Emeco Holdings Limited

 

EHL Details
 
EBITDA Surged 16% Year Over Year in 1HFY20: Emeco Holdings Limited (ASX: EHL) is engaged in providing earthmoving equipment services. On 4^th March 2020, EHL informed that Fitch Ratings has upgraded its long-term issuer default rating for Emeco to “B+”. In another update, the company completed its previously announced acquisition of Pit N Portal. The move complements EHL’s current business model and adds to business value.
 
1HFY20 Key Highlights for the Period Ended 31st December 2019: During the period, the company delivered strong growth in earnings, with operating EBITDA amounting to $119.1 million, up 16% year over year. The increase was due to robust demand for metallurgical coal as well as contribution from growth assets purchased in 2019. Revenue for the period increased 10% year over year and came in at $246.5 million. Operating NPAT stood at $42.1 million, up 33% year over year. The company also improved its balance sheet position by deleveraging to 1.77x, as compared to 2.0x as at 30 June 2018.
 

1HFY20 Results (Source: Company Reports)
 
Outlook: The company’s objective for FY20 revolves around deleveraging down to 1.5x by the end of FY20 and 1.0x by the end of FY21, in order to refinance its notes to enhance its shareholder’s value.
 
Valuation Methodology:EV/Sales Multiple Based Relative Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve
 
Stock Recommendation: The stock of the company gave negative returns of ~41.26% in the past 6 months. Currently, the stock is inclined towards its 52-week low level of $1.090. The stock has a market capitalisation of $444.1 million, with a PE multiple of 7.85x. We have valued the stock using EV/Sales based relative valuation method. For the purpose, we have taken peers like NRW Holdings Ltd (ASX: NWH), ALS Ltd (ASX: ALQ) and Perenti Global Ltd (ASX: PRN), to name few, and arrived at a target price with an upside of lower double digit (in % terms).Hence, we give a “Buy” recommendation on the stock at the current market price of $1.195, down 0.83% as on 10 March 2020.

 
EHL Daily Technical Chart (Source: Thomson Reuters)
 

Treasury Wine Estates Limited 

TWE Details 
 
TWE Rides on Luxury & Masstige Portfolio Growth Amid Tough US Wine market: Treasury Wine Estates Limited (ASX: TWE) is an international wine business offering a portfolio of luxury, premium and commercial wines to consumers. The market capitalisation of the company stood at ~$6.67 Bn as on 10 March 2020.  
 
TWE Provides FY20 Earnings Update Owing to Covid-19 Impact: On 25^th February 2020, the company provided an update to the market regarding its FY20 earnings prospects as a result of ongoing Coronavirus (COVID-19) impact. The company believes that it will fail to achieve its previously guided EBITS growth between 5% and 10% for FY20, owing to lower consumption across China in February and with continuous impact throughout March. 
 
Other Recent Updates: Recently, the company announced that Michael Clarke will retire from the CEO position, effective from 1 July 2020. It further added that Tim Ford will be assigned the role of CEO from that date. 
 
1HFY20 Financial Highlights: The company has recently released its half-year results, wherein it delivered a growth of 5% in NPAT, which came in at $229.2 million. 1HFY20 EBITS increased ~5.7% year over year and came in at $366.7 million, with EBITS margin of 23.9%, up by 0.9 percentage points. Earnings per share for the period stood at 31.9 cents, up 5% year over year. Robust performance throughout the ASIA, ANZ and EMEA regions, on the back of luxury and Masstige growth drove the results, amid challenging US wine market. The company declared an interim dividend of 20 cents per share (fully franked), a rise of 11% on pcp. 
 
 
EBITS by Region (Source: Company Reports) 
 
Outlook: For FY21, the company expects EBITS growth to be roughly 10% to 15%, on the back of continuous growth across the Luxury and Masstige portfolio. 
 
Valuation Methodology: P/E Multiple Based Relative Valuation 
 
P/E Based Valuation (Source: Thomson Reuters) 
  
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM: Next Twelve Months 
 
Stock Recommendation: As per ASX, the stock of TWE is trading very close to its 52-week low level of $8.77, proffering a decent opportunity for accumulation. The stock has generated negative returns of ~50.67% in the last six-months. The company has a PE multiple of 16.18x, with an annual dividend yield of 4.31%. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like Coca-Cola Amatil Ltd (ASX: CCL), Coles Group Ltd (ASX: COL), Metcash Ltd (ASX: MTS), to name few and arrived at a target price of lower double digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $10.01 per share, up 7.983% on 10 March 2020.

 
TWE Daily Technical Chart (Source: Thomson Reuters)

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