Stocks’ Details

EBOS Group Limited

Decent Growth in Revenue: EBOS Group Limited (ASX: EBO) is a diversified Australasian marketer, wholesaler and distributor of healthcare, medical and pharmaceutical products. The market capitalisation of the company stood at ~$4.37 billion as on 15^th January 2021. For the year ended 30^th June 2020, the company reported revenue amounting to $8.8 billion, reflecting a rise of 26.5% over the previous year. This was mainly aided by growth in Community Pharmacy, Institutional Healthcare, Contract Logistics and Animal Care. Statutory EBITDA for the year amounted to $333.6 million, indicating an increase of 33.2% over pcp. Statutory EBITDA includes a $39.6m benefit from the adoption of IFRS 16 Leases.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company is focused on carrying out value accretive acquisitions and investments which are aligned to its growth strategy while also satisfying its disciplined investment criteria.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings 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 closed FY20 with a decent balance sheet supported by significant gearing headroom of around $400–$450 million. The stock of EBO has moved up by 28.09% in the last six months. As a result, the stock is inclined towards its 52-week high level of $29.260. Considering this, we have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with correction of high single-digit (in percentage terms). In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$23.068 and a resistance level of ~$28.475. Hence, considering the returns on stocks, higher valuation, RSI levels, and current trading levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $26.380 per share, down by 0.939% on 15^th January 2021.

Michael Hill International Limited

Decent Growth in Same-Store Sales: Michael Hill International Limited (ASX: MHJ) is engaged in the retailing of Jewellery. The market capitalisation of the company stood at ~$263.82 million as on 15^th January 2021. For the quarter ended 27^th December 2020 (Q2 FY21), the company reported a rise of 5.6% in same-store sales in all markets and channels. Moreover, for 1H FY21, the company recorded a rise of 102% in online sales, which was supported by digital initiatives in all markets. During FY20, MHJ recorded revenue amounting to $492.1 million as compared to $569.5 million in FY19.

Key Metrics (Source: Company Reports)

Guidance: For 1H FY21, the company anticipates EBIT in the range of $56 million to $60 million with comparable EBIT is expected of between $41 million to $45 million.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of MHJ has surged 130.15% and 98.63% in the last six and nine months, respectively. As a result, the stock is trading towards its 52-week high level of $0.740. Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation and arrived at a target price with correction of high single-digit (in percentage terms). For the purpose, we have taken peers such as Accent Group Ltd (ASX: AX1), Adairs Ltd (ASX: ADH) and Super Retail Group Ltd (ASX: SUL). In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.483 and a resistance level of ~$0.953. Hence, considering the returns on stocks, higher valuation, RSI levels, and current trading levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.730 per share, up by 7.352% on 15^th January 2021, owing to the recent trading update.

Resonance Health Limited

Growth in Cash Receipts and Revenue: Resonance Health Limited (ASX: RHT) is engaged in the development and commercialisation of technologies and services for the quantitative analysis of radiological images in a regulated and quality-controlled environment. The market capitalisation of the company stood at ~$87.47 million as on 15^th January 2021. Recently, the company has received clearance for HepaFat-AI, a medical device from the US Food and Drug Administration. During the quarter ended 30^th September 2020, the company executed a license agreement with Telethon Kids Institute and Erasmus University Medical Centre for the use of computed tomography (CT) Cystic Fibrosis lung dataset. RHT reported cash receipts from customers of $941K, which reflects a rise of 9% over June 2020 quarter. Revenue for the quarter amounted to $1.2 million, up by 31% over June 2020 quarter.

Receipts from Customers (Source: Company Reports)

Focus Areas: The company’s research and development pipeline revolves around artificial intelligence, imaging and molecular medicine. Looking ahead, the company is focused on the continued expansion of the distribution channels for its products.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at $7.3 million. The stock of RHT has moved up by 36.66% and 64% in the last six and nine months, respectively. On a TTM basis, RHT has an EV/Sales multiple of 23.5x, which is higher than the industry median (Healthcare Equipment & Supplies) of 13x. In addition, the stock is trading at a price to book value multiple of 8.8x as compared to the industry median (Healthcare Equipment & Supplies) of 5.3x on TTM basis. We have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.145 and a resistance level of ~$0.266. Hence, considering the returns on stocks, higher valuation, and RSI levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.210 per share, up by 7.692% on 15^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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