Stocks’ Details

Bapcor Limited

Completion of SPP:Bapcor Limited (ASX: BAP) is engaged in the sale and distribution of motor vehicle aftermarket parts and accessories, automotive equipment and services, and motor vehicle servicing. In a recent announcement, the company notified about the completion of the Share Purchase Plan, which comprised valid applications totalling approximately $122 million from registered shareholders. Given the positive response, the Directors increased the size of the SPP offer to $56 million, from the original target of $30 million. The above SPP followed the underwritten institutional placement of $180 million, of approximately 40.9 million new fully paid ordinary shares at a price of $4.40 per new share.

COVID-19 Update: Due to the uncertainty regarding future impact of COVID-19, the company has withdrawn the previously announced FY20 guidance. However, the company also stated that its businesses have been performing in-line with its expectations and are on track to meet the guidance. The core Burson trade segment continued to report strong sales, with the retail segment also reporting a decent performance. During the half year ended 31^st December 2019, the company reported growth across all key metrics. Summary of 1HFY20 is given in the image below:


1HFY20 Highlights (Source: Company Reports)
 
Valuation Methodology:EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:The stock of the company corrected by 17.92% in the last 3 months and is currently trading above the average of its 52-week trading range of $2.85 - $7.525. Proceeds from the recent capital raising will be utilised to reduce Bapcor’s net debt position and gearing. The company is aiming for increased levels of cash on balance sheet to provide liquidity and flexibility in the current operating environment. Overall, the company has a resilient and financially sound business to withstand the current crisis. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $5.69, up 4.404% on 20^th May 2020.

Australian Agricultural Company Limited

Robust Performance in FY20:Australian Agricultural Company Limited (ASX: AAC) is primarily engaged in the production, sale, and marketing of beef. The company recently announced that it has resolved to restructure its minority interest in four IT service companies, namely Trabeya, Atlas Labs, Pyxle and Surge. In light of the current market conditions, the company finds it financially beneficial to divest all of its interests in the above-mentioned entities.

FY20 Performance: During the year ended 31^st March 2020, the company reported operating profit amounting to $15.2 million, driven by a surge of 20% in Wagyu beef sales as a result of its branded beef strategy and continued focus on cost reduction. Operating cashflow was the strongest ever in the past three years despite increased seasonal costs. Statutory EBITDA profit for the period stood at $80.1 million, against prior corresponding year’s loss of $182.7 million.


FY20 Snapshot (Source: Company Reports)

Outlook: With the retail channel being a significant contributor to the company’s sales, AAC is working on accelerating the supply of products into some of the largest supermarkets, gourmet butchers and direct to customers online. While the potential impact of COVID-19 is difficult to predict, the company remains well-positioned to respond to the rising demand for beef.

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

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:The stock of the company corrected by 8.12% in the last 3 months and is currently trading close to the average of its 52-week trading range of $0.945 - $1.330. The company is continuously monitoring developments with respect to COVID-19 and possesses a strong customer base and global footprint to support business profitability. Considering the strong performance in FY20, anticipated demand for beef, resilient business position, and a modest outlook, we have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside (in percentage terms). For the purpose, we have considered peers such as Freedom Foods Group Ltd (ASX: FNP) and Tassal Group Ltd (ASX: TGR) and Tasfoods Ltd (ASX: TFL). Hence, we give a “Buy” recommendation on the stock at the current market price of $1.110, up 3.256% on 20^th May 2020.

EML Payments Limited

Decent Balance Sheet Position:EML Payments Limited (ASX: EML) is a financial services company specializing in stored value products and provides prepaid payment services in Australia, Europe, and North America. The company recently updated that Peter Martin, Chairman, is considering the sale of 300,000 - 400,000 shares, a small portion of his total holding, before 31^st May 2020. The company also informed the market regarding the unintended breach of listing rule 7.1, as it issued 3,059,347 shares more than its available listing capacity under the rule, in connection with the acquisition of Prepaid Financial Services Limited. The company is undertaking the required training to prevent the recurrence of such a breach.

Issue of Shares to Wholly Owned Subsidiary: The company will be issuing 4,869,323 fully paid ordinary shares to the vendors of shares in Presend Nordic AB, now EML Payments AB, on the Presend business achieving sustained financial performance over a 2 year period to levels set out and agreed in the share purchase agreement.

Performance Update: During the nine months ended 31^st March 2020, the company reported gross debit volume of $9.83 billion, up 55% on pcp.Gross profit margin for the period stood at 75.9%, as compared to 73.7% in pcp. Revenue for the period went up by 20% and stood at $87.1 million. In April 2020, unaudited group EBITDA stood at $2.7 million, after incorporating the maximum impact from COVID-19. At the end of April, the company held cash in excess of $125 million.


Nine-Months Performance (Source: Company Reports)
 
Outlook: While the company expects COVID-19 restrictions to significantly impact mall gift card sales for the remainder of FY20, it expects volumes to recover as lock downs ease and economies re-open. It has suspended its earnings guidance due to uncertainty regarding future economic conditions.
 
Valuation Methodology:P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:The stock of the company corrected by 31.46% in the last 3 months and is currently trading above the average of its 52-week trading range of $1.2 - $5.7. In response to COVID-19 related challenges, the company has taken steps to manage headcount expenses, including cost savings through salary and headcount freezes, because short-term incentive plan targets for FY20 may not be met. It has a decent balance sheet position to weather any downturn in business and the financial strength to continue to invest in growth and take advantage of opportunities. We have valued the stock using P/BV multiple based illustrative relative valuation method and arrived at a target price with high single-digit upside (in percentage terms). For the purpose, we have taken peers such as Tyro Payments Ltd (ASX: TYR), Credit Corp Group Ltd (ASX: CCP), and FlexiGroup Ltd (ASX: FXL). Hence, we give a “Hold” recommendation on the stock at the current market price of $3.710, up 12.766% on 20^th May 2020, owing to its recent trading update. 

 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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