Harvey Norman Holdings Limited

HVN Details

Aggregated Sales Revenue FY21: Harvey Norman Holdings Limited (ASX: HVN) operates integrated retail, franchise, property, and digital enterprise.

• For FY21, HVN registered $9.49 billion of aggregated sales revenue, up by 15.3% YoY from its 100% owned company-operated stores, majority-owned company-operated stores, and independent branded franchised complexes- Domayne® and Joyce Mayne® in Australia.
• The comparable aggregated sales increased by 13.9% YoY in FY21.
• HVN opened twelve (12) company-operated stores across Ireland, Croatia, Malaysia, Singapore, and New Zealand in FY21.

FY21 Results:

• Revenue Growth: The revenue increased from $2,294 million in FY20 to $2,768 million in FY21.
• NPAT & EPS Increase: The increased NPAT stood at $846.45 million in FY21 compared to $486.02 million in FY20. The EPS registered a growth of 72.3% YoY to 67.53 cents per share in FY21.
• Total Dividend Growth: HVN will pay a fully franked dividend of 35.0 cents per share (cps) for FY21 versus 24 cps in
• Property Holdings: HVN had 107 company-operated stores overseas and 192 franchised complexes in Australia on 30 June 2021.
• Higher Net Debt Position: HVN had $295.54 million net debt as of 30 June 2021 versus $15.35 million as of 30 June 2020. HVN reported net debt to equity ratio of 7.47% in FY21 versus nil in FY20.
• Reduced Cash and Cash Equivalents: HVN held $264.43 million cash and cash equivalents as of 30 June 2021, compared to $313.19 million as of 30 June 2020.

Net Income Trend from FY18-FY21 (after Minority Interest); (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 impact due to stores closures and lockdowns in Australia and other geographies. HVN faces potential failure in IT security and breach of data, thus leading to frauds and destruction of IP. 

Outlook:

• In FY22, HVN plans to open company-operated stores in Malaysia, Croatia, and Ireland (one in each location) and up to three franchised complexes in Australia.
• The company will ramp up its offshore expansion plans towards the close of CY22 and expects to open eight (max.) company-operated stores globally in FY23. The company intends to open two leasehold company-operated stores in Hungary and Budapest in FY23 to access a market of ~16 million people including Slovenia and Croatia's neighbouring markets.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (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 HVN gave a positive return of 5.80% in the past nine months and a positive return of 9.97% in the past year. The stock is currently trading below its 52-weeks’ average price level band of $4.330 - $6.090. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average, considering its lower net operating cash flows & liquidity, higher debt position in FY21 vs FY20 and the risks associated with COVID-19, and challenges in logistics and shipping. For the purpose of valuation, few peers like Wesfarmers Limited (ASX: WES), Premier Investments Limited (ASX: PMV), Nick Scali Limited (ASX: NCK), and others have been considered. Considering the current trading levels, decent financial performance in FY21, opening of new stores overseas in FY21, store expansion plans for FY22 and FY23, valuation, we give a ‘Buy’ rating on the stock at the current market price of $5.015 as on 23 September 2021, 11:01 AM, (GMT+10), Sydney, Eastern Australia.

HVN Daily Technical Chart, Data Source: REFINITIV

Flight Centre Travel Group Limited

FLT Details

Issue of Shares to KMP: Flight Centre Travel Group Limited (ASX: FLT) is a travel retailing company providing services to corporate and leisure sectors, and services such as plus-in destination travel experience businesses consisting of hotel management, tour operators, wholesaling, etc. On 15 September 2021, FLT issued 9,274 ordinary shares to Adam Campbell, a key management personnel (KMP), under an employee incentive scheme for nil consideration. 

Upcoming AGM: FLT will hold its Annual General Meeting (AGM) online on 20 October 2021, Wednesday at 10.00 AM (Brisbane time).

FY21 Results:

• Reduced Statutory Loss: The company experienced a reduction in statutory loss from $433.45 million in FY21 versus $662.22 million in FY20.
• Lower FY21 Revenue: Though FLT recorded lower revenue of $395.90 million on a pcp basis, the month-on-month sales revenue increased during FY21. FLT is witnessing improved trading conditions in the US, the UK and Europe.
• Lower TTV: The company posted a TTV of $3,945.18 million in FY21 versus $15,303.05 million in FY20.
• Extended Liquidity Runway: FLT held ~$1.36 billion cash and investments, total liquidity of $941 million as of 30 June 2021 and intends to maintain a length liquidity runway stance.

JV with Japanese Firm: FLT recently entered a JV with a Tokyo-based firm, NSF Engagement Corporation, to grow within the Asian corporate travel sector. FLT will launch its FCM travel management business in Japan with this JV and expand its FCM network in 97 countries via licensing agreements and company-owned businesses.

TTV and Net Income Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the impact of COVID-19 lockdowns and restrictions on air travel impacting top-line and TTV. Stringent government regulations also pose a threat to company’s survival and growth. 

Outlook:

• FLT expects market conditions to improve, especially in the US, the UK, Canada, and expects these markets to benefit from the new corporate account wins. The company expects international travel to restore partially in late 1HFY22 as the Government restrictions relax and the airlines restore services.
• The company will enter the corporate business in Japan in January 2022 through its Japanese JV.
• The Jetmax online travel agency (OTA) brands- BYOJet & Aunt Betty will enter the US market in October 2021 via their new contracts with Google Flights.
• FLT expects that more than 20% of its global leisure sales will come from online channels in FY24 versus ~7% in FY19. As the e-commerce channel continued to drive sales in FY21, FLT plans to enhance its online offerings.
• FLT targets a return to profitability monthly in leisure and corporate sectors in FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (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 FLT gave a positive return of 32.84% in the past three months and a positive return of 46.05%% in the past year. The stock is currently trading towards the 52-weeks’ high level of $20.160. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price with a high single-digit correction (in % terms). The company might trade at some discount than its peers’ average, considering its decline in financial performance in FY21 vs FY20 and the continued impact of COVID-19 restrictions. For the purpose of valuation, few peers like Helloworld Travel Limited (ASX: HLO), Corporate Travel Management Limited (ASX: CTD), Experience Co Limited (ASX: EXP), have been considered. Considering the high trading levels, decent returns in the past three months and the past year, valuation, and volatile market condition, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $19.98, up by ~5.213%, as on 23 September 2021.

FLT Daily Technical Chart, Data Source: REFINITIV 

Note: The purple color line in the chart shows RSI (14-period)

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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