Stocks’ Details

Wesfarmers Limited

Trading Update: Wesfarmers Limited (ASX: WES) is engaged in the retailing of home and outdoor products and manufactures and distributes chemicals, fertilisers, etc. The market capitalisation of the company as on 29 December 2020, stood at ~$57.93 billion. As per a recent announcement, WES provided an update on its YTD performance ending 31 October 2020. The Group's retail businesses had delivered an online sales growth of ~166% in the YTD period, excluding Catch. There was increased traction of sales growth in the consumer and commercial segments of Bunnings. However, growth in the home, active and kids categories in Kmart and Target segment was partially offset by lower demand for apparel products.

YTD Performance FY21 (Source: Company Reports)

Outlook: The company’s chemicals division has made a decent start in FY21 and demand for ammonium nitrate remains high. However, the outlook of the division depends on the commodity prices and seasonal conditions. It also reported decent performance in the industrial division, but Blackwoods' outlook depends on the future activity levels in the mining and the construction sectors.

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 company has delivered a decent performance in the YTD period, with the business witnessing increased traction in sales in its key markets and segments. WES gave a return of 12.41% in the past three months and a return of 2.88% in the past one month. The stock of WES is trading close to its 52-weeks’ high level of $51.910. On a technical front, the stock of WES has a support level of $49.125 and a resistance level of $51.892. We have valued the stock using an EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of low double-digit (in % terms). For the purpose, we have taken peers such as Harvey Norman Holdings Limited (ASX: HVN), Super Retail Group Limited (ASX: SUL), Coca-Cola Amatil Limited (ASX: CCL), to name a few. Considering the current trading levels, encouraging YTD performance and penetration of online sales, we recommend a ‘Hold’ rating on the stock at the current market price of $51.330, up by 0.450% as on December 29, 2020.

Super Retail Group Limited

FY21 Business Update: Super Retail Group Limited (ASX: SUL) is engaged in the retailing of auto parts and related accessories, tools and equipment, sporting equipment and apparel, outdoor equipment, etc. The market capitalisation of the company as on 29 December 2020, stood at ~$2.40 billion. The company delivered decent performance in the first 17 weeks of FY21, despite the COVID-19 pandemic disrupting business operations. There was a 25% increase in sales and like-for-like sales during the period. There was a significant rise of 132% in online sales growth in SUL's digital channels, including sales growth of 123% in Click & Collect, which represents 44% of YTD total online sales. Gross margins have improved during the period with reduced promotional activities.

FY21 YTD Trading Update (Source: Company Reports)

Outlook: The company has continued to actively manage its inventory position for the peak Christmas trading period. It expects a capex of ~100 million in FY21. SUL's core brands are expected to see increased demand along with the demand in domestic tourism and leisure activities. It also expects to benefit from the increased interest of consumers in the health and well-being trend.

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

P/E 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: SUL delivered decent performance despite the disruption in economic activity due to the COVID-19 pandemic. It expects sales to go up with increased traction in consumer demand. SUL gave a negative return of 1.46% in the past three months and a positive return of 8.01% in the past one month. The stock of SUL is trading above its average 52 weeks’ trading range of $2.990-$12.890. On a technical front, the stock of SUL has a support level of $9.561 and a resistance level of $11.934. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN), Bapcor Limited (ASX: BAP), to name a few. Considering the current trading levels, improved YTD FY21 performance and a gradual increase in consumer demand, we recommend a ‘Hold’ rating on the stock at the current market price of $10.780, up by 1.030% as on December 29, 2020. 

Vita Group Limited

Business Update: Vita Group Limited (ASX: VTG) is engaged in the selling and marketing of its products and services. The market capitalisation of the company as on 29 December 2020, stood at ~$174.53 million. Its networks and brands include the Telstra ICT retail store network, Telstra Business ICT channel, and the Skin-Health and Wellness business comprising other several brands.

FY20 Financial Update: The company reported decent performance in FY20, with an increase of ~3% in revenues to $773.1 million from FY19. There was a growth of ~7% in EBIT to $37.2 million during the same period. NPAT decreased by ~8% to $22.41 million in FY20 from $24.28 million in FY19. VTG had a comfortable balance sheet position with no net debt as on 30 June 2020.

Due to COVID-19 restrictions, traffic and services were impacted in the ICT segment during Q1FY21. However, it saw increased traction in business in its SHAW segment with average visits up during the quarter, when compared to pcp.

FY20 Financial Performance (Source: Company Reports)

Outlook: Given the COVID impact VTG expects revenues to fall in the range of 18% to 22% in FY21, from the pcp. However, it expects growth in EBITDA by 23% - 31% to $32.5 million - $34.5 million during the same period.

Stock Recommendation: The company delivered an encouraging performance in FY20, aided by strong performance in the ICT channel and improved productivity in the SHAW channel. VTG gave a positive return of 2.41% in the past three months and a negative return of 0.93% in the past one month. The stock of VTG is trading slightly below its average 52 weeks’ trading range of $0.555-$1.630. On a technical front, the stock of VTG has a support level of $0.932 and a resistance level of $1.148. On a TTM basis, the stock of VTG is trading at an EV/EBITDA multiple of 3.0x, lower than the industry average (Speciality Retailers) of 11.2x. Considering the current trading levels, decent financial performance and optimistic guidance in key metrics performance, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.060, as on December 29, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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