Stocks’ Details

Tabcorp Holdings Limited

Tabcorp Services Largely Restored: Tabcorp Holdings Limited (ASX: TAH) is engaged in the business of gambling and other entertainment services. The company has three operating business units being Lotteries and Keno, Wagering and Media, and Gaming Services. As on 13 November 2020, the market capitalisation of the company stood at ~$9.04 billion. The company has recently announced that Keno and Gaming Services operations and systems which were impacted in the early week of November 2020 have been restored with an immediate focus on ensuring the systems return to optimal service levels in the coming days. According to the latest update, lost wagering turnover impact is likely to be less than $10 million.

Quarterly Update: During the first quarter of FY21, revenue of the company went down by 5.7% on pcp. In terms of the three business units, Lotteries & Keno revenues were down 6.9% on the pcp, Wagering & Media revenues were up 2.9% on the pcp, and Gaming Services revenues were down 55.2% on the pcp. During FY20, the pandemic materially impacted the results of the company with a decline of 4.8% in revenue to $5.2 billion and a fall of 11.5% in EBITDA. However, TAH delivered a net profit after tax of $271 million at the end of the same period. 

FY20 Financial Highlights (Source: Company Reports)

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 seems well-placed with its resilient and diversified earnings base and strengthened balance sheet. It is prioritizing the digital opportunities across Lotteries, Keno, Wagering and Media. The stock of TAH gave a return of 13.61% in the past three months and a return of 17.44% in the last one month. On a technical front, the stock of TAH has a support level of ~$3.8 and a resistance level of ~$4.7. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the said purposes, we have considered Star Entertainment Group Ltd (ASX: SGR), Crown Resorts Ltd (ASX: CWN) and Nine Entertainment Co Holdings Ltd (ASX: NEC) as peers. Considering the diversified earnings base, decent returns in the last one month, and strengthened balance sheet, we recommend a ‘Buy’ rating on the stock at the current market price of $4.06, down by 0.491% on 13 November 2020.

Lovisa Holdings Limited

Acquisition of European Stores: Lovisa Holdings Limited (ASX: LOV) is an international specialist fast fashion jewellery retailer. As on 13 November 2020, the market capitalisation of the company stood at ~$1.07 billion. The company has recently announced the acquisition of the European retail store network of beeline GmbH, which is likely to add over 80 stores to its global store network across 6 European countries, with all continuing stores to be rebranded to trade as Lovisa stores. The shares in the 6 beeline entities will be acquired for a total purchase price of €60 and is likely to be completed by the end of May 2021. Under the agreement, LOV will also take over ~€3 million of bank guarantees and will provide a further bank guarantee of €3 million to the vendor.

Trading Update: As a result of temporarily closures of 24 stores in France and 39 stores in the UK due to government-imposed lockdowns, comparable store sales for the first 19 weeks of FY21 went down by 9.2%. However, its online business continued to grow with an increase of over 400% in total online sales for the 16 weeks in FY21. During FY20, sales of the company went down by 3.2% to $242.17 million because of government restrictions due to COVID-19. This resulted in EBIT of $30.6 million.

FY20 Financial Highlights (Source: Company Reports)

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

EV/EBITDA 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 business was able to deliver decent growth in the store network in FY20 with a net 45 new stores. As per ASX, the stock of LOV is trading close to its 52-weeks’ high level of $13.04 but retains potential for further growth. The stock of LOV gave a return of 55.11% in the past three months and a return of 33.45% in the past one month. On a technical front, the stock of LOV has a support level of ~$9.67 and a resistance level of ~$12.7. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price with an upside of higher single digit (in % terms). For the said purposes, we have considered Kathmandu Holdings Ltd (ASX: KMD), City Chic Collective Ltd (ASX: CCX) and Baby Bunting Group Ltd (ASX: BBN) as peers. Considering the current trading levels, decent returns in the past one month, and opening of new stores, we recommend a ‘Hold’ rating on the stock at the current market price of $11.48, up by 14.456% on 13 November 2020, owing to its recent acquisition of European stores. 

Jumbo Interactive Limited

Agreement Signed with Lotterywest: Jumbo Interactive Limited (ASX: JIN) is engaged in the retail of lottery tickets through the internet and mobile devices sold both in Australia and eligible overseas jurisdictions. As on 13 November 2020, the market capitalization of the company stood at ~$799.96 million. The wholly-owned subsidiary of JIN, TMS Global Services Pty Ltd has entered a 3-year agreement with Lotterywest to provide its online software platform and services. However, the agreement has an option of extension for a further three years followed by four years. Under the terms of the agreement, JIN will receive a service fee of 9.5% for every customer transaction through a white-label platform.

Gatherwell Achieves First Earn-Out Milestone: The UK business of JIN, Gatherwell has exceeded the revenue and profit targets and will receive its first earn-out payment of £1,000,000. A potential second and final earn-out payment of up to £1,000,000 is likely to be determined after 30 June 2021.

Quarterly Update: During 1QFY21, the company’s revenue went down by 2% on the pcp but its consolidated Revenue/TTV margin grew by 80bp, from 19.8% to 20.6%. This demonstrates a disciplined operating performance across the group. During FY20, the company reported an increase of 8.7% in TTV to $384.6 million and a rise of 9.1% in revenue to $71.1 million. This was mainly due to increased customer activity and Gatherwell acquisition.

FY20 Financial Highlights (Source: Company Reports)

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: The business seems well placed for the future and retains a large global total addressable market of $26 billion in Australia, UK, Canada, and USA. On a technical front, the stock of JIN has a support level of ~$10.56 and a resistance level of ~$16.98. We have valued the stock using the P/E multiple based illustrative relative valuation and have arrived at a target price with an upside of higher single digit (in % terms). For the said purposes, we have considered Tabcorp Holdings Ltd (ASX: TAH), Crown Resorts Ltd (ASX: CWN) and Star Entertainment Group Ltd (ASX: SGR) as peers. Considering the decent performance in Q1FY21, first earn-out milestone of Gatherwell, modest long-term outlook, and valuation, we recommend a ‘Hold’ rating on the stock at the current market price of $13.87, up by 8.274% on 13 November 2020, owing to its recent agreement with Lotterywest.

Daily Comparative Chart (Source: Refinitiv, Thomson Reuters)

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