue for H1CY19 Increased By 9% on PCP:G8 Education Limited (ASX: GEM) is involved in the operation of early education centres, owned by the group; and early education centre franchises. Recently, the company provided dividend update information to the market, wherein dividend (fully franked) of AUD 0.047500 will be paid to the eligible shareholders on October 3, 2019, with record on September 12, 2019.In another update, Challenger Limited ceased to be the substantial holder in the company, effective from August 27, 2019. On the same date, Sumitomo Mitsui Trust Holdings, Inc. (SMTH) and its Subsidiaries increased its stake in the company from 9.24% to 10.31%.

H1CY19 Key Highlights (for the period ended on June 30, 2019):Revenue for the period increased by 8.6% to $430.6 Mn, as compared to the previous corresponding period, mainly driven by occupancy, free growth and acquired centres. Net profit after tax for the period fell by 20% to $19 Mn, as compared to the previous corresponding period, impacted by the implementation of the new accounting standard AASB 16 leases standard. Underlying EBIT for the period was reported at $51.6 Mn, in-line with consensus forecasts and 7% above the previous corresponding period.

During the period, average like-for-like occupancy grew by 1.5% on pcp, driven by the implementation of the customer engagement centre, group-specific initiatives and the childcare subsidy, which has improved affordability for families.


H1CY19 Income Statement (Source: Company Reports)

What to expect:As per the release, the second half growth rate will not have the benefit of the CCS stimulus that commenced on July 1, 2018. Therefore, CY19 like-for-like occupancy growth is expected to be in the mid 1% point. Wage performance year-to-date is in-line to the expectations and further efficiency gains are expected in the second half. CY19 EBIT has been estimated in the range of $140 Mn ? $145 Mn.

Stock Recommendation: GEM’s share generated a negative YTD return of 5.51%. Company’s strategy of driving quality, capability and team engagement is on track and producing results even in the face of increased supply.These developments are expected to help the company in deliveringbetter value to its shareholders in the coming times. Its gross margin for H1CY19 stood at 92.2%, better than the industry median of 66.1%. Its EBITDA margin for H1CY19 stood at 26.9%, better than the H1CY18 result of 13.6%. Its annual dividend yield stands at 4.96%. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $2.450, down 4.699% on 2 October 2019.


GEM Daily Technical Chart (Source: Thomson Reuters)
 

Collins Foods Limited

 

CKF Details

Revenue for FY19 Increased By 16.9% on Previous Year:Collins Foods Limited (ASX: CKF) is involved in the operation, management and administration of restaurants in Australia, Europe and Asia. Recently, the company announced that it has entered into binding documentation to refinance its existing syndicated debt facilities. The existing facilities of $270 Mn and €60 Mn will be refinanced under a new syndicated facility agreement comprising $265 Mn and €80 Mn revolving facilities. Of the New Facilities, $210 Mn and €52 Mn will be drawn on financial close, with sufficient funding headroom provided by the undrawn amounts. The tenor of the New Facilities is a blend of 3 years and 5 years, with $180 Mn and €50 Mn maturing on October 31, 2022 and the remaining $85 Mn and €30 Mn maturing on October 31, 2024. In another update, the company was added to S&P/ASX 200 Index, effective from September 23, 2019.

FY19 Key Highlights (for the period ended on April 28, 2019):Revenue was recorded at the highest ever with yoy growth of 16.9% to $901.2 Mn. This was due to expanded restaurant footprint, positive SSS growth in the core domestic market and delivery channel, which enhanced the customer experience. Underlying EBITDA grew by 20.3% to $113.7 Mn, underpinned by a consistent focus on operational excellence and efficiency improvements. The Board of Directors declared a fully franked final dividend of 10.5 cents per share, with record date and payment date on July 10, 2019 and July 25, 2019, respectively.


FY19 Key Financial Metrics (Source: Company Reports)

What to Expect:As per the release, the company is enacting initiatives to support a platform for continued sustainable growth across the group. Its ongoing focus on delivering, digital and operations are expected to ensure the highest levels of service and satisfaction for its customers. The group is expected to maintain its disciplined approach to operational management while continuing to invest in new and innovative products that taste great.

Stock Recommendation:CKF’s share generated a YTD return of 68.05%. The company has seen decent growth in its revenues and earnings in recent years. On the valuation front, its EV/EBITDA and Price to Cash Flow multiples on TTM basis stand at 11.8x and 12.7x, higher than the industry median of 9.4x and 11.9x, respectively, indicating overvalued position at the current juncture. Currently, the stock is trading closer to its 52-week high levels of $10.310 with PE multiple of 30.09x and an annual dividend yield of 1.93%. Hence, considering the aforesaid facts and current trading levels, we recommend an “Expensive” rating on the stock at the current market price of $9.950, down 1.485% on 2 October 2019.


 
CKF Daily Technical Chart (Source: Thomson Reuters)

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