Harvey Norman Holdings Limited

HVN Details

AGM Date Announced: Harvey Norman Holdings Limited (ASX: HVN) operates an integrated retail, property, franchise, and digital enterprise. HVN undertakes activities as a franchisor, sells computers, consumer electrical products, furniture, etc., does media placement, and provides consumer and other commercial loans. HVN will hold an online AGM on 24 November 2021.

FY21 Key Takeaways:

• Total System Sales Revenue: The Total System Sales Revenue (aggregated headline franchisee sales revenue and company-operated sales revenue) posted for FY21 was $9.721 million, an increase of $1.263 billion on FY20.
• Rise in EBITDA: The company posted an EBITDA growth of 54.2% YoY to $1.457 billion during the year.
• Net Debt Vs Net Cash Position: The company reported net debt of $295.54 million as of 30 June 2021 and net cash of $15.35 million as of 30 June 2020.
• Net Assets Increase: The stock of net assets grew up by 12% YoY from $3.477 billion as of 30 June 2020 to $3.89 billion as of 30 June 2021.
• Robust Freehold Property Portfolio: The portfolio valuation stood at $3.37 billion as of 30 June 2021, up by 11.8% on pcp. The portfolio includes 25 owner-occupied assets in New Zealand, Singapore, Slovenia, Ireland, and Australia, 95 freehold investment properties in Australia, and JV (joint venture) assets.

Cash Receipts from Customers Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of new competitors in newly emerging digital channels, non-compliance of respective contracts by franchisees. It faces the risk of a decline in commercial property values while dealing in property investment.

Outlook:

• During FY22, HVN plans to open to three (3) franchised complexes in Australia and a company-operated store each in Croatia, Malaysia, and Ireland.
• The company plans to ramp up its offshore expansion plans towards the CY22-end. In Australia, HVN intends to open two (2) franchised complexes in FY23 and plans to advance a currently leased franchised complex to a freehold property.
• The company also intends to open two (2) leasehold company-operated stores in Hungary and Budapest in CY2023.
• Despite the rolling lockdowns in Australia, HVN expects spending to recover soon as the lockdown restrictions ease down in overseas 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 negative return of ~10.50% in the past three months and a negative return of ~13.78% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.330 - $6.090. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering higher net debt to equity ratio, lower net cash flows from operations in FY21, and the risk of ongoing COVID-19 uncertainty & forex risk from various currency exposure. For this purpose of valuation, few peers like Wesfarmers Limited (ASX: WES), Beacon Lighting Group Limited (ASX: BLX), Nick Scali Limited (ASX: NCK), have been considered. Considering the current trading levels, growth in the sales of Harvey Norman® brands, strong housing prices & low interest rates, the opening of new stores in FY21, expansion plans in FY22 & FY23, valuation upside, we give a ‘Buy’ rating on the stock at the current market price of $4.940, as on 21 October 2021, 10:35 AM (GMT+10), Sydney, Eastern Australia.

HVN Daily Technical Chart, Data Source: REFINITIV 

Donaco International Limited

DNA Details

FY21 Results: Donaco International Limited (ASX: DNA) operates hotel and casino businesses in Northern Vietnam and Cambodia.

• Rise in NPAT: The Group registered an NPAT of $25.2 million in FY21 versus a net loss after (NLAT) of $58.9 million in FY20.
• Negative EBITDA: For FY21, DNA reported a negative EBITDA of ~$0.1 million compared to a positive EBITDA of ~$10.4 million in FY20 due to declining venue performance during the year.
• Operational Cash Outflows: DNA generated $4.3 million of negative operational cash flows in comparison to cash outgoings of $3.2 million in FY20 due to the impact on the Group’s casino operations in Cambodia and Vietnam.
• Declined Net Debt-to-Equity Ratio: The company’s borrowings reduced to $11.1 million as of 30 June 2021 from $28.2 million as of 30 June 2020. The net debt-to-equity ratio also declined to 3% in FY21 from 11.5% in FY20.
• Recovery in Trading Conditions: The trading conditions were reported to be improving after the reporting period. Aristo International Hotel (Aristo) achieved a positive EBITDA in July 2021 versus a negative EBITDA of $0.1 million in July 2020.

Total Revenue & Net Income Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of interest rate and forex changes on its cash and borrowings. The COVID-19 lockdowns have impacted customer visitation, earnings, and led to closure/ limited entry in the casinos.

Outlook:

• In the light of continuing COVID-19 situation, DNA plans to undertake strategic initiatives involving a shift towards clientele from the local region for FY22.
• DNA resolves to follow a disciplined cost management approach and protect its balance sheet during FY22.
• The company expects the near-term COVID-19 impact to weigh over the long-term positive outlook as vaccinations ramp up in Southeast Asia.
• As per a new repayment plan, DNA plans to repay the remainder debt of A$9 million to Mega Bank in December 2021.

Stock Recommendation: The stock of DNA gave a positive return of ~5.71% in the past month and a negative return of ~11.90% in the past three months. The stock is currently trading towards lower than the 52-weeks’ average price level band of $0.029 - $0.092. On a TTM basis, the stock of DNA is trading at a price to book value multiple of 0.3x lower than the industry (Hotels & Entertainment Services) median of 2.3x, thus seems undervalued. Considering the current trading levels, improved bottom-line, drop in debt levels in FY21, continued disciplined cost control strategy, valuation on a TTM basis, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.036, as on 21 October 2021, 10:35 AM (GMT+10), Sydney, Eastern Australia.

DNA 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.