Stocks’ Details
 

Jatenergy Limited

Decent Growth in Top-line: Jatenergy Limited (ASX: JAT) is focused on selling Australian goods to the consumer market in China. The market capitalisation of the company stood at $49.53 Mn as on 21st April 2020. On 21 April 2020, the company provided an update, wherein it informed that in March 2020, JAT’s revenue has continued at higher levels, as compared to previous periods, standing at $8.1 million for the month. The company continues to anticipate growth in revenue in the next 3 months primarily on the back of (1) orders received for its dairy products, which continued at levels higher as compared to February and March 2020, (2) sales of $3.6 million by Green Forest in March 2020 and (3) continuous orders under the Ocker contract. 

During February 2020, the company experienced a material increase in its product orders, mainly the Neurio lactoferrin brands due to the emergence of the Coronavirus (COVID-19) in China.


Key Financial Metrics for 1H FY20 (Source: Company Reports)

Revenue Guidance: For June 2020, the company expects revenue to be around $50 million against $36 million for the June 2019 half-year.

Stock Recommendation: Gross margin of the company stood at 24.8%, reflecting YoY the growth of 11.2%. The stock of Jatenergy is trading at a price to book multiple of 2.4x as compared to the industry average (Food & Drug Retailing) of 2.9x on TTM basis. It has EV/Sales multiple of 1.1x against the industry median (Consumer Non-Cyclicals) of 1.7x on TTM basis. Hence, considering decent growth in revenue, improved gross margins and expected growth in topline, we maintain a “Hold” rating on the stock at the current market price of $0.052 per share down by 1.887% on 21^st April 2020.

Freedom Foods Group Limited

Continued Success in Securing Distribution: Freedom Foods Group Limited (ASX: FNP) is engaged in the sourcing, manufacturing, selling, marketing and distribution of specialty cereal, snacks and dairy beverages. The market capitalisation of the company stood at $1.26 Bn as on 21^st April 2020. The company has recently updated the market with its trading performance and impact of COVID-19. FNP stated that its unique scale and diversification of activities, including Australian-based food manufacturing capabilities provide an important hedge to assist in mitigating the impacts from the current disruption caused by COVID-19.

FNP reported continued success in securing distribution during the COVID 19 period, which include national ranging with McDonalds for the MILKLAB brand and further ranging with other speciality food chains & quick-service restaurants. The below picture depicts an overview of key financials during 1H FY20:


Key Growth Metrics (Source: Company Reports)

Positive Impact on Sales and Earnings: FNP is well-placed to strategically build into a major global food and beverage business with scale in key food and beverage platforms. The company expects a positive impact on sales and earnings in 2H FY20 and beyond on the back of increasing revenues from the current and expanded capabilities.

Valuation Methodology:Price to Earnings Multiple Based Relative Valuation

Price to Earnings Multiple Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 1.37x in 1H FY20, reflecting YoY growth of 20.5%. This implies that the company has improved its position to address its short-term obligations. FNP has restructured its syndicated and bi-lateral banking facilities with its long-term banking partners HSBC and NAB to increase short term liquidity limits by $100 million, while maintaining the existing overall indebtedness limit to ensure balance sheet strength and financial flexibility. We have valued the stock using P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Blackmores Ltd (ASX: BKL), Bega Cheese Ltd (ASX: BGA) and Elders Ltd (ASX: ELD) and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, considering the improved liquidity position, restructured syndicated and bi-lateral banking facilities and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $4.390 per share, down by 3.939% on 21^st April 2020. 

Australian Ethical Investment Limited

Decline in FUM: Australian Ethical Investment Limited (ASX: AEF) is involved in ethical investments, which create value for all. The market capitalisation of the company stood at $433.81 Mn as on 21^st April 2020. For the quarter ended 31^st March 2020, the funds under management of the company stood at $3.59 billion, which witnessed a fall from $3.87 billion as at 31 December 2019. This was affected by unprecedented falls in global equity markets because of the COVID-19 pandemic partly offset by net inflows. However, it witnessed a rise of 5% in FUM to $3.59 billion over the financial year to 31 March 2020. This increase was fueled by strong netflows in aggregate during the period which have offset recent negative market movements.

The company has also decreased the percentage-based administration fee on its superannuation and pension products from 0.41% to 0.29% per annum on 1^st April 2020. AEF is continuously monitoring the COVID-19 situation and is following a strong crisis management plan which focuses on protecting the health, safety and wellbeing of employees.


Funds Under Management (Source: Company Reports)

Future Aspects: The company’s continues to invest in its platform for enhancing its customer experience to maintain momentum and drive sustainable growth. Going forward, AEF expects strong growth as its ethical investment moves into the mainstream and more people realise that its approach is resulting in excellent returns and delivering social good.

Stock Recommendation: EBITDA margin and net margin of the company stood at 28.6% and 20.3% in 1H FY20, reflecting YoY growth of 4.4% and 3.1%, respectively. During the span of one month and six months, the stock of AEF has moved up 47.33% and 53.78%, respectively. The stock of AEF is trading at a premium P/E multiple of 53.17x as compared to the industry median (Investment Banking & Investment Services) of 9.7x on TTM basis. Therefore, based on the above-stated factors, we have a watch stance on the stock at the current market price of $3.550 per share, down by 8.031% on 21^st April 2020 due to Covid-19 and quarterly FUM Updates.

 
Comparative Price Chart (Source: Thomson Reuters)

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