Asaleo Care Limited

Ease in Pulp Prices to Benefit 2H19 Performance: Asaleo Care Limited (ASX: AHY) is engaged in manufacturing, marketing, distribution and sale of professional hygiene, personal care and consumer tissue products in Australia, New Zealand, Fiji and many other countries in the Pacific.

Shareholding Update: The company recently announced that the voting power of Spheria Asset Management Pty Ltd increased from 5.73% to 6.87%. As per another recent update, the voting power of Marathon Asset Management LLP reduced to 7.97% from 8.85% earlier.

Half-Yearly Results: During the half-year ended 30 June 2019, the company reported underlying revenue amounted to $202.0 million, up 2.2% on prior corresponding period revenue of $197.6 million. Underlying EBITDA for the period amounted to $39.4 million, representing a decline of 8.2% on prior corresponding period EBITDA of $42.9 million.Underlying EBIT came in at $27.2 million, down 21.8% on prior corresponding period EBIT of $34.8 million. Statutory net profit after tax was reported at $7.3 million. Statutory earnings per share went up by 107%, to 1.3 cents per share. Overall financial performance during the half, was impacted by higher distribution costs due to increased sales volume. Sales, marketing & administration costs were also higher during the period, due to increased spend on Advertising & Promotion along with investment in incremental resources to drive sales growth. Gross margins for the period were impacted by higher pulp costs and increased investment in trade activity.


Half-yearly Results (Source: Company Reports)

Segment Results: In B2B segment, the company reported revenue amounting to $106.4 million, up 0.2% on pcp. Due to production shuts for installation of new converting equipment and higher pulp costs in the first-half, EBITDA for the segment went down by 13.4% to $20.8 million. Under the retail segment, the company delivered volume and value growth across all categories except Baby. Revenue for the segment was reported at $95.5 million, representing strong growth of 4.5% on prior corresponding period revenue of $91.4 million. EBITDA for the segment went down by 1.4% as a result of increased investment in incremental sales and marketing resources, brand advertising, and shopper promotional activity. Although both the segments were impacted by higher pulp costs in the first half, H2 is expected to offer some stability in this regard.

Outlook & Guidance: FY19 Underlying EBITDA from continuing operations is expected to be in the range of $80 million - $85 million. The second half is expected to see benefits from the ease in pulp prices. The upgradation of the Kawerau, New Zealand manufacturing facility is expected to deliver substantial operating efficiencies by the start of 2020.

Stock Recommendation: The stock generated returns of 1.06% and 4.40% over a period of one month and three months, respectively, and has a market capitalisation of ~$515.97 million. The 52-week trading range of the stock stands at $0.620 - $1.080. In FY19, the company reported y-o-y revenue growth, driven by the retail segment. An increase in distribution costs during the period was slightly offset with lease accounting change. The balance sheet remains strong, with a leverage ratio of 2.1x as compared to 3.25x at the end of the previous year. Pursuant to the sale of the Consumer Tissue Australia business, the company’s total debt facilities reduced to $250 million, as proceeds from the sale were utilised in payment of the debt. Overall, the company performed in-line with expectations and is expecting to see further benefits from the ease in pulp prices. Hence, considering the above-stated facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.965, up 1.579% on 05 November 2019.

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