Stocks’ Details

Retail Food Group Limited 

A Look at FY20 Results: Retail Food Group Limited (ASX: RFG) is a food and beverage company with a market capitalisation of $150.38 Mn as on 28^th August 2020. The company experienced positive momentum in the first 9 months of FY20, which was heavily disrupted by COVID-19. For FY20, the company reported revenue amounting to $264.0 million as compared to $349.0 million reported in FY19. Statutory EBITDA for the period amounted to $32.3 million, reflecting robust growth of 124.8%. The company reported a rise of 31.8% in underlying NPAT to $14.1 million. During FY20, the company entered a partnership with a market-leading leasing agency to generate improved leasing outcomes for franchisees. During the year, the company experienced decent progress in the various turnaround initiatives, which were executed to stabilise business performance as well as to establish a firm platform for a return to future profitability and growth.

FY20 Performance (Source: Company Reports)

Key Risks: The company is exposed to a variety of financial risks, such as market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. 

Stock Recommendation: The company established its balance sheet through an equity raising of $193.5 million and debt repayment of around $142.8 million. Net margin of the company stood at 17.9% in 1H FY20 as compared to the industry median of 4.0%. On technical analysis front, the stock of the company has a support level of ~A$0.002 and a resistance level at ~A$0.738. The company has scheduled to conducts its Annual Shareholders Meeting on 27^th November 2020. The stock of RFG is trading at a price to book value multiple of 0.8x as compared to the industry average (Consumer Non-Cyclicals) of 2.2x on TTM basis. Therefore, in light of the robust growth in EBITDA, decent balance sheet, improvement in net margins, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.068 per share, down by 4.225% on 28^th August 2020.

Slater & Gordon Limited

Decent Growth in Top-line: Slater & Gordon Limited (ASX: SGH) is in the operation of legal practices in Australia. The market capitalisation of the company stood at $168.88 Mn as on 28^th August 2020. For FY20, the company reported total revenue and other income from continuing operations amounting to $178.3 million, up from $160.4 million reported in the year-ago period. Net revenue for the period amounted to $172.4 million, up 12% on a year over year basis. The company recorded EBITDA before specified items of $28.1 million as compared to $17.5 million in FY19. The company reported a net loss after tax of $1.2 million. In addition, the continuing improvement in its performance indicates its ongoing transformation efforts as well as the work of its people in the company on behalf of injured and wronged Australians.

Key Financials (Source: Company Reports)

Impact of COVID-19: During FY20, the company had not experienced any material impact on its financial performance from COVID-19 pandemic. However, the continued imposition of government restrictions as well as the broader impacts on the Australian economy could impact its performance in FY21.

Future Focus: The focus of the company revolves around growing its core service areas of personal injury law, class actions and industrial and employment law in Australia.

Key Risks: The financial performance of the company could be impacted by key business risks, which include regulatory & industry reform risk, failure of growth strategy and the rising market share of competitors.

Stock Recommendation: The full-year 2020 results were supported by the company’s investment in its business-wide transformation program and digital strength; delivery of around $700 million in personal injury compensation to everyday Australians as well as completion of fully underwritten, non-renounceable entitlement offer of $75.6 million. The company utilised the amount from entitlement offer for the repayment of the syndicated facility and associated fees amounting to $64.4 million. EBITDA margin of the company stood at 12.3% in FY20, reflecting YoY growth of 2.2%.  Debt to equity of the company stood at 0.76x as compared to the industry median of 0.20x. SGH has EV/Sales multiple of 1.6x as compared to the industry median (Professional & Commercial Services) of 2.7x on TTM basis. The stock of SGH is trading at a P/E multiple of 2.06x against the industry median (Industrials) of 5.5x on TTM basis. Therefore, considering the growth in top-line, focus on growing core areas of services, and repayment of the syndicated facility, we give a “Hold” recommendation on the stock at the current market price of $1.1 per share, down by 9.836% on 28^th August 2020.

Vulcan Energy Resources Limited 

Successful Direct Lithium Extraction:  Vulcan Energy Resources Limited (ASX: VUL) is engaged in mineral exploration with a market capitalisation of ~$41.97 Mn as on 28^th August 2020. Recently, the company announced that it has appointed Dr. Katharina Gerber as the Project Manager of VUL, which will be effective from 1^st September 2020. In another update, the company announced that it achieved success in Direct Lithium Extraction (DLE) tests and produced lithium concentrate from Upper Rhine Valley geothermal brine. The company added that it tested two different, pre-selected DLE adsorbents and experienced a lithium recovery rate of over 90% on first pass.

June 2020 Quarter Highlight & Completion of Placement: During the June 2020 quarter, the company continued its momentum by initiating a Pre-Feasibility Study (PFS) on its globally unique Zero Carbon Lithium™ Project”. The company is likely to finish PFS by end of 2020. The net cash used in the operating activities of the company stood at 254k after payments of 39k and 223k for staff costs and administration and corporate costs, respectively. VUL completed the institutional placement of $4.8 million, and the company will use the funds to accelerate the advancement of its Zero Carbon Lithium™ Project. The company is likely to conduct its General Meeting on 10^th September 2020.

Cash Flows (Source: Company Reports)

Key Risks: The company’s business activities are exposed to financial risks, which may impact its financial performance. These risks include foreign exchange risk, interest rate risk, credit risk and liquidity risk.

Stock Recommendation: The company is well-financed with a cash balance of ~$6.4 million as at 30 June 2020. The stock of VUL has moved up by 24.00% and 129.63% within the past one and three months, respectively. As a result, the stock is inclined towards its 52-high level of $0.680. On technical analysis front, the stock of the company has a support level of ~A$0.52 and a resistance level at ~A$0.681. In addition, the stock is trading at a price to book value multiple of 8.3x as compared to the industry median (Metals & Mining) of 2.3x on TTM basis, and thus seems over-valued. Considering the price movements in the recent past, current trading levels, softer market condition due to COVID-19 pandemic, and upcoming general meeting, we suggest investors to keep an eye on the business activities and have a watch stance on the stock at the current market price of $0.595 per share, down by 4.032% on 28^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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