Stocks’ Details

Southern Cross Media Group Limited

Positive EBITDA Contribution Despite COVID-19 Led Crisis: Southern Cross Media Group Limited (ASX: SXL) is engaged in the creation and broadcasting of content on free-to-air commercial radio, TV, and online media platforms in Australia. The market capitalisation of the company stood at $700.16 million as on 25^th November 2020.  The company has recently finished one for ten share consolidation, which was approved by shareholders at the AGM held on 30 October 2020. For the year ended 30^th June 2020, the company recorded revenue amounting to $540.8 million as compared to $661.0 million in FY19.  The company attained positive EBITDA contribution in all four quarters despite the severe impact of COVID-19 since mid-March. Notably, EBITDA for the year amounted to $108.2 million.

SXL finished FY20 with the healthy balance sheet and ample liquidity, which was supported by low net debt of $131.6 million and leverage of 1.24x EBITDA because of ongoing strong cash conversion and receivables collection, and the equity raising of $160.8 million. In addition, the company’ net debt position was improved to $93 million as on 30^th September 2020 from $131.6 million as on 30^th June 2020.

Key Financials (Source: Company Reports)

Key Strategies: The key priorities of the company revolve around the recovery of underlying earnings and further enhancement in balance sheet via generation of cashflow. In addition, the company would also be focused on placing the business in a decent position to take benefits of any corporate enhancements.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is expecting a leverage ratio on 31 December to be below one time of net debt to EBITDA. In the past one and three months, the stock has moved up by 31.89% and 52.50%, respectively.  On a technical analysis front, the stock of SXL has a support level of ~$1.408 and a resistance level of ~$2.921. We have valued the stock using the price to cash flow multiple based relative valuation method and arrived at a target price with the correction of low single-digit (in percentage terms). For the purpose, we have taken peers such as HT&E Ltd (ASX: HT1), oh!Media Ltd (ASX: OML) and Seven West Media Ltd (ASX: SWM). Thus, considering the upside movement in stock in the past months and higher valuation, we give an “Expensive” rating on the stock at the current market price of $2.360 per share, down by 10.944% on 25^th November 2020. We further suggest investors to wait for better entry levels. 

IVE Group Limited

Announcement of Buy-Back:  IVE Group Limited (ASX: IGL) is into marketing and print communications. The market capitalisation of the company stood at ~$206 Mn as on 25^th November 2020. Recently, the company announced an on-market share buy-back program of up to 10% of its ordinary shares as part of its ongoing capital management strategy. During FY20, the company continued to maintain its high levels of customer service through a hybrid of continuing operations despite the COVID-19 led pandemic. For the same time period, the company reported revenue amounting to $691.5 million as compared to $723.6 million in FY19. Underlying EBITDA from continuing operations amounted to $76.6 million against $82.0 million in FY19.

Financial Summary (Source: Company Reports)

Guidance: For FY21, the company expects the underlying EBITDA to be consistent with FY20. In addition, the net debt at the end of the upcoming year is expected to be around $95 million. This follows the divestment of IVE Telefundraising for consideration of $16.5 million.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th June 2020, the cash balance of the company stood at $51.6 million. The 52-week low-high range for the stock stands at $0.240 - $2.560, respectively.  In the past six months, the stock has provided a positive return of 46.42%.  On a technical analysis front, the stock of IGL has a support level of ~$0.706 and a resistance level of ~$1.434. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Hence, in light of the recent announcement for buyback, expected reduction in debt position and key risks associated with the business, we give a “Speculative Buy” recommendation on  the stock at the current market price of $1.360 per share, down by 2.159% on 25^th November 2020.

5G Networks Limited

Acquisition of Data Centre: 5G Networks Limited (ASX: 5GN) provides data network and cloud services, with a market capitalisation of $174.77 Mn as on 25^th November 2020. Recently, the company notified the market that it has reached a lease agreement for the acquisition of ex-Pipe Networks Data Centre in Fortitude Valley.  The company would pay a purchase price of $1.1 million, which includes all operating infrastructure at the facility. The acquisition would be finance via existing cash reserves, with a generous rent-free period on a 10-year lease. The acquisition is likely to ramp up the continued execution of the 5GN wholesale channel strategy for infrastructure and data centre services. Also, the company’s takeover offer for Webcentral Group Limited got closed on 10^th November 2020 and 5GN will have a controlling stake of around 57% on the issue of shares by Webcentral.

Strong Pipeline in September Quarter: For the quarter ended 30^th September 2020, the company reported decent growth in sales and a strong pipeline supported by $5.9 million of new and re-signed revenue. The company recorded strong cash receipts of $14.3 million, which indicates the continuous shift to the higher margin annuity services.

Cash Flow (Source: Company Reports)

Guidance: For FY21, the company expects revenue in the range of $60 million and $65 million before material acquisitions and EBITDA to be between $8 million and $8.5 million (before material acquisitions).

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed the September quarter with a cash balance of $47.5 million, which includes placement proceeds of $27.5 million. In the past one and three months, the stock of 5GN has corrected 9.24% and 17.15%, respectively. On a technical analysis front, the stock of 5GN has a support level of ~$1.495 and a resistance level of ~$1.922. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such Uniti Group Ltd (ASX: UWL), Telstra Corporation Ltd (ASX: TLS), and Vocus Group Ltd (ASX: VOC), to name a few. Therefore, in light of the decent sales growth and strong pipeline, decent guidance and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.560  per share, down by 0.320% on 25^th November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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