Stocks’ Details

Harvey Norman Holdings Limited

Robust FY20 Results: Harvey Norman Holdings Limited (ASX: HVN) is primarily involved in the operation of integrated retail, franchise, property, and digital enterprise business. In FY20, the company reported consolidated PBT (Excluding AASB 16 net impact and net property revaluations) of $635.6 million, up by 26% year over year. The offshore company-operated retail segment delivered sales of $2.08 billion in FY20, up 3.5% on the previous year. EBITDA for the period increased 20.1% year over year and came in at $742.47 million. As at 30 June 2020, the company’s net cash position stood at $15.35 million as compared to a net debt position of $626.47 million as at 30 June 2019. The company declared a fully franked final dividend of 18 cents per share, payable on 2 November 2020.

FY20 Key Financials (Source: Company Reports)

Aggregated Sales Update: The Aggregated Sales revenue from Harvey Norman® wholly-owned company-operated stores increased by 30.6% for the period 1 July 2020 to 17 September 2020 as compared to the previous corresponding period. Comparable Aggregated Sales for the same time span, went up by 30.3%, as compared to the year-ago period. 

What to Expect: The group’s portfolio of cash-generative businesses with leading market positions is well-placed to deliver satisfactory shareholder returns over the long term and its retail divisions intend to make investments in the offers to deliver greater value, quality and convenience.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of the company went up by 25.73% in the past three months and is currently trading close to its 52-week high level of $4.787. The company has a market capitalisation of ~$5.42 billion, with a P/E multiple of 11.1x and an annual dividend yield of 6.9%. On a technical analysis front, the stock has a support level of ~$3.5 and a resistance level of ~$5.5. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the above-mentioned factors, healthy FY20 results, decent outlook and valuation, we give a “Hold” recommendation on the stock at the current market price of $4.44, up 2.069% on 21 September 2020.

IDP Education Limited 

FY20 Financial Performance (as at 30 June 2020): IDP Education Limited (ASX: IEL) is an education services provider that is involved in the placement of international students into educational institutions in Australia, United Kingdom, Canada, USA, New Zealand, and Ireland. In FY20, the company reported revenue of $587 million, down 2% on the previous corresponding period, due to COVID-19 led headwinds. Further, the company reported EBIT of $107.8 million and NPATA of $70.4 million, up 11% and 3%, respectively on pcp. The company has not declared a final dividend, but the interim dividend amounted to 16.5 cents per share which will be paid on September 24, 2020 to the shareholders. The performance of IDP in FY20 reflects the continuation of robust organic growth that it has been witnessing over the past 8 years. The growth was supported by ongoing global growth in the international education industry and central role of English as a key global language

FY20 Results (Source: Company Reports)

Future Expectations: The breakout of COVID-19 has taken a toll on the global economy. The company is likely to have a material impact on its performance as many of its IELTS testing locations are suspended. However, it is taking pre-emptive measures to benefit from opportunities after this period. The company is sufficiently liquid and is focusing on preserving global talent. The company would continue to expand client services so that it can provide data-driven insights and marketing solutions via IDP Connect.

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: Over the last one month, the stock of IEL has increased by 34.11% and is currently trading above the average to its 52-week low high range. The company has a market capitalisation of ~$5.31 billion, with an annual dividend yield of 1.26%.  The stock of IEL is trading a premium P/E multiple of 72.95x as compared to the industry average of 28.8 on TTM basis. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). On a technical front, the stock of IEL has a support level of ~$16.5 and a resistance level of ~$21.5. Therefore, considering the aforesaid facts, current trading levels and price movement in the stock, and higher valuations, we give an “Expensive” rating on the stock at the current market price of $18.83 per share, down by 1.259% on 21 September 2020.

Tabcorp Holdings Limited

Completion of Retail Entitlement Offer: Tabcorp Holdings Limited (ASX: TAH) provides gambling and other entertainment services and has three operating business units being Lotteries and Keno, Wagering and Media, and Gaming Services. The company has recently completed its previously announced offering of an underwritten 1 for 11 pro-rata accelerated renounceable entitlement offer.  The Retail Entitlement Offer has raised gross proceeds of ~$230 million from the issue of New Shares at an issue price of $3.25 per New Share. Together with the institutional component of the Entitlement Offer, the company raised around $600 million. The proceeds from the offer will be utilized to pay down existing drawn bank debt facilities and will bolster Tabcorp’s balance sheet and support greater financial flexibility. 

Other Recent Update: Recently, the company appointed Janette Kendall as a Non-Executive Director of the company, subject to the receipt of the required regulatory and ministerial approvals. 

FY20 Financial Highlights: During FY20, the group reported revenue of $5,224 million and a decline of 11.5% in EBITDA to $995 million. In the same time span, the group delivered an NPAT before significant items of $271 million. During the year, the company undertook several capital management initiatives to preserve cash and maximize financial flexibility.

FY20 Financial Highlights (Source: Company Reports)

What to Expect: Despite the material headwinds from COVID-19, the company demonstrated its strength and delivered a decent performance. The company is targeting gearing in between 2.5x to 3.0x and is focused on maintaining its investment grade. It is also aiming to increase returns to the cost of capital levels over time and targeting a dividend of 70% – 80% of NPAT.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E 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 per ASX, the stock of TAH gave a return of 35.28% in the past six months and is currently near the average 52-weeks low-high range. The company has a market capitalisation of ~$7.28 billion, with an annual dividend yield of 6.49%.  On the technical analysis front, the stock of TAH has a support level of ~$2.2 and a resistance level of ~$4.8. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered peers like Aristocrat Leisure Ltd (ASX: ALL), Star Entertainment Group Ltd (ASX: SGR), Crown Resorts Ltd (ASX: CWN), to name few. Considering the decent returns in the past six months, resilient performance in the softer market conditions, decent outlook, completion of Retail Entitlement Offer, we recommend a ‘Buy’ rating on the stock at the current market price of $3.38, down by 0.295% on 21 September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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