Stocks’ Details

Transurban Group

Quarterly Update: Transurban Group (ASX: TCL) is the owner, operator and developer of electronic toll roads and intelligent transport systems. As on 14 October 2020, the market capitalization of the company stood at ~A$38.30 billion. During the quarter ended September 2020, Average Daily Traffic decreased by 25.2% but retained a strong capital position with US$900 million at attractive rates.

Subsequent Traffic Improvement: During FY20, the company reported a decline of 3.4% in proportional toll revenue to $2,492 million and a decrease of 8.6% on average daily traffic across portfolio. This was mainly due to future government responses and overall economic conditions due to the outbreak of COVID-19. The decent financial and operational performance enabled the company to distribute a final dividend of 16 cents per share, bringing the total dividend to 47 cents per share.

FY20 Operational Highlights (Source: Company Reports)

What to Expect: Despite significant impacts to traffic and an uncertain near-term outlook due to COVID-19, the company retained decent core fundamentals. The company focuses on long term sustainability and will continue to invest in enhancing its position as a global sustainability leader. TCL expects FY21 distribution to be in line with free Cash, excluding capital releases.

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: TCL has a material pipeline of opportunities emerging in core markets and will continue to balance the prospects with decent investment-grade credit metrics and distributions for security holders. As per ASX, the stock of TCL is trading above the average of its 52-weeks’ trading levels. On a Technical front, the stock of TCL has a support level of ~$11.63 and a resistance level of ~$14.92. We have valued the stock using the EV/ Sales multiple based illustrative relative valuation and have arrived at a target upside of higher single digit (in % terms). Considering the current trading levels, resilience in operational performance despite the softer market conditions, and positive long term outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $13.93, down by 0.501% on 14 October 2020.

Crown Resorts Limited

Show Cause Notice by VCGLR: Crown Resorts Limited (ASX: CWN) is an international casino and gaming entity, with businesses and investments in key international markets. As on 14 October 2020, the market capitalization of the company stood at ~$6.04 billion. Recently, the company notified the market, that Victorian Commission for Gambling and Liquor Regulation (VCGLR) has given a show cause notice to Crown Melbourne Limited in relation to its non-compliance in providing Internal Control Statement for junket operations (ICS) under the Casino Control Act 1991 (Vic). It was mentioned that the notice requires Crown Melbourne to show cause why disciplinary action should not be taken for an alleged non-compliance with the ICS. However, Crown Melbourne would respond to the Show Cause Notice and fully co-operate with the VCGLR for the process.

Financial Highlights of Crown Melbourne: During FY20, Crown Melbourne reported theoretical revenue amounting to $1,477.8 million, reflecting a fall of 31.4% over pcp. Main floor gaming revenue for the period amounted to $890.6 million, indicating a decline of 27.9% on the pcp. Non-gaming revenue stood at $362.3 million. In addition, the overall theoretical operating margin before Closure Costs fell from 27.3% to 24.0%, largely due to the decline in revenues as well as an increase in labour costs during FY20. During FY20, CWN reported EBITDA went down by 40.6% to $504.6 million and NPAT of the company declined by 80.2% to $79.5 million. CWN is positive about the future of its businesses in spite of the near-term uncertainties. The company added that Crown Melbourne and Crown Perth happens to be the iconic tourist destinations supported by long-term licences.

FY20 Financial Highlights (Source: Company Reports)

ILGA Inquiry:  In another update, the company confirmed that its VIP program play business in Melbourne and Perth has contributed ~7% in normalized EBITDA over the last five years. The company intends to open its Crown Sydney Hotel Resort on around 14 December 2020 and will comprise a total of 30 table games across 12 private gaming salons within the tower and 129 table games and 66 electronic table game terminals.

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 company is focusing on ramping up its operations post COVID pandemic to return to pre-COVID profitability. As per ASX, the stock of CWN is inclined towards its 52-weeks’ low level of $5.840, proffering a decent opportunity for accumulation. On a technical front, the stock of CWN has a support level of ~$6.3 and a resistance level of ~$10.7. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation and have arrived at a target price offering an upside of lower double-digit (in percentage terms). Considering the current trading levels, long-term licences for its Crown Melbourne and Crown Perth, decent returns in the past three months, and prolonged growth prospects, we recommend a ‘Buy’ rating on the stock at the current market price of $8.95, up by 0.336% on 14 October 2020.

Orora Limited

Resilient Financial Performance and Stable Balance Sheet: Orora Limited (ASX: ORA) is a leader in innovative packaging solutions and supplies a broad range of fibre, metal and glass packaging solutions, as well as packaging services. As on 14 October 2020, the market capitalization of the company stood at ~$2.41 billion. Despite the significant headwinds from COVID-19, the company reported a resilient performance during FY20 with an increase of 5.2% in revenue to $3,566 million. In the same time span, underlying EBIT stood at $224.3 million, and underlying NPAT was $127.7 million. During FY20, ORA reported a healthy balance sheet with a reduction in net debt to $292 million and a leverage ratio of 0.9x. The decent financial and operational performance enabled the board to declare a final dividend of 5.5 cents per share, with an ex-date of 7 September 2020. It will be paid on 12 October 2020.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The company is enhancing and expanding its core products and services to enhance its customer value proposition. It is also planning to enter new segments which are complementary to its capability set. ORA has a continued focus on optimizing manufacturing processes and is assessing opportunities to leverage core capabilities in adjacent markets in ANZ.

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 company is working on stabilizing its business and is pursuing further business model enhancements to accelerate investments in digital capabilities to enhance customer proposition. As per ASX, the stock of ORA is trading very close to its 52-weeks’ low level of $2.190, proffering a decent opportunity for accumulation. On a Technical Front, the stock of ORA has a support level of ~$2.20 and a resistance level of ~$2.95. We have valued the stock using the price to earnings multiple based illustrative relative valuation and have arrived at a target upside of lower double-digit (in percentage terms). Considering the current trading levels, modest long-term outlook, and decent financial performance despite the global pandemic, we recommend a ‘Buy’ rating on stock at the current market price of $2.49, down by 0.4% on 14 October 2020.

Daily Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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