Stocks’ Details

Nine Entertainment Co. Holdings Limited

FY20 Financial Highlights: Nine Entertainment Co. Holdings Limited (ASX: NEC) is engaged in the publishing across digital platforms and newspapers, real estate media and technology services, broadcasting, and program production across free to air television. As on 23 September 2020, the market capitalization of the company stood at ~$2.87 billion. During FY20, the company reported a decline of 7% in revenues to $2.2 billion due to an impact of COVID-19 on operating environment on all advertising markets. In the same time span, the company saw a fall of 16% in group EBITDA to $397 million. For FY20, the company reported operating free cash flow of $373 million and net debt of $291 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is focused on achieving a structural cost out of ~$230 million from FY19 and is aiming an EBITDA of ~60% from digital business by FY24. The company is also expecting revenues of over 35% from its subscription segment and over 30% from VOD by FY24.

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: Despite the difficult operating environment, NEC continued to focus on investing in its long-term growth assets and improving the operating performance of its traditional media portfolio. NEC is investing in premium content and is focusing on differentiation through innovatively broadening offering. As per ASX, the stock of NEC gave a return of 100% in the past six months and a return of 18.73% in the last three months. The stock is inclined towards its 52-weeks’ high level of $2.02. On a technical front, the stock of NEC has a support level of ~$0.936 and a resistance level of ~$1.91. We have valued the stock using the P/CF multiple based illustrative relative valuation and have arrived at a target upside of middle-single digit (in % terms). Considering the current trading levels, attractive returns in the past six month, and positive long term outlook, we recommend a ‘Hold’ rating on the stock at the current market price of ~$1.720, up by 2.381% on 23 September 2020.

Event Hospitality and Entertainment Limited

FY20 Financial Highlights: Event Hospitality and Entertainment Limited (ASX: EVT) is engaged in the operation of hotels and restaurants; and has the ownership and operation of Thredbo Alpine Resort; cinema, hotel, and other rental properties. As on 23 September 2020, the market capitalization of the company stood at ~$1.54 billion. During FY20, the company showed decent momentum on its strategy, driving overall growth of 2.5% in revenue to $684 million, despite the onset of COVID-19 pandemic. Due to the mandatory closures of cinemas in Australia, New Zealand and Germany, the operating profit of the company witnessed a substantial decline to $34 million, down from $158 million in the pcp. During FY20, the company reported a healthy balance sheet with a solid portfolio value of $2 billion.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The Government mandates have dictated speed recovery for the company. The backlog of films is resulting in a solid future film line up. However, the hotel trading is not likely to return to pre-COVID levels until the complete restrictions are uplifted.

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 focused on developing new developing models to enable business to pivot for COVID-19 scenarios and deliver benefit into the future. As per ASX, the stock of EVT gave a return of 59.67% in the past six months and a return of 15.28% in the past one month. The stock is trading slightly higher than the average 52-weeks’ level. On the technical analysis front, the stock of EVT has a support level of ~$5.7 and a resistance level of ~$12.82. We have valued the stock using the P/CF multiple based illustrative relative valuation and have arrived at a target upside of lower double digit (in % terms). For the purpose, we have taken peers like Village Roadshow Ltd (ASX: VRL), Ardent Leisure Group Ltd (ASX: ALG), and Crown Resorts Ltd (ASX: CWN). Considering the current trading levels, decent returns in the past one month, modest long term outlook and healthy balance sheet, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$9.60, up by 0.209% on 23 September 2020.

5G Networks Limited

Completion of Sending Bidder's Statement to WCG Shareholders: 5G Networks Limited (ASX: 5GN) operates fibre and wireless infrastructure and manages cloud computing environment. As on 23 September 2020, the market capitalization of the company stood at ~$178.48 million. The company has recently entered a Bid Implementation Deed to acquire 100% of the shares of Webcentral Group Limited and has sent a bidder’s statement with respect to its off-market takeover bid. The consideration for offer is 1 share of 5GN for every 12 WCG shares held by a WCG shareholder, implying a price of 16.0 cents per WCG share based on 1 month VWAP of 5GN’s share price.

Financial Highlights: During FY20, the company reported a recurring revenue growth of 16% due to the continuing migration of customers to higher margin annuity services including cloud and networks. In the same time span, EBITDA of the company witnessed an increase of 96% to $6.3 million because of the relentless focus of WGN on high-margin annuity revenue, and the integration of accretive acquisitions, driving synergies.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is focused on continued development and growth of its wholesale channel; new services, geographic expansion and self-service automation enabled by Colocation Australia. It has provided guidance for FY21 and expects revenue in between $60 million to $65 million and EBITDA in the range of $8 million and $8.5 million.

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 is accelerating growth through continued acquisitions and is focusing on marketing plans to enter the targeted segments. The acquisition of WCG is expected to be transformational for 5GN’s earnings and can generate synergies of over $7 million p.a across both businesses on a run rate basis. As per ASX, the stock of 5GN gave a return of 183.05% in the past six months but a negative return of 10.93% in the last one month. The stock is trading slightly above its 52-weeks’ average levels but retains potential for further growth. On the technical analysis front, the stock of 5GN has a support level of ~$0.917 and a resistance level of ~$2.1. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a target upside of lower double digit (in % terms).  Considering the current trading levels, attractive returns in the past six months and decent financial performance amidst the COVID-19 uncertainty, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of ~$1.710, up by 2.395% on 23 September 2020.

Daily Comparative Chart (Source: Refinitiv, Thomson Reuters)

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