Stocks’ Details

Crown Resorts Limited

Update on Melco Resorts CPH Transaction: Crown Resorts Limited (ASX: CWN) is an international casino and gaming entity with its core businesses and investments in the integrated resorts sector. As on 7 February 2020, the market capitalisation of the company stood at ~$7.86 billion. As per the recent announcement, MCO investments Limited has decreased its voting power to 9.99% from 19.99% on 6 February 2020. The company recently noted that CPH Crown Holdings Pty Limited and Melco Resorts have entered into an agreement to terminate the obligations under the Share Sale Agreement regarding completion of the sale of 19.99% of the issued capital of Crown to Melco Resorts & Entertainment Limited. 

In the recently held AGM, the management that stated for the full year ended 30 June 2019 the normalised EBITDA of the company stood at $802 million, down by 8.7% on the previous year and normalised net profit after tax went down by 4.7% to $369 million. This result reflected a reduction in VIP program play revenue and ongoing softness in Perth partly offset by decent revenue growth in local businesses in Melbourne.


FY19 Financial Performance (Source: Company Reports)

What to Expect: The company is focusing on improving the underlying performance of Crown Melbourne, Crown Perth and Crown Aspinalls. It is aiming growth and value creation from Crown Digital. The company is also targeting to deliver returns to its shareholders and maintain an appropriate and efficient capital structure.

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of CWN is trading close to its 52-week low of $11.010, proffering a decent opportunity for accumulation. During FY19, EBITDA margin of the company stood at 29.9%, higher than the industry median of 25.5%. In the same time span, net margin of the company was 13.8% as compared to the industry median of 9.2%. Considering the current trading levels, higher EBITDA and net margin and decent growth opportunities, we have valued the stock using EV/Sales based relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Star Entertainment Group Ltd (ASX: SGR), Aristocrat Leisure Ltd (ASX: ALL) and Brambles Ltd (ASX: BXB) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $11.610 on 7 February 2020.

Collins Foods Limited

Strong Earnings Growth: Collins Foods Limited (ASX: CKF) is engaged in operation, management and administration of restaurants in Australia, Europe and Asia. As on 7 February 2020, the market capitalization of the company stood at $1.03 billion. The company has recently released its results for HY20 wherein it stated that the revenue of the company went up by 9.2% to $448.8 million and Underlying EBITDA increased by 7.4% to $57.7 million. The decent financial performance of the company resulted in the EPS to increase to 20.5 cps from 18.8 cps in the prior half-year.



HY20 Financial Performance (Source: Company Reports)

Key Priorities: The company is prioritising to strengthen and streamline operational systems in KFC Australia and is targeting to build new restaurants in FY20. The company is placing an elevated focus on customer experience and on operational performance ensuring business model returns are delivered.

Valuation Methodology: EV/EBITDA Multiple Approach

EV/EBITDA based Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of CKF gave a return of 8.34% in the past 6 months and is inclined towards its 52-weeks’ high level of $10.8. During FY19, gross margin of the company was in line with the industry median and stood at 52.7%. In the same time span, Return on Equity was 11.4% as compared to the industry median of 12.2%. Considering the returns, current trading levels and growth expectations, we have valued the stock using EV/EBITDA based relative valuation and arrived at a downside of higher single-digit (in percentage terms). Hence, we give an “Expensive” rating to the stock at the current market price of $9.070, up by 2.718% on 7 February 2020. 
 

Domino's Pizza Enterprises Limited

Update on French Legal Proceedings: Domino's Pizza Enterprises Limited (ASX: DMP) is food retailer which operates a pizza chain comprisingboth franchisees owned, and company owned corporate stores. The company has recently announced that Cour de Cassation, one of the four courts in France has delivered its judgment in an appeal by Speed Rabbit Pizza in favour of Domino's Pizza France (DPF) against a decision of the Paris Court of Appeal. In the decision, the court has ordered Speed Rabit Pizza to pay DPF €500,000 in damages.

In the recently held AGM, the management stated that revenue of the company went up by 24.4% to $1,435 million and NPAT (Net Profit After Tax) witnessed an increase of 6.1% to $141.2 million. The decent financial performance of the company resulted in the EPS to increase by 8% to 165 cents per share.


FY19 Financial Performance (Source: Company Reports)

What to Expect: The company expects to launch first plant based meat ingredients in Benelux. It is also focusing on strengthening its barbell strategy in Australia and New Zealand. The company has given long term guidance and expects annual same store sales growth of 3-6% in the next 3-5 years. In the same time period, the company expects increased investments in corporate and franchised stores and annual net capex of $60 million to $100 million.   
     
Valuation Approach: Price to Earnings based Valuation

Price to Earnings based Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of DMP gave a return of 11.42% in the past three months and a return of 2.86% in the past one month. The stock is also trading close to its 52-week high of $57.890. During FY19, gross margin of the company stood at 63.7%, higher than the industry median of 52.8%. In the same time span, return on equity of the company was 35.5% as compared to the industry median of 12.2%. Considering the returns, current trading levels, higher ROE and modest outlook, we have valued the stock using Price to Earnings based valuation method and arrived at a downside of lower double-digit (in percentage terms). Hence, we give an “Expensive” rating to the stock at the current market price of $54.810, down by 0.958% on 7 February 2020. 
 

Kathmandu Holdings Limited

Conservative Capital Structure: Kathmandu Holdings Limited (ASX: KMD) is a retailer of clothing and equipment for travel and adventure. As on 7 February 2020, the market capitalization of the company stood at $888.17 million. The company has recently provided a trading update wherein it stated that revenue of the company stood at NZ$1,023 million, up from NZ$945 million in FY18. The company intends to maintain a conservative capital structure with net debt/EBITDA of 1.5x and gearing of 27.4%.


Key Metrics (Source: Company Reports)

Valuation Methodology: EV/EBITDA based multiple Approach

EV/EBITDA based multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, *1NZD=1.044 AUD
Stock Recommendation: Group underlying EBIT is expected to be 40% above the pcp. As per ASX, the stock of KMD gave a return of 55.17% in the past 6 months and a return of 4.51% in the past 3 months. The stock is also trading very close to its 52-weeks high level of $3.590. During FY19, gross margin of the company stood at 60.9%, higher than the industry median of 26.1%. In the same time span, net margin of the company was 10.6% as compared to the industry median of 3.5%. Considering the returns, trading levels, high gross and net margin, we have valued the stock using EV/EBITDA valuation approach and have arrived at a downside of higher single-digit (in percentage terms). Hence, we have a watch stance on the stock at the current market price of $3.540, up by 17.608% on 7 February 2020, owing to its recent trading update and investors presentation.

 
Comparative Price Chart (Source: Thomson Reuters)

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