Stocks’ Details
 

Monadelphous Group Limited

Decent Growth in Top-line: Monadelphous Group Limited (ASX: MND) is engaged in the provisioning of engineering services within Australia. The market capitalisation of the company stood at $980.8 Mn as on 7^th April 2020. During 1H FY20, the company reported a growth of 2.6% in its top-line (Revenue) to $852.0 million, underpinned by the strong performance from Maintenance and Industrial Services division, which reported record revenue of $584.5 million. The company managed to secure new contracts and contract extensions of $850 million during the half-year. EBITDA for the period stood at $59.1 million, which helped in delivering an EBITDA margin of 6.94%.


Revenue by Division (Source: Company Reports)

Suspension of Guidance: As a result of arising uncertainties due to COVID-19 globally, the company has suspended its revenue guidance for the 2019/2020 financial year. However, it anticipates a solid pipeline of opportunities within the resources and energy sector over the upcoming years.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation


EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company managed to close the 1HFY20 with a cash balance of $163.3 million, a cash flow from operations of $38.6 million with a cash flow conversion of 78%. At the end of the period, its balance sheet remained strong. We have valued the stock using EV to Sales based relative valuation approach, and for the purpose, we have taken peers such as ALS Ltd (ASX: ALQ), Downer EDI Ltd (ASX: DOW), NRW Holdings Ltd (ASX: NWH) etc., and arrived at a target price, which is offering upside of lower double-digit (in percentage terms). Hence, considering the healthy balance sheet, decnt cash conversion and growth in top-line, we give a “Buy” recommendation on the stock at the current market price of $10.190 per share, down by 1.83% on 7^th April 2020.

IPH Limited

Robust Performance from Xenith IP Businesses: IPH Limited (ASX: IPH) is involved in the provisioning of intellectual property services. The market capitalisation of the company stood at $1.59 Bn as on 7^th April 2020. Recently, the company recently announced the interim dividend of 13.5 cents per share for 1H FY20.It witnessed a rise of 12% in statutory net profit after tax (NPAT) to $27.2 million for 1H FY20. This demonstrates continuing improvement from its pre-existing business as well as a solid performance from the Xenith IP businesses acquired by IPH in CY2019.


Financial Performance (Source: Company Reports)

No Revenue Loss Expected From COVID-19: IPH anticipates some disruption to the business due to COVID-19. However, it is not expecting any loss to revenue from the uncertainties from the virus.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation


EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is working to create a stronger and more diverse platform, which will be supporting the company in delivering revenue and earnings growth as well as increased returns for shareholders. For 1H FY20, the company reported a combined group patent market share growth of 36.9%, which proves that IPH is a market leader in Australia. We have valued the stock using EV to EBITDA based relative valuation approach and arrived at a target price, which is offering upside of high single-digit (in percentage terms). Therefore, in light of decent performance in 1HFY20 and no revenue loss from COVID-19, we give a “Buy” recommendation on the stock at the current market price of $7.340 per share, down by 0.811% on 7^th April 2020.

SEEK Limited

Impact of Coronavirus: SEEK Limited (ASX: SEK) is in the operations of online employment classified and education and training. The market capitalisation of the company stood at $5.03 Bn as on 7^th April 2020. The company has withdrawn its expectations for its employment businesses (excluding Zhaopin), due to the rising fear of COVID-19, which is directly impacting all the markets in which SEK operates. SEK witnessed a rise in billing declines during March 2020 as the month progressed, which coincided with phased government restrictions in response to the Virus. The below picture gives an idea of financial performance for 1H FY20:


Financial Overview (Source: Company Reports)

Growth Drivers for Long-Term: The long-term growth drivers of the company primarily includes (1) penetration of existing markets, (2) Upsell/ cross-sell opportunities, and (3) Expansion into new geographies.

Stock Recommendation: Debt to equity of the company stood at 1.37x in 1H FY20 as compared to 1.06x of 1H FY19. SEK has EV to sales multiple of 4.2x against the industry median (Industrial) of 1.3x on TTM basis. The stock of SEEK is trading at a price to book value multiple of 3.6x as compared to the industry median (Industrial) of 1.5x on TTM basis. Hence, it can be said that the stock of SEEK is currently overvalued. As per ASX, the stock has been corrected 29.64% and 36.63% during the span of one month and three months, respectively. Therefore, considering the valuation parameters and corrections in the past months, we have a watch stance on the stock at the current market price of $15.150 per share, up by 6.018% on 7^th April 2020. 
 

People Infrastructure Ltd

Businesses Impacted by COVID-19: People Infrastructure Ltd (ASX: PPE) is involved in workforce management, contracted staffing, recruitment and human resources outsourcing service. As of now, the company is not able to evaluate the impact of COVID-19 on its business. However, some specialist services business such as healthcare and community services, information technology and staffing and specialist services businesses, which helps the company in generating business have been negatively impacted by COVID-19. Moreover, it continues to generate profit and significant funding under its debt facilities. Also, it does not require to raise capital or increase its debt facilities.


Revenue Growth (Source: Company Reports)

Focus for Growth: For FY20, the company would continue its focus on investment management to generate strong growth throughout the business over the medium to long term. It is planning to rise its investment in marketing across the group for driving maximum short-term upside.

Stock Recommendation: EBITDA margin and operating margin for 1H FY20 stood at 6.9% and 5.1%, reflecting YoY growth of 0.6% and 0.2%, respectively. Current ratio of the company stood at 1.14x with the marginal growth of 0.2% on a YoY basis. The stock of People Infrastructure Ltd is trading at a price to book multiple of 1.1x against 3.0x of industry average (Industrial) on TTM basis. As per ASX, the stock of PPE is trading towards its 52-weeks lower levels, which could be undertaken as a decent level to entry. Thus, considering the improved liquidity position, focus on investment and aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.295 per share, up by 16.667% on 7^th April 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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