Stocks’ Details 

Infratil Limited

Completion of Acquisition:  Infratil Limited (ASX: IFT) owns and operates businesses in the energy (mainly renewable), transport, data infrastructure and social infrastructure sectors. The market capitalisation of the company stood at ~$5.18 billion as on 28^th January 2021. Recently, the company noted that Trustpower Limited (51% Holding of IFT) has announced a review of its retail business, wherein Trustpower will test market interest in its retail business and will be focused on exploring the merits and business case to establish a standalone generation business. In the month of December 2020, the company finished the acquisition of 56.25% interest in Qscan Group Holdings Pty Ltd. For 1H FY21, the company reported net parent surplus from continuing operations of NZ$27.8 million against NZ$56.4 million in the prior year. Proportionate EBITDAF for the half-year amounted to $229.5 million, reflecting a rise of 12.4%. This indicates strong performance from CDC Data Centres and significant contributions from Vodafone New Zealand and Trustpower.

Key Metrics (Source: Company Reports)

Outlook: For FY21, the company expects to report proportionate EBITDAF in the range of NZ$430 million and NZ$470 million.

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

Price to Cash Flow 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: As on 30^th September 2020, the net debt of the company stood at NZ$1,389.6 million. In the last six and nine months, the stock of IFT moved up by 58.71% and 67.59%, respectively. As a result, the stock is trading towards its 52-week high level of $7.380. Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price with correction of high single digit (in percentage terms). For the purpose, we have taken peers such as Contact Energy Ltd (ASX: CEN), Tilt Renewables Ltd (ASX: TLT) and Mercury NZ Ltd (ASX: MCY), to name few.  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 ~$4.917 and a resistance level of ~$7.309. Hence, considering the price movement in the past months, RSI levels, current trading levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $7.190 per share, up by 0.418% on 28^th January 2021.

Bega Cheese Limited

Completion of Acquisition: Bega Cheese Limited (ASX: BGA) is engaged in processing, manufacturing, cutting and packaging traditional cheese products, and manufacturing of other high-value dairy products, vegemite, peanut butter and honey. The market capitalisation of the company stood at ~$1.67 billion as on 28^th January 2021.  On 25^th January 2021, the company finished the acquisition of Lion Dairy & Drinks business, and as a result, the acquisition doubles the size of the company with revenue of $3 billion. In the month of December 2020, the company raised a total of around $401 million through retail entitlement offer and institutional placement. During FY20, the company recorded normalised earnings before interest, depreciation and tax (EBITDA) of $103.0 million. During the year, the company recorded statutory net cash inflow from operating activities of $137.7 million against net cash inflows of $100.3 million in FY19.

EBITDA (Source: Company Reports)

Outlook: Looking forward, the company would be focused on increasing brand organic growth rate, improving branded margins and to expand the brand portfolio.

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: During FY20, the company improved its net debt position by $51.8 million to $236.4 million. The stock of BGA has moved up by 23.88% in the last six months. As a result, the stock is trading towards its 52-week high level of $5.780. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with correction low double-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 ~$4.837 and a resistance level of ~$5.768. Hence, considering the price movement in the past months, RSI levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $5.510 per share, down by 0.362% on 28^th January 2021.

WAM Research Limited

Outperformance of Portfolio: WAM Research Limited (ASX: WAX) is a listed investment company managed by Wilson Asset Management Group. The market capitalisation of the company stood at $323.27 million as on 28^th January 2021. During the calendar year 2020, the company’s portfolio increased by 11.9% and outperformed the S&P/ASX All Ordinaries Accumulation Index by 8.3%. Since its inception, the company has paid a dividend of 114.1 cents per share. During FY20, the company recorded an operating loss after tax of $7.8 million and the company declared a fully franked final dividend of 4.9 cents per share, which brought the full-year dividend to 9.8 cents per share.

Dividend History (Source: Company Reports)

Outlook: The company is focused on the most compelling undervalued growth opportunities in the Australian market in order to tap future portfolio growth.

Stock Recommendation: The company’s portfolio growth was supported by its investments in mortgage broker Australian Finance Group (ASX: AFG) and mining services company Imdex (ASX: IMD).  In the last nine months, the stock of WAX has moved up by 36.06%. As a result, the stock is trading towards its 52-week high level of $1.665. On a TTM basis, WAX has EV/Sales multiple of 25.5x, which is higher than the industry median (Investment Banking & Investment Services) of 8.7x. 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 ~$1.312 and a resistance level of ~$1.71. Hence, considering the price movement in the past months, RSI levels, valuation on TTM basis and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $1.640 per share, down by 1.205% on 28^th January 2021.

Shaver Shop Group Limited

Decent Growth in Sales: Shaver Shop Group Limited (ASX: SSG) is engaged in the retailing of personal grooming products. The market capitalisation of the company stood at $148.13 million as on 28^th January 2021. During Q2 FY21, the company recorded a rise of 12.4% in total sales and 13.7% on a like for like basis. The sales growth was mainly driven by an increase of 64.7% in online sales. The company has delivered 24 months of consecutive like for like sales growth, supported by the accelerating trends towards DIY personal care solutions.

Key Metrics (Source: Company Reports)

Guidance: For 1H FY21, the company expects to report a net profit after tax in the range of $13.5 million and $14.0 million. Gross margin for 1H FY21 is expected to increase over 200 basis point.

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

Price to Cash Flow 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: As of now, the customer database of the company has surpassed 600,000 members. In the last nine months, the stock of SSG surged by 171.12%. We have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price with correction of low double-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 ~$0.93 and a resistance level of ~$1.201. Hence, considering the price movement in the past months, RSI levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $1.125 per share, down by 2.174% on 28^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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