Stocks’ Details
 

Baby Bunting Group Limited

 
All Stores Remain Open:Baby Bunting Group Limited (ASX: BBN) is one of the largest retailers of baby specialty goods in Australia. In a recent business update, the company stated that it is continuously supporting new and expectant parents during this difficult time brought forward by social distancing restrictions due to COVID-19. It is providing them with the essential products and services, while maintaining property health and safety measures to protect customers and team members.
 
Sales Update: The company stated that since the last update on 23 March 2020, sales have continued to grow, with total sales increasing at a rate of 13.2% during the second half period covering 30 December 2019 to 17 May 2020.Comparable store sales grew by 8.1% and online sales increased at a rate of 66% on pcp.
 

Sales Growth (Source: Company Reports)
 
Outlook: Due to the increasing uncertainty regarding the potential impact of COVID-19, the company has withdrawn its guidance for FY20. Moreover, the company finds it difficult to anticipate consumer behaviour in the current environment and the associated effect on sales, gross margin and the cost of doing business. On the other hand, the positive sales numbers reflect an optimistic future for the business, going forward.
 
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 25.83% in the last 3 months and is currently trading above the average of its 52-week trading range of $1.510 - $4.030. Despite COVID-19 related restrictions and difficulties, the company managed to bring new customers to the platform. The company has witnessed increased demand for its products including, cots and furniture, toys and playgear, and bedding. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with high single-digit upside in percentage terms. Hence, we give a “Hold” recommendation on the stock at the current market price of $3.080, up 15.356% on 19^th May 2020, on account of the recent business update.
 

Tabcorp Holdings Limited

Tabcorp-Tatts Integration to Drive Growth:Tabcorp Holdings Limited (ASX: TAH) is engaged in the provision of gambling and other entertainment services. In a recent update regarding COVID-19 impact, the company updated that it has resolved not to pay FY20 final dividend to shareholders. The company has secured agreement from its bank lenders under its Syndicated Facility Agreement (SFA), comprising facilities of $2.2 billion, for a waiver of leverage and interest cover covenants in relation to the next two testing dates, being 30 June 2020 and 31 December 2020. It is also negotiating with its US Private Placement holders to obtain changes to existing covenants for more flexibility. As on 15^th May 2020, the company had undrawn facilities and unrestricted cash amounting to $820 million.

1HFY20 Performance: During the half year ended 31^st December 2019, the company delivered solid results, with revenue growth of 4.4%, achieved in combination to significant integration activity. During the period, the company added another 300,000 active registered customers.


1HFY20 Results (Source: Company Reports)
 
Outlook: The company will continue to invest in enhancing product innovation and building digital capabilities. In addition, the company aims to review Gaming Services and preparing for a business optimisation program in 2HFY20. The Tabcorp-Tatts integration is expected to deliver $130m and $145m of EBITDA synergies and business improvements in FY21.
 
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 30.63% in the last 3 months and is currently trading close to the average of its 52-week trading range of $2.090 - $4.980. As the Tabcorp-Tatts integration is nearing completion, the company is focused on business optimisation and the delivery of associated cost savings, to transfer the benefits to shareholders, industry partners and customers over coming years. We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in percentage terms). For the purpose, we have considered peers like Aristocrat Leisure Ltd (ASX: ALL), Crown Resorts Ltd (ASX: CWN), Skycity Entertainment Group Ltd (ASX: SKC), etc. Hence, we give a “Buy” recommendation on the stock at the current market price of $3.250, up 2.524% on 19^th May 2020.

The Star Entertainment Group Limited

Robust Liquidity Position:The Star Entertainment Group Limited (ASX: SGR) is engaged in the management of integrated resorts with gaming, entertainment, and hospitality services. In a recent update, the company stated that it has executed facility agreements for the Queen’s Wharf Brisbane Funding on terms consistent with the commitments received, along with its joint venture partners in the Destination Brisbane Consortium. The first draw-down on the QWB Funding is expected in June 2020 in relation to facility and other fees, with more substantial draw-down to fund construction in early CY2021.

First Half Performance:During the half year ended 31^st December 2019, the company reported a strong domestic result, with domestic EBITDA up 6% on pcp. Revenue went up by 2.4%, with margin expansion across Sydney and Queensland.

1HFY20 Results (Source: Company Reports)

Outlook: The company recently decided to defer the payment of 1HFY20 dividend from 1 April 2020 to 2 July 2020. As COVID-19 related directive led to a closure of all non-essential businesses, the company expects the business to be materially impacted. In response to the current conditions, the company has undertaken mitigation actions to minimise the impact of the shutdown and to conserve liquidity, including the addition of $200 million additional debt funding facility, waiver of debt covenants at 30 June 2020, reduction in operating costs and capital expenditures, etc. In FY20 and FY21, the company expects to report joint venture contributions amounting to ~$175 million and ~$150 million, respectively.

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

P/CF 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 35.52% in the last 3 months and is currently trading below the average of its 52-week trading range of $1.525 - $4.930. The company’s cash and undrawn debt facilities are maintained at a robust level to navigate the uncertain times. We have valued the stock using P/CF multiple based illustrative relative valuation method and arrived at a target price with low double-digit upside in percentage terms. Considering the performance in 1HFY20, steps to curb COVID-19 impacts on the business, robust liquidity position, and current trading level, we give a “Buy” recommendation on the stock at the current market price of $2.75, up 3.774% on 19^th May 2020.
 
 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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