Aristocrat Leisure Limited

ALL Details

Trading at Higher level: Aristocrat Leisure Limited (ASX: ALL) is blue-chip company with the market capitalization of circa $20.08 Bn as of August 08, 2018. The group engages in the manufacturing, assembling, sale, distribution, and servicing of gaming machines and systems in the Americas, Australia, New Zealand, and internationally. It is one of the leading providers of gaming solutions across the globe and it licensed in 240 gaming jurisdictions and operates in 90 countries around the world, with a team of more than 5000 employees who deliver outstanding results by pushing the boundaries of innovation, creativity and technology. Recently, the group posted decent set of result for the first half of the year in which normalized operating revenue grew by 33.6 per cent in 1HFY18 as compared to the prior corresponding period (pcp). Backed by strong growth in the Group’s Americas and Digital businesses and acquisitions with Plarium and Big Fish, normalised profit after tax and before amortization of acquired intangibles (NPATA) lifted by 32.5 per cent in 1HFY18 against pcp. Resultantly, diluted EPS came at 56.6 cents per share during the same period, marking substantial growth of 32.6 per cent on Y-o-Y basis. However, net debt to EBITDA increased by 1.1 times from 0.9x to 2.0x in 1HFY18 against pcp, representing higher debt level and it could be consequently resulting in a lower credit rating in the upcoming period.


1HFY18 Financial Highlights (Source: Company Reports)

Meanwhile, the share price has risen  33.32 per cent in the past six months but was down by 1.75 per cent in the past one week as at August 07, 2018, owing to some volatility and profit booking at the current price as it seems to be overvalued. Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $30.93 (as of now, the stock is trading close to 52-week higher level).
 

ALL Daily Chart (Source: Thomson Reuters)
 

Bapcor Limited

BAP Details

Operating Segment Update for FY18 Reporting: Bapcor Limited (ASX: BAP) has recently announced operating segment update for FY18 which will include adjustments to the comparative previous year FY17 operating segment results to enable meaningful Y-o-Y comparisons. According to the release, the Hellaby automotive operating segment will be divided between the Australian based specialist wholesale businesses and the New Zealand based businesses, and it will not be considered as a separate segment going forward. Further, the New Zealand based businesses will be accounted as the Bapcor New Zealand operating segment while the Australian based specialist wholesale business will be considered as a Specialist Wholesale operating segment. Besides this, there are some expenses which will be directly attributed to operating segments such as reallocation from Bapcor head office. However, the management stated that the aforesaid adjustments will not have an impact on the prior reported FY17 consolidated results. We expect that the company has a potential to grow further at the back of organic growth and inorganic growth supported by several strategic acquisitions such as acquisition of Hellaby NZ, acquisition of Precision & Bearings Wholesalers, etc.


Financial Year to June FY17 - Proforma Operating Segment Information (Source: Company Reports)

As of now, the stock trades at 52-week higher level (that is $7.100), hence we put a “Hold” recommendation on the stock at the current market price of $6.980, ahead of full-year result which is to be announced on August 22, 2018.
 

BAP Daily Chart (Source: Thomson Reuters)
 

Afterpay Touch Group Limited

APT Details

Business Expansion into US market – Support Topline Growth: Afterpay Touch Group Limited (ASX: APT) is a mid-cap payment gateway company with the market capitalization of circa $3.17 Bn as of August 08, 2018. The company provides a retail payments outfit that facilitates commerce between retail merchants and end customers, offering a buy now, receive now, pay later service. Lately, in May month, the company officially announced that it has entered into the US market with the objective of providing payment gateway services to generate volume growth. Following this, the company has achieved U.S. underlying sales of $11 million in its first full month of operations, a feat which took around 16 months to achieve in Australia. Since May month, over 200 US retailers have gone live on the APT platform, with over 400 retailers contracted and awaiting rollout. We expect that this is just the beginning, the whole picture is yet to unfold in the upcoming period. On the other hand, the company is in progress to review the European E-Services business. Net Transaction Margin is expected to be stronger in 2H18 as compared to 1H18. Meanwhile, the share price rallied over 130.95 per cent in the past three months and trading at the higher level (i.e., $16.190). Hence, we maintain our “Hold” recommendation on the stock at the current market price of $ 14.660, considering robust fundamentals and tactical movements towards improving customer experience with Afterpay Touch Group’s services.
 

APT Daily Chart (Source: Thomson Reuters)
 

Cann Group Limited

CAN Details

Poised to Grow: Cann Group Limited (ASX: CAN) has recently entered into a manufacturing agreement with IDT Australia Limited. As per the agreement, IDT will provide manufacturing support in relation to medicinal cannabis?based product formulations intended for supply to patients in Australia and overseas. According to the management, IDT will provide the support to develop a wide range of delivery systems and dosage forms that can meet the varying needs of patients who can benefit from medicinal cannabis treatments. Besides this, the company has also inked a Memorandum of Understanding (MOU) agreement with Agriculture Victoria to undertake further medicinal cannabis research. The purpose of this deal is to work on medicinal cannabis cultivation, medicinal cannabis extraction, cannabis strain genome analysis, and strain identification, accelerated precision breeding and development of novel and designer medicinal cannabis strains that will add to Cann’s intellectual property portfolio. In August 2018, the Australian Federal Government announced that they have approved funding for the establishment of Australia’s first research hub for medicinal agriculture at La Trobe University. Cann is an industry partner in the project and will provide an important boost for research into the development and use of medicinal plants such as cannabis. We expect that these organic and inorganic activities will support the business growth in medical cannabis sector resulting into top-line growth in years ahead.
On the financial front, the current ratio and quick ratio stood at 58.48x and 57.98x, respectively in 1HFY18, representing high liquidity position of the firm while the company enjoys zero debt facility during the same period. Besides this, the company has substantially reduced its account receivable days from 3,368 days to 213.7 days which indicates efficient management policy. Meanwhile, the share has fallen 17.93 per cent in the past three months but has been up by 5.02 per cent in the past one week (as at August 07, 2018), owing to several positive updates. As of now, the stock traded at an average price of 52-week level, hence, we maintain our “Buy” recommendation on the stock at the current market price of $ 2.900, considering improving fundamentals and ongoing developments that involve expansions and new innovations which are the drivers for the sustainable growth.
 

CAN Daily Chart (Source: Thomson Reuters)

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