Stocks’ Details

NRW Holdings Limited

Decent Growth in Revenue Despite COVID-19: NRW Holdings Limited (ASX: NWH) is involved in the provisioning of services, which include civil contracting, mining services, and equipment to the resource sector. The market capitalisation of the company stood at ~$827.77 million as on 19^th August 2020. In the month of December 2019, the company wrapped up the acquisition of BGC Contracting, which is now fully integrated into its operations around Australia. During FY20, the company reported revenue amounting to $2,062 million, reflecting a robust growth of 83% over FY19. This growth was due to continued growth in the Civil and Mining businesses, a full year’s contribution from RCRMT (acquired in February 2019) as well as seven months contribution from the newly acquired BGC Contracting business. Profit before tax for the period amounted to $100.2 million, up 119% on the previous year, due to growth in sales.

The company managed to achieve these strong results despite the challenges created by COVID-19. With respect to the coal portfolio, the company continues to maintain a strong focus on costs considering the disruptions created by COVID-19 to the current coal market.

Key Financials (Source: Company Reports)

Revenue Guidance: For FY21, the company is expecting to report revenue in the range of $2.2 billion to $2.3 billion. The company possesses a strong order pipeline with the potential for additional infrastructure projects to be accelerated as part of joint Federal and State priorities to address the economic effects of COVID-19.

Key Risks: The financial performance of the company could be impacted by the level of activity in the resources and mining industry. In addition, the company also deals with the risk of loss of contract and reduction in contract scope, as it generates its revenues from contracts.

Stock Recommendation: The company declared a fully-franked final dividend of 4 cents per share against 2 cents per share declared in the prior comparative period. The company is scheduled to pay a final dividend on 14^th October 2020. NWH is well-placed to address a growing set of opportunities on the back of strong organic growth and the acquisitions completed over the last three years. On the technical analysis front, the stock of the company has a support level of ~A$1.549 and a resistance level at ~A$2.150. On a TTM basis, NWH has EV/Sales multiple of 0.5x as compared to the industry median (Industrials) of 1.6x. The stock is available at an EV/EBITDA multiple of 4.4x against the industry median (Industrials) of 6.7x on TTM basis. Therefore, considering the decent FY19 results despite COVID-19, strong order pipeline, and guidance for FY21, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.050 per share, up by 5.67% on 19^th August 2020 owing to FY20 results.

Pact Group Holdings Ltd

Solid Operational Performance During FY20:  Pact Group Holdings Ltd (ASX: PGH) is a manufacturer of rigid plastics packaging, metals packaging and related products. The market capitalisation of the company stood at $815.26 million as on 19^th August 2020. Despite the challenges presented by COVID-19, the company reported solid operating performance during FY20. During the year, the company reported EBITDA amounting to $301.8 million as compared to $230.7 million of FY19. EBIT for the period stood at $166.3 million against $148.4 million of pcp. The company experienced solid organic growth in the contract manufacturing hygiene category and crate pooling services, with marginal underlying growth in New Zealand and Asia. The company declared a final dividend of 3.0 cents per share, which is franked to 65%.

Key Metrics (Source: Company Reports)

Outlook: During Q1 FY21, the company anticipates its diversified portfolio to be resilient. However, the company is not clear about the duration and economic impact of COVID-19.

Key Risks: The company is exposed to a variety of risks, which may impact the performance of the company. These risks include customer risks, competitor risks, consumer demand, and foreign exchange rates.

Valuation Methodology: P/Sales Multiple Based Relative Valuation (Illustrative)

P/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation: At the end of FY20, the company experienced an improvement in operating cashflow and reduction in net debts. Also, the company reported an improvement in leverage at 2.6x.  Gross margin and EBITDA margin of the company stood at 32.1% and 15.6% in 1H FY20 as compared to 30.1% and 12.6% in 1H FY19. On the technical analysis front, the stock of the company has a support level of ~A$1.769 and a resistance level at ~A$2.614. We have valued the stock using Price to Sales multiple based valuation method and arrived at a target price of high single-digit (in percentage terms). For the purpose, we have taken peers such as Nufarm Ltd (ASX: NUF), CSR Ltd (ASX: CSR) and Downer EDI Ltd (ASX: DOW). Hence, considering the solid operational performance, expected resilient portfolio, decline in net debt and improved operating cashflow, we give a “Hold” recommendation on the stock at the current market price of $2.420 per share, up by 2.11% on 19^th August 2020.

Moelis Australia Limited

Rise in Asset Under Management: Moelis Australia Limited (ASX: MOE) provides asset management, corporate advisory, and equities services. The market capitalisation of the company stood at $498.77 million as on 19^th August 2020. Recently, the company released its 1H FY20, results, wherein, it reported Assets under management (AUM) of $5.0 billion, reflecting a rise of $160 million. The Corporate Advisory & Equities business of the company experienced record revenue growth of 40.2%. The company achieved these results during a period of difficult economic and market conditions due to COVID-19 global pandemic. MOE reported a marginal fall in underlying revenue to $67.4 million over $68.0 million of 1H FY19

Financial Performance (Source: Company Reports)

Response to COVID-19: During the half-year, COVID-19 left a significant impact on general business conditions. In response to COVID-19, the company undertook various actions, which include stress testing of business, managed funds, and assets to identify and respond to any areas of risk, attention on maximising and preserving cash.

Focus Areas: The company is in a decent position to navigate the current market uncertainty and capitalise on future growth opportunities on the back of the strength of its balance sheet. The company would continue to focus on scaling its investment strategies in asset management and look to broaden its distribution capabilities.

Key Risks: The company’s business activities are exposed to numerous financial risks, such as market risk (including interest rate risk and foreign currency risk), credit risk and liquidity risk.

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: At the end of half-year, the company had total assets of $437 million, including $140 million of cash and $226 million of investments. On the technical analysis front, the stock of the company has a support level of ~A$2.871 and a resistance level at ~A$3.793. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Centuria Capital Group (ASX: CNI), Bravura Solutions Ltd (ASX: BVS), Pinnacle Investment Management Group Ltd (ASX: PNI), etc., and arrived at a target price of low double-digit upside (in percentage terms). Thus, in light of the growth in AUM, record revenue in Corporate Advisory & Equities business, and decent position to navigate the current market uncertainty, we give a “Buy” recommendation on the stock at the current market price of $3.6100 per share, up by 9.394% on 19^th August 2020, owing to the release of decent H1FY20 results.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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