Stocks’ Details

Reliance World Corporation Limited

Strong Sales Growth from Americas: Reliance World Corporation Limited (ASX: RWC) is engaged in design, manufacture and supply of water flow and control products for the plumbing industry. The company recently updated that it will release the financial results for the year ended 30 June 2019 on 27 August 2019. In another recent announcement, the company updated the voting power of Paradice Investment Management Pty Ltd, increased from 5.025% to 6.043%.

1HFY19 Highlights: During the period, the company reported net sales amounting to $544.2 million, depicting an overall growth of 50% on pcp. Adjusted EBITDA for the period stood at $130.8 million, up 65% in comparison to pcp. NPAT, during the first half, was reported at $65.7 million, up 58% on pcp. The company witnessed strong sales growth of 21% from the Americas.


Key Performance Measures (Source: Company Reports)

Trading Update: The company updated that the Americas business continued to achieve good underlying growth through the second half. The EMEA business also continued with good progress to achieve annual net sales growth in FY19 in line with expectations. Based on the expectations for the second half, the APAC segment has underperformed as a result of sharper than forecast decline in new home construction in Australia.

Guidance Update: The company expects FY19 EBITDA to be in the range of $260 million - $270 million. The range was revised from the earlier guidance of $280 million - $290 million, due to the impact of market-specific factors on the operating segments in the second half.

Stock Recommendation: The stock of the company generated negative returns of 27.01% and 18.99% over a period of 3 months and 6 months, respectively. The company performed well in the first half of FY19 with sales and EBITDA growth in excess of 50% due to the inclusion of John Guest. Annual synergy realisation from John Guest acquisition is expected to exceed $30 million p.a. on a run rate basis by the end of FY2020. Despite the challenges in the second half, the company continued to achieve underlying growth in the Americas and EMEA segments. Currently, the stock is trading close to its 52-week low level of $3.400, indicating a decent opportunity for accumulation. Hence, considering the above factors, we give a “Buy” recommendation on the stock at the current market price of $3.600, up 1.695% on 19 July 2019.
 

Bapcor Limited

Impressive 5-Year Growth Strategy: Bapcor Limited (ASX: BAP) is engaged in the sale and distribution of motor vehicle aftermarket parts and accessories, automotive equipment and services & motor vehicle servicing.
The company recently released an investor presentation wherein it notified about its 5-year strategic targets. The company aims to increase the number of trade stores in Australia from 179 to 230. In addition, it is targeting to increase the number of trade stores in New Zealand from 59 to 75. Current network of 115 services stores in New Zealand will be increased to 150. As per the strategy, specialist revenue from Australia and New Zealand is being targeted at A$450 million and A$50 million, respectively.


5-Year Growth Strategy (Source: Company Reports)

1HFY19 Highlights: During the first half, the company generated revenue amounting to $636.1 million, up 3.2% on pcp. Pro-forma net profit after tax amounted to $43.1 million, up 6.6% on pcp. Pro-forma earnings per share during the period stood at 15.34 cents per share, up 5.9% on pcp.


1HFY19 Financial Highlights (Source: Company Reports)

FY19 Guidance: The company has forecasted FY19 proforma NPAT to be approximately 9% above the prior year, which will deliver a record full-year result in revenue, earnings, and EPS.

Stock Recommendation: The stock of the company generated returns of 11.01% and 12.23% over a period of 1 month and 3 months, respectively. Despite the challenging market conditions, the company delivered the biggest ever first half in revenue, earnings, and EPS. The company witnessed good growth across Trade and Specialist Wholesale businesses in Australia and New Zealand, which comprised more than 80% of Bapcor’s revenue and profit. Considering the performance in the first half, FY19 NPAT guidance, company’s 5-year growth strategy, etc., the company seems well-positioned for future growth. Hence, we give a “Buy” recommendation on the stock at the current market price of $6.220, up 1.138% on 19 July 2019.
 

G8 Education Limited

2018 Earnings In-line with Guidance:G8 Education Limited (ASX: GEM) is engaged in the operation of early education centres. The company recently updated that the voting power of Sumitomo Mitsui Trust Holdings, Inc. and its subsidiaries, changed from to 6.20% to 7.27%.

Financial Highlights of 2018: During the year, the company reported underlying earnings before interest and tax amounting to $136.3 million, in line with the management guidance. Acquisitions during the year contributed $17.5 million to net earnings, up 14% yoy. In 2018, the company reported strong organic performance in H2 in both occupancy and wages. During the year, EBITDA to cash conversion ratio stood at 107%.


FY18 Financials (Source: Company Reports)

Outlook: The company expects incremental earnings from prior year acquisitions to be approximately $10 million in CY19. Investment costs associated with the ramp-up of CY19 greenfield centres is expected at $2 million.

Stock Recommendation: The stock of the company generated negative returns of 9.90% and 9.59% over a period of 1 month and 3 months, respectively. In 2018, the company reported strong cash flows with EBITDA to cash conversion of 107% and underlying cash conversion of 98%. In addition, it completed balance sheet refinancing through a $400 million syndicated debt facility and $100 million subordinated debt facility. The above two factors in conjunction will support the company in executing its strategic initiatives and will drive future growth. In 2018, the company had a gross margin of 92.8%, which is higher than the industry median of 68.5%. Hence, considering the above factors, we give a “Hold” recommendation on the stock at the current market price of $2.670, up 1.136% on 19 July 2019.
 

Lovisa Holdings Limited

Trading at Higher Levels: Lovisa Holdings Limited (ASX: LOV) is engaged in the retail sale of fashion jewellery and accessories. During the six months ended 31 December 2018, the company reported revenue amounting to $133.2 million, up 12.3% on pcp. Gross profit for the period amounted to $107.8 million, up 13% on pcp. The company witnessed accelerated growth in the European and US markets, with 12 new stores in the UK, 8 stores in Spain, 7 in France and 8 in the US. The period was marked by a strong cash position with cash from operations before interest and tax amounting to $49.1 million.


Financial Performance in 1HFY19 (Source: Company Reports)

Outlook: The company will remain focused on expanding its store network and expects the increase in the number of stores in 2HFY19 to be better than the prior corresponding period.

Stock Recommendation: The stock of the company generated returns of 3.44% and 14.76% over a period of 1 month and 3 months, respectively. Currently, the stock is priced close to its 52-week high level of $12.430. On the valuation front, Price/Cash flow and EV/EBITDA multiple for TTM stand at 29.8x and 18.8x, which are higher than the industry median of 8.2x and 6.8x respectively, showing an overvalued position at the current juncture. Moreover, the stock is presently trading at PE multiple of 33.78x, which is higher than the industry median of 11.4x. Given the backdrop of stretched valuations and current trading level, we recommend an “Expensive” rating on the stock at a current market price of $11.620, down 1.022% on 19 July 2019.


Comparative Chart (Source: Thomson Reuters)

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