Estia Health Limited

EHE Details 

Operations Impacted Significantly in Victoria: Estia Health Limited (ASX: EHE) is engaged in providing services in residential aged care homes in Australia. It provides services across approximately 69 homes in New South Wales, Queensland, South Australia, and Victoria. As reported by the company, residents in 11 of the 27 Victorian homes were affected by Covid-19. EHE has reported 117 employees who tested positive to Covid-19 in 1HFY21. The occupancy level for 27 Victorian homes was at 85.1% in 1HFY21 compared with 93.5% occupancy for 42 homes outside Victoria in 1HFY21. In Victoria, spot occupancy improved to 87.8% on 19 February 2021 but still lower to spot occupancy of 95.3% for homes outside Victoria as of 19 February 2021.  

1HFY21 Financial Highlights: EHE has registered an increase in its revenue to $322.50mn in 1HFY21 against $316.08mn in 1HFY20 on the back of full billing for Victoria homes restarted from 1 November 2020. The company has incurred a loss of $5.28mn in 1HFY21. EHE has posted a decline in its cash position to $19.0mn as on 31 December 2020 against $30.60mn as on 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Change in Substantial Holding: The company has reported regarding the change of interest of substantial holder on 23 February 2021. Perpetual Limited has reduced its holding to 13.27% from an earlier holding of 14.70% in the company. 

Key Risks: The company holds interest-bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company. In addition, the company is exposed to Covid-19 impacts. Therefore, any such situation may affect the business of the company. 

Outlook: EHE progress towards existing works program to assess homes in 2HFY21. The company remains focused on commissioning Blakehurst (NSW) and preparatory work at Burton and Toorak Gardens in 2HFY21. During the same period, the company is focused on refurbishing seven homes with 753 beds and planning and progressing for IT system development projects. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of EHE gave a return of ~29.23% in the last three months and a return of ~45.24% in the last three months. The current market capitalisation of EHE stands at ~$645.39mn as of 3 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.275~$2.75. On the technical analysis front, the stock has a support level of ~$2.33 and a resistance of ~$2.809. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at some premium as compared to its peer average, considering an increase in revenue in 1HFY21 and refurbishment of seven homes to increase its admission capacity. For this purpose, we have taken peers Regis Healthcare Ltd (ASX: REG), Japara Healthcare Ltd (ASX: JHC), Paragon Care Ltd (ASX: PGC). Considering the company has incurred a loss in 1HFY21, decline in cash balance as on 31 December 2020, volatile price movement in past months, trading at higher levels and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $2.53, up by ~2.429% as on 3 June 2021.

EHE Daily Technical Chart, Data Source: REFINITIV 

Horizon Oil Ltd

HZN Details

Quarterly Activities: Horizon Oil limited (ASX: HZN) is engaged in petroleum exploration, development, and production. The company is present in New Zealand exploration and development, China exploration and development and all other segments. HZN has reported a modest increase in its crude oil production to 345,508bbls in 3QFY21 against 342,026bbls in 2QFY21. The company has reported a decline in sales volume to 315,848 bbls, due to the timing of oil liftings. HZN has completed well infill drilling in China Block 22/12 in 3QFY21. The company is progressing with an on-market share buyback of up to 100mn shares. 

Financial Highlights: HZN has registered a decline in its revenue to US$26.23mn in 1HFY21 against US$52.67mn in 1HFY20. The company has registered profits to US$4.71mn in 1HFY21 against a loss of US$62.74mn in 1HFY20. The company has seen a modest decline in its cash on hand to US$32.17mn as on 31 March 2021 against US$33.03mn as on 31 December 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is mainly engaged in the production of crude oil. Therefore, any adverse climatic conditions may impact the business of the company. The company is exposed to the risk of fluctuation in the oil prices, which may impact the financials of the company. 

Outlook: HZN is progressing well to restore up to 1,000 bopd (barrels of oil per day) gross through the workover commenced for the Maari MR6A well in New Zealand. The company is well on track for its first production in 1QCY22 after the fabrication of WZ12-8E.

Stock Recommendation: The stock of HZN gave a return of ~46.96% in the last six months and a return of ~16.86% in the last three months. The current market capitalisation of HZN stands at ~$145.41mn as of 3 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.050-~$0.103. On the technical analysis front, the stock has a support level of ~$0.831 and a resistance of ~$0.11. Considering an increase in production in 3QFY21 over 2QFY21, current trading levels, and steep price movement in the past months, we suggest investors to book profits and recommend a “Sell” rating on the stock at the current market price of AUD 0.10 (as on Jun 3, 2021, 12.40 PM (GMT+10), Sydney, Eastern Australia) 

Technical Analysis: HZN's prices broke the major resistance level of AUD 0.097 by an upside and now facing the resistance of 0.110 level, indicating a probability of downside correction in the prices. The momentum indicator RSI (14-period) is trading near an overbought zone at ~66.29 levels, further supporting a downside correction. However, 50-period SMA sustaining below the current market price and acting as a support zone for the stock. 

Note: The purple color line in the chart depicts RSI (14-period) while the green color histograms at the bottom of the chart indicating weekly volumes. The sky-blue color line represents the 50-period SMA.

HZN Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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