Stocks’ Details
 

Woolworths Group Limited

Strong H1 Sales and EBIT Growth: Woolworths Group Limited (ASX: WOW) is engaged in food, general merchandise and specialty retailing through chain store operations. As on 01 April 2020, the market capitalization of the company stood at $44.27 billion. Despite volatile trading environment, the company reported an increase of 6% in sales to $32,410 million and a growth of 11.4% in EBIT to $1,893 million during the 1H20. This resulted in an increase in NPAT 15.7% to $979 million. The decent financial performance of the company enabled the Board to declare an interim dividend of 46 cents per share. 

 
1H20 Financial Highlights (Source: Company Reports)

Future Expectations and Outlook: The company is well-positioned to navigate an uncertain consumer and natural environment and is confident for its plans in 2H20. New Zealand Food segment will continue to focus on embedding Great Price architecture and Hotel segment will be focused on maintaining momentum after a strong first half. The ongoing annual cost of salaried store is expected to be in between $35 to $45 million across the group.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA 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 WOW is inclined towards its 52-weeks’ low level. Though the company is not able to accurately measure the impact of COVID-19, it has reported strong sales growth in the recent weeks. The company has a strong balance sheet, with access to liquidity and funding. During 1H20, net margin and ROE of the company was in line with industry median and stood at 2.9% and 9.3%, respectively. Considering the trading levels, strong sales growth and balance sheet and higher ratios, we have valued the stock using EV/EBITDA based relative valuation method and arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Hold’ rating on the stock at the current market price of $36.01, up by 2.593% on 01 April 2020.

Tassal Group Limited

Improvement in Operating EBITDA: Tassal Group Limited (ASX: TGR) is engaged in the production and marketing of salmon. As on 01 April 2020, the market capitalization of the company stood at $725.81 million. During 1H20, the company reported revenue of $274.49 million, reflecting the strategic decision to keep fish in the water longer to underpin strong harvest and sales in 2H20 and FY21. In the same time span, the company reported an increase of 3.4% in operating EBITDA to $66.46 million. This was mainly due to cost efficiency benefits flowing from optimizing salmon biomass and size. The company also reported a stable balance sheet with gearing ratio of 36.5% and funding ratio 47.7%.

Gearing and Funding Ratio (Source: Company Reports)
Growth Strategy: Tassal Group is harnessing its strengths across the business to sustainably and strategically improve its performance. The company is anticipating a positive second half with continued growth in earnings. Prawn biomass growth is on track to deliver a harvest of around 2,400 tonnes.

Valuation Methodology: Price to Cash Flow Multiple based Relative Valuation

Price to Cash Flow Multiple Based 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 TGR is trading very close to its 52-weeks’ low level of $2.770, proffering a decent opportunity for the investors to enter the market. During 1H20, gross margin of the company stood at 49.7%, higher than the industry median of 44.3%. In the same time span, net margin of the company was 15.1% as compared to the industry median of 13.8%. Considering the trading levels, stable balance sheet and modest outlook, we have valued the stock using Price to Cash Flow multiple approach and have arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $3.60, up by 2.857% on 01 April 2020. 

Inghams Group Limited

Positive Momentum in Five-Year Strategic Plan: Inghams Group Limited (ASX: ING) is engaged in production and sale of chicken and turkey products across its vertically integrated categories. As on 01 April 2020, the market capitalization of the company stood at $1.22 billion. The company has recently announced that UBS Group and its related bodies have made the changes in their holdings with current voting power of 6.6%, down from 7.72%. During 1H20, the company witnessed an increase of 4.1% in Core Poultry to 216 kt and a growth of 35.1% in statutory EBITDA to $205.3 million. This reflects strong consumer demand and performance by key customers across the major sales channels of the company. The company also saw a positive momentum in its five year strategic plan with continuous improvement framework across the business.

1H20 Financial Highlights (Source: Company Reports)

What to Expect: The company expects that poultry will remain the most competitive protein based on price and reliability of supply. The 5 year strategic growth plan of the company is on track and embedded throughout the business. ING is driving a high performance culture to support continuous improvement and accretive growth. 

Valuation Methodology: Price to Earnings Multiple based Relative Valuation

EV/EBITDA Multiple Based 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 ING is trading close to its 52-weeks’ low level of $2.890, proffering a decent opportunity for accumulation. The company has regained momentum after a difficult first quarter. During 1H20, EBITDA margin was in line with industry median and stood at 23.9%. In the same time span, ROE of the company was 16.9% as compared to the industry median of 11%. Considering the trading levels, decent financial performance and modest outlook, we have valued the stock using price to earnings multiple approach and have arrived at a target upside lower double-digit (in percentage terms). Hence, we recommend a ‘Hold’ rating on the stock at the current market price of $3.40, up by 3.343% on 01 April 2020.

 
The A2 Milk Company Limited

Increased Investment in Synlait Milk: The A2 Milk Company Limited (ASX: A2M) is a premium branded dairy nutritional company focused on products containing the A2 beta-casein protein type. As on 01 April 2020, the market capitalization of the company stood at A$12.23 billion. The company has recently announced that it has increased its shareholding in Synlait Milk Limited and has acquired shares on market at a price of NZ$4.95 per share. The company has also announced that it has entered into an exclusive licensing agreement with Agrifoods Cooperative for the production, distribution, sale and marketing of a2 Milk™ branded liquid milk. 

During 1H20, revenue of the company went up by 31.6% to NZ$806.7 million and EBITDA witnessed a growth of 20.5% to NZ$263.2 million. This resulted in an increase of 21.1% in net profit after tax to NZ$184.9 million. These results reflect strong growth across core markets and product categories.


1H20 Financial Performance (Source: Company Reports)

Outlook and Medium Term Targets: The company anticipates strong growth in revenue across key regions owing to the increased marketing investment in China and the USA. The company expects EBITDA margin to be in the range of 29-30%.

Stock Recommendation: As per ASX, the stock of A2M is inclined towards its 52-weeks’ high level of $17.3. During 1H20, gross margin of the company stood at 57.2%, higher than the industry median of 44.3%. In the same time span, net margin of the company was 23.4% as compared to the industry median of 13.8%. Considering the trading levels, decent financial performance and positive outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $16.820, up by 1.325% on 01 April 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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