Mirvac Group

MGR Details

Latest Operational Updates: Mirvac Group (ASX: MGR) is a diversified property management company with an integrated development and asset management capability in Australia. The company's segments include Office & Industrial, Retail, Residential, and Corporate. MGR has shown a robust performance across its residential segment on the back of accelerated demand for master planned communities. The company has witnessed an increase of 98% on pcp for its residential sales to 897. In addition, the company has witnessed an improved rent collection rate in 3QFY21 to 95% against 93% in 1HFY21. Moreover, the industrial portfolio continues to see higher occupancy levels of 99.7% on the back of business confidence, higher e-commerce penetration and supply chain investments. 

1HFY21 Financial Highlights: MGR has registered a decline in its revenue to $998mn in 1HFY21 against $1,253mn in 1HFY20 on the back of Covid-19 impacts. The company has reported a decrease in profit to $396mn in 1HFY21 against $613mn in 1HFY20. MGR has posted a decline in its cash balance to $245mn as on 31 December 2020 against $324mn as on 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is engaged with real estate investments. Therefore, the company is exposed to Covid-19 impacts that may lead to lower occupancy and lower sales volume. In addition, the company holds interest-bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company. 

Outlook: The company has upgraded its guidance for FY21 earnings to 13.7cents per share from 13.1-13.5cents per share but still below the earnings witnessed in FY20 and FY19. The company has upgraded its earnings guidance on returning job keeper payments received in FY21. MGR expects a delay in the sale of 50% of the locomotive workshops, Sydney in 1QFY22.                                                             

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 MGR gave a return of ~6.83% in the last one month and a return of ~24.26% in the last three months. The current market capitalisation of MGR stands at ~$11.57bn as of 8 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.01~$2.99. On the technical analysis front, the stock has a support level of ~$2.821 and a resistance of ~$3.12. 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 high single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering robust sales volume performance across residential segment in 3QFY21 and an improved rent collection rate during the similar period. For this purpose, we have taken peers Ingenia Communities Group (ASX: INA), Eureka Group Holdings Ltd (ASX: EGH), Lifestyle Communities Ltd (ASX: LIC) to name a few. Considering the company has registered a decline in its top-line in 1HFY21, earnings upgrade for FY21 still below the levels of FY20 and FY19, associated business risks, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $2.97, up by ~1.02% as on 8 June 2021.

MGR Daily Technical Chart, Data Source: REFINITIV

Australian Agricultural Company Limited 

AAC Details

Change in Director’s Interest: Australian Agricultural Company Limited (ASX: AAC) is engaged in cattle and beef production in Australia. The company's principal activities are ownership, operation, and development of pastoral properties; production of beef, including breeding, backgrounding, feed lotting, and cattle processing. AAC has announced a change in director’s interest on 28 May 2021. Jessica Claire Rudd, Managing Director with AAC, acquired an additional 32,258 shares in the company at $1.24 per share. 

FY21 Financial Highlights: AAC has registered a decline in its total sales to $265.52mn in FY21 against $334.14mn in FY20 due to decline in sales of cattle and meat. The company has seen an increase in its profit to $45.47mn in FY21 against $31.31mn in FY20 on the back of lower cost of sales and other operating expenses. AAC has seen a decline in its cash balance to $8.87mn as on 31 March 2021 against $18.12mn as on 31 March 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to foreign exchange prices. Thus, any adverse movement in foreign exchange prices may impact the financials of the company. In addition, the company holds interest-bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company. 

Outlook: The company continues to focus on optimising its supply chains along with other operating costs. AAC is focused on implementing a differentiated branding strategy and investing in innovation and technology in the future. The company expects lower meat volume sales to continue in FY22. However, the company is positive on long-term outlook for beef consumption on growth in populations and household income in emerging markets.

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 AAC gave a return of ~14.03% in the last one month and a return of ~11.11% in the last three months. The current market capitalisation of AAC stands at ~$777.56mn as of 8 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.01~$1.31. On the technical analysis front, the stock has a support level of ~$1.239 and a resistance of ~$1.331. 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 high single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering an increase in profits in FY21 and optimising operating costs. For this purpose, we have taken peers Inghams Group Ltd (ASX: ING), Murray Cod Australia Ltd (ASX: MCA), Tassal Group Ltd (ASX: TGR). Considering the company has registered a decline in its top line in FY21, decent stock price movement in the past months, associated business risks, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $1.30, up by ~0.775% as on 8 June 2021.

AAC Daily Technical Chart, Data Source: REFINITIV  

Propel Funeral Partners Limited

PFP Details

An Update on Internalisation Proposal: Propel Funeral Partners Limited (ASX: PFP) provides death care services in Australia. The company owns funeral homes, cemeteries, crematoria and related assets in Queensland, New South Wales, Victoria, Tasmania, South Australia, Western Australia, and New Zealand. PFP has recently announced regarding implementation agreement with Propel Investments Pty Ltd. The proposed internalisation is likely to affect key senior management functions. The process involves payment of $15.0mn to the manager and termination of management agreement. In addition, the transfer of intellectual property from the manager to the company is likely to take place. Moreover, amendments to the voluntary escrow arrangements and the executives are likely to become the employees of the group. 

1HFY21 Financial Highlights: PFP has registered an increase in revenues to $59mn in 1HFY21 against $57mn in 1HFY20. The company has reported an increase in NPAT to $8.2mn in 1HFY21 against $3.4mn in 1HFY20. PFP has seen a decline in its cash balance to $6.77mn as on 31 December 2020 against $53.90mn as on 30 June 2020 due to acquisitions completed during the period. The company has made three acquisitions during 1HFY21. The company has acquired Mid-West Funerals freehold property, DIIs funeral services limited and Pets RIP.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:  The company holds interest-bearing liabilities. Therefore, any severe change in interest rates may impact the financials of the company. Since the company is present in funeral services, the company has no control over death rates. Therefore, the company may not be likely to see steady growth in its revenues. 

Outlook: The company expects to benefit from the growing and ageing population across Australia and New Zealand.

Valuation Methodology: EV/EBITDA 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 PFP gave a return of ~11.64% in the last one month and a return of ~28.52% in the last three months. The current market capitalisation of PFP stands at ~$371.79mn as of 8 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.63~$3.88. On the technical analysis front, the stock has a support level of ~$3.578 and a resistance of ~$3.873. We have valued the stock using the EV/EBITDA 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 a slight discount as compared to its peer median, considering a decline in cash balance and associated business risks. For this purpose, we have taken peers InvoCare Ltd (ASX: IVC), Think Childcare Ltd (ASX: TNK), Mayfield Childcare Ltd (ASX: MFD), to name a few. Considering the decline in total assets as on 31 December 2020, decent stock price movement in the past months, associated business risks, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $3.74, up by ~0.537% as on 8 June 2021.

PFP 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.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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