Stocks’ Details

The Star Entertainment Group Limited

Highlights of Annual General Meeting:The Star Entertainment Group Limited (ASX: SGR) manages integrated resorts with gaming, entertainment and hospitality services. The market capitalisation of the company stood at ~$4.31 billion as on 7^th November 2019.

The company had strong first-half but experienced a challenging second half in FY19 due to domestic consumer sentiments and global economic softening. Because of the market share gains at the Gold Coast and Brisbane, the company enjoyed record domestic gaming results. The main highlight in Sydney was domestic private gaming rooms, in which, visitations were up by 12.4%, after compensating for a main gaming floor affected by capital works. In International VIP Rebate business, the normalised revenue was down by 30.7% on pcp due to substantial lower spend per customer, however, the company reported a yoy growth of 10% in unique visitations. Once the macro market conditions get better, the company is assured that the ongoing increase in unique patrons and their diversification into new customer segments and geographies, will drive a return to earnings growth from this business.

The company has declared a fully franked final dividend of 10 cents per share, which brings the total dividend for FY19 to 20.5 cents per share fully franked.


FY19 Financial Performance (Source: Company Reports)

Company’s Plan in FY20: The company is planning to execute on the centre of excellence operating model to lock in the cost savings and deliver on the investment strategy. It will also improve its capital efficiency and plans to manage the competitive environment. The company is expecting to report normalised group EBITDA of $300 million to $310 million in the first half of FY20.

Stock Recommendation: Even after facing several headwinds in the second half of FY19, the company maintained its growth rate and reported 14.1% increase in statutory EBITDA on YoY basis. SGR has delivered CAGR growth of 3.99% in the bottom-line over the past five years (FY15 to FY19). The stock has EV/Sales multiple of 2.3x on TTM basis, which is lower than the industry average of 3.5x. Company’s gross margin at 95.6% in FY19 is well above the industry median of 51.8%. Based on its future EBITDA guidance, valuation metrics, plans of cost savings methods, sustainable EBITDA margins and focus on improving capital efficiency, we give a "Buy" rating on the stock at the current market price of $4.710 per share, up 0.213% as on 7th November 2019.
 

Cann Group Limited

Cann Enters into a Distribution Agreement with Symbion:Cann Group Limited (ASX: CAN) is engaged in the cultivation of cannabis for research and medicinal uses, and it also manufactures medicinal cannabis products. The market capitalisation of the company stood at ~$143.29 million as on 7^th November 2019.

CAN has announced that it is going to launch a variety of imported medicinal cannabis products for supply to approved Special Access Scheme (SAS) patients. The company has entered into a distribution agreement with Symbion Pty Limited, the company that supplies healthcare services and products to more than 1300 hospitals and 4000 retail pharmacies throughout Australia. The company has also received its first shipment of high THC oil formulation and the product has been imported from its strategic partner Aurora Cannabis in Canada.


FY19 Financial Results (Source: Company Reports)

What to Expect From CAN:  In the coming future, the construction of the Mildura facility will remain a focus with specialised components from the Netherlands continuing to arrive at the Mildura site and construction progressing to plan. The company is currently assessing and testing pathways that are available for exports of medicinal cannabis products, which allows the company to meet domestic demand. Cann Group Limited is focused on its commercial strategy, which includes planned delivery of product to Australian patients and involvement in clinical studies.

Stock Recommendation: As per the ASX, the stock has corrected 56.47% in the last 6 months and is currently trading close to the lower band of its 52-week trading range of $0.950 - $2.850. In the recent years, the company has performed well, that is largely visible by the CAGR growth of 291.53% in top-line over the period of FY15 to FY19. CAN has a current ratio of 10.74x, which is above the industry average of 1.90x. Based on the new future endeavours that are ahead of the company, such as its agreement with Symbion and strategic partnership with Aurora Cannabis, decent top-line growth in past few years, current trading levels and decent liquidity position, we give a "Speculative Buy" recommendation on the stock at the current market price of $1.010 per share.
 

Boral Limited

Highlights of Annual General Meeting:Boral Limited (ASX: BLD) manufactures and supply building and construction materials. The market capitalisation of the company stood at $5.74 billion as on 7^th November 2019. The market conditions across the regions were more challenging than expected, which affected the business performanceof FY19. In Australia, the value of work done in highways, roads, bridges and subdivision was down by an estimated 6% and housing starts were down by 15%. US housing starts were 2% softer and in South Korea, residential construction is in a cyclical downturn. Although there were so many headwinds, the company responded proactively and reduced its cost, resized activities and sought new opportunities to grow revenues.

Despite of these tough conditions, the company reported revenue of $5.8 billion, up by 4% and an increase of 2% in EBITDAto $1.03 billion.After the sale of the US Block businesses and Denver Construction Materials, which were completed in November 2018 and July respectively, the company reduced its net debt to $2.19 billion as compared to $2.45 billion debt in the previous year.

The company declared a final dividend of 13.5 cents per share, taking the full year dividend to 26.5 cents per share, which is in-line with the previous year. Thus, it can be said that the company has been maintaining its focus towards shareholders’ returns.


FY19 Financial Results (Source: Company Reports)

Guidance for FY20: The company expects to report a decrease of 5% to 15% in NPAT as compared to FY19, mainly due to lower earnings and higher depreciation charges. In FY20, the property earnings are expected to be around $55 to $65 million, with a firmer view of the second half expected in February. In the second half of FY20, the company expects its EBITDA to be broadly similar to the reported second half EBITDA last year, before the additional earnings expected from the USG Boral transaction with Knauf.

Stock Recommendation: The valuation of the company seems attractive as the stock is currently trading at an EV/Sales multiple of 1.4x on TTM basis, which is lower than the industry median of 18.5x. Company has improved its EBITDA margin from 15.5% in FY18 to 16.1% in FY19, even after these difficult trading conditions. Looking at the performance of the company in the current year, it has reported revenue growth of 4% YoY, and in the past five years, it has reported CAGR of 7.79% in top-line. Hence, considering the company’s performance in a tough environment, improvement in margins and capabilities to garner revenues, etc., we give a “Buy” recommendation on the stock at the current market price of $5.010 per share, up by 2.245% as on 7^th November 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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