Stocks’ Details
 

Coles Group Limited

Decent Performance in 1HFY20: Coles Group Limited (ASX: COL) is engaged into retailing of fresh food, groceries, household goods, liquor, fuel, etc. The market capitalisation of the company stood at $22.97 Bn as on 18^th March 2020. Wesfarmers Ltd recently divested 4.9% of the issued capital of Coles Group Limited in lieu of total pre-tax proceeds amounting to $1,050 million. For 1H FY20, sales revenue of the group witnessed a rise of 3.3% to $18.8 billion. It also experienced satisfactory sales revenue growth throughout Supermarkets, Liquor and Express. Due to strong demand for its divestment properties, it posted group EBIT amounting to $725 million, up 0.4% on PCP.


Financial Performance (Source: Company Reports)

Future Aspects: During the start of Q3 FY20, Comparable Supermarkets sales stood largely consistent with the levels, which have achieved in Q2 FY20. Due to tailored range reviews as well as clearance activity commenced in 1H FY20, the company expects earnings of liquor business to be under pressure.

Valuation Methodology: P/CF Multiple Based Relative Valuation

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The Board of Coles declared an interim dividend of 30 cents per share for half year. Return on equity of the company stood at 16.6x in 1H FY20 as compared to the industry median of 9.3%. We have valued the stock using P/CF-based relative valuation approach, and for the purpose, we have taken peers such as Woolworths Group Ltd (ASX: WOW), Metcash Ltd (ASX: MTS) and Coca-Cola Amatil Ltd (ASX: MTS) and arrived at a target price, which is offering an upside of mid-single-digit (in percentage terms). Hence, considering the decent returns paid to shareholders and performance in 1H FY20, we give a “Hold” recommendation on the stock at the current market price of $16.970 per share, down by 1.452% on 18^th March 2020. 

The A2 Milk Company Limited

Signing of New Agreement: The A2 Milk Company Limited (ASX: A2M) is a premium branded dairy nutritional entity, which is focused on products containing the A2 beta-casein protein type. Recently, the company has expanded its footsteps in Canada by signing an exclusive licensing agreement with Agrifoods Cooperative. The scope of the agreement includes production, distribution, sale and marketing of a2 Milk™ branded liquid milk for the Canadian market.

During the first half of the financial year 2020, A2M reported robust growth in revenue and earnings. Wherein, its revenue amounted to NZ$806.7 million while its NPAT stood at NZ$184.9 million, up by 21% on pcp. These results reflect continued growth in its infant nutrition segment. 


Robust Growth in 1H FY20 (Source: Company Reports)

EBITDA Margin target: Over the medium target, the company expects EBITDA margin in the order of 30% on the back of the assumption that market performance and mix of its products to remain broadly consistent. However, it expects some uncertainty in business due to COVID-19.

Stock Recommendation: A2M closed the half-year with the operating cash flow of NZ$160.6 million and a closing cash balance of NZ$618.4 million as compared to NZ$464.8 million as at 30 June 2019. This increase is because of strong performance throughout the group, which was partly offset by an increase of working capital. Net margin of the company stood at 23.4% in 1H FY20 as compared to the industry median of 11.4%. This reflects that the company is in a decent position to convert its topline into the bottom line against the broader industry. Thus, in light of increased cash balance, strong growth in revenue and a new agreement with Agrifoods, we maintain a “Hold” rating on the stock at the current market price of $15.950 per share, up by 5.281% on 18^th March 2020.

Freedom Foods Group Limited

Solid Demand in Key Products: Freedom Foods Group Limited (ASX: FNP) is involved in sourcing, manufacturing, selling, marketing and distribution of specialty cereal and snacks and plant and dairy beverages. Amidst the increasing fear of COVID-19, FNP is currently experiencing solid demand for key products, which include UHT dairy and plant beverages and cereals & snacks. Moreover, it is working closely with key retailers as well as other customers in Australia and export markets in order to prioritise supply within its operational capabilities.

During 1H FY20, the company managed to deliver improved financial performance along with higher sales revenue and earnings. It also reported growth in key business divisions and markets due to investment in innovation, brand as well as market development.


Sales and Earnings Growth (Source: Company Reports)

What to Expect:FNP is well placed for strategically building into a major global food and beverage business with scale in key food and beverage platforms.

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Current ratio of FNP stood at 1.37x in 1H FY20, reflecting YoY growth of 20.5%. This implies that the company has improved its position to address its short-term obligations. We have valued the stock using P/E based relative valuation method, and for the purpose, we have taken peers such as Wesfarmers Ltd (ASX: WES), Coles Group Ltd (ASX: COL) and Graincorp Ltd (ASX: GNC) and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). Therefore, considering the improved liquidity position and strong demand for key products, we give a “Hold” recommendation on the stock at the current market price of $4.950 per share, up by 1.852% on 18^th March 2020.

Asaleo Care Limited

Improved Top-line in FY19: Asaleo Care Limited (ASX: AHY) is engaged in manufacturing, marketing and distribution of consumer products throughout the Feminine Hygiene. For the full year ended 31^st December 2019, the company reported underlying Earnings Before Interest, Tax, Depreciation and Amortisation amounting to $82.4 million. During the year, the company experienced revenue growth of 3.0% to $420.2 million. Asaleo declared final unfranked dividend amounting to 2 cps. It will be paying the said dividend on 3^rd April 2020 to the shareholders, who were registered with the company on 6^th March 2020.


Key Financials (Source: Company Reports)

Guidance for Underlying EBITDA: For FY20, the company anticipates Underlying EBITDA in the ambit of $84 million - $87 million on the back of continuing sales growth and the easing of pulp prices sheltering other cost increases.

Valuation Methodology: P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Debt to equity of the company stood at 1.08x in FY19 against 1.98x of FY18. Net margin of AHY stood at 6.8%, reflecting YoY growth of 6.6%. This reflects that the company has improved its capabilities to convert its topline into the bottom line. We have valued the stock using P/E based relative valuation method, and for the purpose, we have taken peers such as Blackmores Ltd (ASX: BKL), Costa Group Holdings Ltd (ASX: CGC), Treasury Wine Estates Ltd (ASX: TWE) etc., and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). Thus, considering the deleveraged balance sheet and improved net margins, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.940 per share, down by 1.053% on 18^th March 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.