Gale Pacific Limited

GAP Details
 
Brief Overview of 1H FY 2019 Presentation: Gale Pacific Limited (ASX: GAP) is involved in manufacturing of branded screening and shading products for domestic, commercial and industrial applications. The market capitalisation of the company stood at ~A$90.31 Mn as on 28^th June 2019. Recently, the company, via a release dated 7^th June 2019, announced that it had bought back 2,815,195 shares at the consideration $833,345.66. The company released its presentation for the six months ended to 31^st Dec 2018 wherein it communicated about operational and financial performance for the period. In terms of health, safety and environment, it is continuing to build a strong safety culture throughout all parts of its businesses.
 
During the period, the company had continued its decent performance with no major incidents or injuries.In order to improve the transparency of its segment reporting, in FY19 the group initiated an activity-based allocation method of reporting. The Intersegment sales/margin which has been derived from manufacturing locations, and centrally held costs, have been allocated to external revenue generating segments where the final economic benefit is derived.
 
The company reported revenue of A$67.8Mn for the six months ended to 31^st Dec 2018, which represents a growth of 5% on pcp. The revenue growth was primarily fueled by strong performance in the Americas.The key capital investments are on track to support strategy. The company’s operating cash flow was impacted by higher inventory in the Americas to support growth and lower sales in ANZ. There was an investment in a new coating line of A$8 million for commercial sector growth opportunities in ANZ and abroad. On the geographic front, the Australia and New Zealand businessreported revenue of A$34.7Mn for the six months to 31^st Dec 2018, which reflects a decline of 12% on pcp. The seasonal and a soft retail sales environment witnessed a lower revenue than the prior period. It reported low grain yield because of drought. There were strong underlying revenue and margin growth in the non-grain product categories of the commercial sector. On the flip side, the Eurasia business reported revenue of A$2.1Mn for the six months ended to 31^st Dec 2018, which represents a growth of 23% on pcp. The strong margin growth was driven by improved customer and product mix. And, it continues to deliver a highly profitable contribution moving forward.
 

 Results Summary (Source: Company Reports)
 
What to Expect: The company is encouraged by the reducedcommodity cost and currency pressures from 2018, even though there were adverse trading conditions in 1H FY19. The company is well placed for the USA spring and summer selling seasons. In addition, it is also encouraged by the strong sales outperformance of products during the USA off-season. A number of new exciting product innovations are due for rollout in 2H FY19. The company is confident of being able to deliver growth in EPS in FY19. With respect to the Americas region, it is planning to effectively execute the launch of the expanded product ranging with major retailers. In addition, it is also planning to secure new distribution with existing and new customers.
 
Stock Recommendation: With respect to manufacturing operations, it is continuing manufacturing efficiency, quality and service drive at all manufacturing facilities. The gross margin, EBITDA margin and net margin of the company stood at 47.0%, 7.6% and 2.1% in 1H FY19, respectively. Coming to the stock’s past performance, it had generated a return of -4.48% and -9.86% in the time span of six months and one year, respectively. As per the ASX, the stock is trading slightly towards its 52-week higher levels of $0.390 with PE multiple of 10.13x and an annual dividend yield of 6.25%. Given the backdrop of mix scenario, we put our wait and watch stance on the stock at the current market price of $0.320 per share.


GAP Daily Chart (Source: Thomson Reuters)
 

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