Stocks’ Details
 

Flight Centre Travel Group Limited

 
Update on 1H numbers and FY20 Outlook on the face of Coronavirus Outbreak: A travel retail company, Flight Centre Travel Group Limited (ASX: FLT) has coverage in both the leisure and corporate travel sectors. The company operates as a tour operator, hotel management, and destination management company.
 
1HFY20 Trading Highlights: On 7^th February 2020, FLT updated the market with its 1HFY20 results and its FY20 view. The company is targeting its 1HFY20 underlying PBT results to be in the range of $100 million-$105 million, slightly above the mid-point of its previously targeted range of $90 million-$110 million.
 
Moreover, the company opines that it will be difficult to delivera solid 2HFY20 results and achieve its targeted underlying PBT for FY20 of $310 million & $350 million, on the back of the virus’s emergence.
The impact of coronavirus on FLT greater China and Singapore corporate travel businesses along with a broader impact on leisure and corporate travel pattern continues to be a potential headwind. 
 
Digging into the Details:The company expects to report robust 1HFY20 sales, with an 11.1% increase in its total transaction value (TTV) and exceeding the prior TTV sales recorded in Australia/New Zealand, Americas, Europe, Middle East and Africa, and Asia. 
 
The company recorded FY19 TTV of $23.7 billion. Geographical contribution for TTV in FY19 from Asia, EMEA, Americas and Australia and New Zealand were 8%, 14%, 24% and 53%, respectively.
 

FY19 TTV Contribution (Source: Company Reports)
 
Valuation Methodology: Price to Cash Flow Based valuation

Price to Cash Flow based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock is trading at $37.80 with a market capitalization of ~$4.02 billion. Currently, the stock is trading near to its 52-week low of $37.590. The stock has generated a negative return of 9.88% in the last six months. The company remains focused on increasing its investment in technology and prioritising on cost reduction initiatives. FLT is set to reports its 1HFY20 results on 27 February 2020. Considering the current trading levels, improved TTV and business prospects, we have valued the stock using Price to Cash Flow based relative valuation method. For the said purpose, we have considered peers like Corporate Travel Management Ltd (ASX: CTD), Helloworld Travel Ltd (ASX: HLO), Webjet Ltd (ASX: WEB), etc., and arrived at a target price of higher single-digit upside (in percentage terms).Hence, we give a ‘Hold’ recommendation on the stock at the current market price of $37.8, down 4.906% as on 10 February 2020, as a result of number of factors that affected global travel patterns, which include coronavirus outbreaks, Brexit, trade war impacts, conflict in Hong Kong and safety-associated downturn in travel to the Dominican Republic.
 

Blackmores Limited

 
BKL’s Shares on Trading Halt: Blackmores Limited (ASX: BKL) is engaged in the development, expansion, marketing & sales of organic health-based products for humans & animals. It has a market capitalisation of $1.56 billion as on 10 February 2020. Shares of BKL were placed on a trading halt on 10 February 2020 at the request of BKL, on account of a pending announcement. It was said that the company expects to release a pending announcement regarding its half-year results and outlook for the full year, to give the market revised guidance on the full impact of coronavirus.
 
Other Recent Updates:  Recently, the company stated the change of Director’s interest, wherein one of its Directors named Alastair Symington acquired 35,622 Ordinary Shares, under FY20 Executive Share Plan, for a nil consideration.
 
FY19 Key Highlights:The company generated revenue of $610 Mn in FY19, reflecting a growth of 1.4% on the YoY basis. Underlying net profit after tax stood at ~$55 Mn in FY19, which represents a decrease of 21.4% on the YoY basis.
 

FY19 Key Highlights (Source: Company Reports)
 
What to Expect: The difficult trading conditions in its channels to China are likely to be continued during 1HFY20. The impact of changes to China’s e-commerce laws and costs related to restructuring and the Braeside acquisition is expected to result in profit for the 1H being below the pcp. For 2HFY20, the company expects to benefit from operational efficiencies on the back of business improvement implementation.
 
Valuation Methodology: Price to Cash Flow Based valuation
 

Price to Cash Flow based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock has generated a positive return of 8.57% in the last six months. BKL has an annual dividend of 2.46% and a P/E multiple of 28.93x. Considering the current trading levels, and business prospects, we have valued the stock using Price to Cash Flow based relative valuation method. For the said purpose, we have considered peers like A2 Milk Company Ltd (ASX: A2M), Treasury Wine Estates Ltd (ASX: TWE), and Freedom Foods Group Ltd (ASX: FNP), and arrived at a target price which is offering a correction of lower single-digit growth (in % terms). Hence, we have a watch stance on the stock at the current market price of $89.44 as on 10 February 2020.
 
 

Zoono Group Limited

 
ZNO Inks a Distribution Agreement for Childcare & Hotel in China: A worldwide biotech company, Zoono Group Limited (ASX: ZNO) is engaged in developing, manufacturing and distributing a suite of scientifically validated, long-lasting and environmentally friendly antimicrobial solutions. On 10 February 2020, the company announced that it has entered into a five-year distribution agreement with Beijing Youmeng Technology and Development Limited for an initial consideration of NZD$775,000, for the childcare & hotel sectors in China. 
 
Subsequent to the Coronavirus outbreak, there has been extraordinary interest in the company’s technology given its established effectiveness against viruses and bacteria and ability to avoid cross contamination. The move is another step in Zoono's strategy to remain focused on particular sectors and on the selection of reliable distributors with explicit knowledge.
 
Coronavirus Update: On 30 January 2020, ZNO product and technology were tested and put into enquire concerning its product efficacy and their success in preventing the spread of the new coronavirus emergence in China. The company’s Z71 Microbe Shield Surface Sanitiser and GermFree24 Hand Sanitiser products were recently tested in German laboratory.
 
Given the successful result of the test, the company remained confident that it is well positioned to be part of the solution to both coronavirus and other new virus threats. The company witnessed product orders in excess of NZ$1M in the last two weeks of January, from China and Hong Kong.
 
2QFY20 Financial Update: The company reported cash on hand of NZ$2.707 million at the end of December quarter 2019.The company reported first half year revenues of NZ$1.715 million. During the quarter, the company reported cash outflow from operating activities of NZ$556K.  In the coming quarter, the company expects cash outflow amounting to NZ$1.162million.
 

Estimated Cashflow (Source: Company Reports)
 
Stock Recommendation: The stock of ZNO is quoting at $1.345 with a market capitalization of $162.5 million. The stock is trading at the upper band of its 52-week trading range of $0.063 to $1.355. The stock has delivered an exponential return of 485.29% and 1070.59% in the last three months and six-months, respectively. On the valuation front, the stock is available at an enterprise value to sales multiple of 85.5x on trailing twelve months (TTM) basis as compared to the industry average of 67.8x. Considering the aforesaid facts, price movements, and current trading levels, we believe that most of the positives are factored in at the current juncture. Hence, we have a watch stance on the stock at the current market price of 1.345, up 35.176% on 10 February 2020 on account of the recently announced distribution agreement and testing results of its products against the current coronavirus strain.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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