G8 Education Limited

                        
GEM Details

Business Performance Update: G8 Education Limited (ASX: GEM) operates in educational child care services that manage 472 child care centres as of 31 December 2020. The market capitalisation of the company as on 16 June 2021 stood at ~$843.15 million. As per a recent update, the company reported a CY20 EBIT of $10.6 million with a 70% average occupancy in 31 centres of Greenfield. The company is expecting to generate more than 20% ROI on reaching maturity.

FY20 Financial Results Highlights: The company has reported a decrease in its underlying net profit by ~11% to ~$60 million in CY20, compared to $67.7 million in CY19, on a proforma basis. However, there is continued strong cash generation of $189.6 million from its operations during the year on statutory basis. GEM has reported a decline in underlying EBIT by 11.9% to $105.2 million, compared to $119.4 million in CY19. The net cash position of the company stood at $21.8 million in CY20.

CY20 Financial Performance (Source: Company Reports)

Outlook: The Federal Government relief packages during the COVID-19 period continued to January 2021. Additionally, the government reinforced funding measures in the FY2021-22 Budget, which augurs well for the sector. The company is planning is to give a full-year CY21 dividend in March FY22. The Debt tenor has extended to 2023, which can be effectively utilised in the company's operations.

Key Risks: Due to COVID-19, the company faced operational challenges that impacted its financial performance. The shareholder class action has filed against the company if the judgement is not in favour of the company then it might have a negative impact on the company's brand equity. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: As per trading performance, the company has recorded LFL occupancy at circa 70.8% as of 14 May 2021. The stock of GEM is trading below its average 52-weeks' levels of $0.760-$1.315. The stock of GEM gave a positive return of ~5.0% in the past one year and a negative return of ~16.17% in the past six months. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer median EV/EBITDA (NTM Trading multiple), considering the muted financial performance, risk of interest and the uncertainty over COVID-19 impact. For this purpose, we have taken peers such as Mayfield Childcare Ltd (ASX: MFD), Think Childcare Ltd (ASX: TNK), 3P Learning Ltd (ASX: 3PL), to name a few. Considering the current trading levels and expected upside in valuation levels, economic recovery, government relief package, extension of debt facility and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.00, up by 0.502% as on 16 June 2021.  

GEM Daily Technical Chart, Data Source: REFINITIV 

Experience Co Limited

EXP Details

Strategic Acquisition: Experience Co Limited (ASX: EXP) is an adventure tourism and leisure company that engages in Skydiving and Adventure Experiences segments like white water rafting, canyoning, rain forest tours and hot air ballooning services. The market capitalisation of the company as on 16 June 2021 stood at ~$161.18 million. As per a recent announcement, the company has acquired Wild Bush Luxury and The Maria Island Walk. The acquisition aligns with the company’s focus for domestic, nature-based experiences.

1HFY21 Financial Performance: During the period, the company has recorded a decline in revenue by 66.6% to $20.1 in H1FY21, compared to $60.3 in H1FY20. Additionally, the company has recorded a decrease in EBITDA by 42.4% to $3.9 million in H1FY21, compared to $6.7 million in H1FY20. EXP has posted a loss of ~$0.6 million in H1FY21, compared to a profit of $0.3 in H1FY20. However, there is a decline in net debt by 71.1% to $2.6 million in H1FY21, compared to $9.0 million in H1FY20. 

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company is expecting a turnaround in international tourism to the pre-COVID condition due to an optimistic outlook and ease in travel restrictions. The Vaccine implementation across territories will have a positive impact on the tourism sector in the mid-term. The government has nearly allocated $2.1 billion for tourism, aviation and arts that might stimulate growth in the tourism and hospitality industry.

Key Risks: Due to the COVID-19 pandemic, there is a major impact on domestic and international tourism that affected the company's operations, and the uncertainty still prevails in the near term. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: Stock Recommendations: As per a recent update, the company was severely impacted in its overall operations by bushfire, followed by Covid-19 disruption and uncertainty still prevailed across the globe. The stock of EXP is trading close to its 52-weeks' high levels of $0.315. The stock of EXP gave a positive return of ~129.62% in the past one year and a positive return of ~24.0% in the past six months. On a technical analysis front, the stock of EXP has a support level of ~$0.254 and a resistance level of ~$0.402. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with a correction of high single-digit (in % terms). We believe the company can trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the ease down in lockdown restriction, stimulus package allocated in the budget. For this purpose, we have taken peers such as Viva Leisure Ltd (ASX: VVA), Ardent Leisure Group Ltd (ASX: ALG), to name a few. Considering the current trading levels, recent rally in the stock price, government restrictions and the key risks associated with the business, we suggest investors to book profits and give a 'Sell' rating on the stock at the current market price of $0.310, up by ~6.896% as on 16 June 2021.

EXP 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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