Vita Group Limited

VTG Details

Sale of Retail ICT Business:  Vita Group Limited (ASX: VTG) provides telecommunications, computers and related products and services via its retail and business channels. VTG has recently inked a Share Sale Agreement with Telstra for the sale of its Retail Information and Communication Technology (ICT) business for cash consideration of $110 million.

• The said transaction provides the shareholders with value through an anticipated fully franked special dividend of around $65 to $75 million, indicating a per share dividend of approx. $0.39 to $0.45. The dividend is likely to be paid in two instalments.
• VTG is planning to preserve around $35 million from the total consideration in order to finance the growth of the Artisan Aesthetic Clinics business.

FY21 Financial Summary:

• Impact of COVID-19 on Revenue: For the year ended 30^th June 2021, the company recorded revenue amounting to $633.5 million, reflecting a fall of 18% over pcp, because of ongoing impacts from COVID-19 pandemic. However, VTG witnessed revenue growth from the growing Artisan Aesthetic Clinics (Artisan) business.
• Growth in NPAT: EBIT and EBITDA for the year stood at $40.3 million and $50.3 million, indicating a rise of 8% and 1%, respectively, over pcp. The company recorded a rise of 17% in net profit after tax (NPAT) to $26.3 million.
• Dividend Payment: VTG paid a fully franked final dividend of $4.0 million, equating to 2.4 cents per share, reflecting a payout ratio of 50% of profits after tax for 2HFY21.

EBITDA Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Disruptions from COVID-19 Pandemic: The ongoing pandemic has impacted the company’s topline growth, and uncertainties from the same could impact the business in the upcoming period.
• Business Challenges: VTG has recently decided to sell its retail ICT and sprout business to Telstra due to the competitive environment.

Outlook:

• During FY22, the company would continue to focus on delivering on the long-term potential in Artisan and placing the group at the premium end of the market.
• The company would also work on efficient management of expenses.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The company closed FY21 with a net cash position of $31 million, benefited by JobKeeper subsidy and the proceeds of divestments. The stock of VTG is trading near to its 52-week low level of $0.770. The stock of VTG gave a negative return of ~10.61% in the past one month. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the COVID-19 disruptions and business challenges. For the purpose of valuation, peers such as JB Hi-Fi Ltd (ASX: JBH), Premier Investments Ltd (ASX: PMV), and Accent Group Ltd (ASX: AX1) have been considered. Considering the expected upside in valuation, decent outlook, increasing EBITDA, rising NPAT and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.795 as on 28 September 2021, 03:06 PM (GMT+10), Sydney, Eastern Australia.

VTG Daily Technical Chart, Data Source: REFINITIV  

Donaco International Limited

DNA Details

Change in Board: Donaco International Limited (ASX: DNA) operates leisure and entertainment businesses in the Asia Pacific region. During FY21, the company witnessed a change in Board, where Mr. Leo Chan and Mr. Kurkye Wong stepped down from the position of Executive Directors. DNA appointed Mr. Hasaka Martin as Company Secretary.

FY21 Financial Summary:

• Impact of COVID-19: The company’s financial health was impacted by the international border closures as well as the lockdowns in Thailand and Cambodia due to COVID-19 and restrictions on casino operations. As a result of this, DNA recorded revenue amounting to $10.32 million against $53.49 million in FY20.
• Declining NPAT: DNA recorded a statutory net profit after tax of $25.18 million as compared to $58.89 million in FY20 due to proceeds from the settlement of Star Vegas.
• Reduced Debt Levels: As on 30^th June 2021, the company decreased its debt levels with Mega Bank to $9.05 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Regulatory Risk: The company is exposed to more complex regulations from various governments, as it operates in many countries.
• Forex Headwinds: Any unfavorable movement in foreign exchange could impact the company’s financial health.

Outlook:

• The company’s strategy for FY22 is likely to build on its pragmatic initiatives, which include the shift towards clientele from the local region.
• DNA would work on balance sheet protection and cost control to alleviate the impacts from COVID-19.
• In addition, the company is expecting to repay all remaining debt with Mega Bank by the end of CY2021.

Stock Recommendation: The company closed FY21 with a healthy cash balance of $6.3 million. In addition, Mega Bank also waived the requirement to cash covenants at the end of FY21. The stock of DNA is trading near to its 52-week low level of $0.029. The stock of DNA gave a negative return of ~10.52 % in the past three months. On a TTM basis, DNA has an EV/Sales multiple of 2.7x against the industry median (Hotels & Entertainment Services) of 4x, thus seems undervalued. Considering the valuation on a TTM basis, decent long-term outlook, declining debt levels, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.034 as on 28 September 2021.

DNA Daily Technical Chart, Data Source: REFINITIV 

Keytone Dairy Corporation Limited

KTD Details

Expansion of Manufacturing Plant in Prestons: Keytone Dairy Corporation Limited (ASX: KTD) is a manufacturer, packer and exporter of dairy and nutrition products. Recently, KTD has finished expansion and upgrade of its state-of-the-art snacking and bar line and manufacturing plant in Prestons, Sydney. The company started commercial runs for clients in September 2021 and received strong opening orders.

Q1 FY22 Financial Summary:

• Increasing Sales: During the quarter, the company recorded consolidated sales of $13.4 million as compared to $11.3 million in Q1 FY21.
• Improvement in Costs: KTD witnessed improvement in production and manufacturing costs to $12.0 million, reflecting a saving of around $700,000 against the prior quarter.
• Strong Sales Pipeline: As a result of strong financial results and the continued delivery of strategic business development objectives, the company recorded a growing and strong sales pipeline for the remaining FY22.

FY21 Financials Summary:

• Growth in Revenue: For the year ended 31^st March 2021, the company reported record sales growth in all business divisions, and sales reached $50.7 million, up by 125% over FY20.
• Cash Position: KTD closed FY21 with a cash balance of $4.0 million against $4.4 million in FY20.

Sales Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Challenges: The pandemic is a key macro factor in the daily operating environment, as the impact from the same remains uncertain.
• Foreign Exchange Risk: KTD’s financial statements are exposed to risks arising from adverse movement in exchange rates.

Outlook:

• The company possesses a robust sales pipeline for the remaining FY22 on the back of new contract wins. This may support the company in sales growth in future.
• KTD’s capital raising of $12.5 million in FY21 has opened the doors for its growth initiative in the upcoming period.
• The company has scheduled to conduct the 2021 Annual General Meeting on 28 October 2021.

Stock Recommendation: The company closed Q1 FY22 with a cash balance of $4.1 million. In addition, the company also obtained a competitive trade debtor facility for $7 million with Moneytech in order to support the working capital needs as well as the further strategic growth initiatives of its Australian business. The stock of KTD is trading near to its 52-week low level of $0.110. The stock of KTD gave a negative return of ~29.41% in the past six month. On a TTM basis, KTD is trading at an EV/Sales multiple of 0.9x, lower than the industry median (Food & Tobacco) of 1.6x. Considering the valuation on TTM basis, robust sales pipelines, increasing sales, improving costs, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.118 as on 28 September 2021, 03:25 PM (GMT+10), Sydney, Eastern Australia.

KTD Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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