Helloworld Travel Limited

HLO Details

Helloworld Travel Limited (ASX: HLO) is a travel management service provider in Australia and New Zealand. Their services include retail travel networks, destination management, corporate travel management, wholesale travel, air ticket consolidation and online operations. The company has a market capitalisation of ~$268.19 million as on July 13, 2021.

Result Performance (Half-Year Ended 31 December 2020 – H1FY21)

The  revenue of the company for the interim period stood at $29.6 million, a decline of 85.2% on the previous corresponding period (pcp), which can be attributed to COVID-19 related restrictions which heavily impacted the entire hospitality and travel industry. Underlying operating costs declined by 76.2% YoY to $36.1 million reflecting the impact of reduced operating expenses and lower labour force. Underlying EBITDA for the period stood at -$6.5 million, down 113.4% YoY. Loss After Tax for the period stood at $15.1 million, as compared to profit after tax of $22.7 million in pcp.

Key Data (Source: Company Reports)

Q3FY21 Update:

The Total Transaction Value (TTV) results for the third quarter period stood at ~$261.5 million, down by 79.6% on the previous corresponding period (pcp).  Revenue for the period stood at ~$15.0 million, a decrease of 75.8% YoY. Underlying EBITDA loss for the quarter increased to ~$4.4 million in Q3FY21 as compared to a loss of ~$2.7 million in Q2FY21. The cash balance at the end of Q3FY21 was reported at $125.9 million. It had external borrowings of $81.0 million with available headroom on its debt facilities of $30.2 million.

Recent Update:

The company, on 19 May 2021,  advised that the Department of Finance has exercised its option to further extend the Deed between the Department and QBT Pty Ltd (a wholly owned subsidiary of HLO) in relation to Travel Management Services for the Whole of Australian Government for a one-year period from 1 July 2021 to 30 June 2022.

Outlook:

HLO expects favourable TTV levels, considering the open state borders across Australia and the commencement of quarantine free trans-Tasman travel. Further, the company expects to see a strong recovery across all its corporate businesses including QBT, TravelEdge, Show Travel and APX in New Zealand following an extension of the deed between the Department of Finance, Australia and QBT Pty Limited for a one-year period.  For FY21, HLO anticipates a ~$1.0 billion TTV and an underlying EBITDA loss of ~$14.0 million to ~16.0 million. After the opening of Australia state borders, trans-Tasman bubble and other limited international bubbles reopening in the second half of 2021, HLO seeks underlying EBITDA loss of ~$1.0 million to ~$3.0 million in Q1FY22 and positive underlying EBITDA in Q2FY22.

Key Risks:

The company is expected to be impacted by the risk of lockdowns and closed borders due to any forthcoming wave of COVID-19. Furthermore, intense competition in the tourism industry may drain significant market opportunities.

Valuation Methodology: EV/EBITDA Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

Experiencing low volatility, the stock has been trading in the range provided by the 38.2% retracement level of $2.36 on the upside and the 23.6% retracement level of $1.71 on the downside with a bias on the downside. However, for the past couple of weeks, it has been hovering around the 23.6% retracement level of $1.71, and for the ongoing week, it has given close at $1.74. Technical indicator RSI with a reading around 41 and a curve at the end pointing up, suggests neutral to up momentum for the stock.

Going forward, the stock may have resistance around the 38.2% retracement level of $2.36, whereas support could be around the lower Bollinger band of $1.47.

Stock Recommendation:

The company’s current ratio for H1FY21 stood at 1.26x, better than the industry median of 0.96x, implying that the company possesses better capabilities to meet its short-term obligations than its peer group. Its Debt-to-Equity ratio for H1FY21 stood at 0.46x, lower than the industry median of 0.50x, depicting a reasonable leverage position of the company.

We have applied EV/EBITDA multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight discount to EV/EBITDA Multiple (NTM) (Peer Average) considering fall in total revenue, risks related to the COVID-19 as well as intense competition.

Considering the aforesaid facts, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.740 per share, up by 0.578% on July 13, 2021.

Nanosonics Limited

NAN Limited

Nanosonics Limited (ASX: NAN) is a leading provider of innovative solutions to prevent the transmission of life-alerting infections. It has developed and commercialized a disinfection technology, Trophon® which is fast becoming the global standard of care for ultrasound probe disinfection. The company has a market capitalization of around $1.57 billion as of 13^th July 2021.

Result Performance (Half-Year Ended 31 December 2020 – H1FY21)

The revenue of the company for the interim period stood at $43.1 million, a decline of 11% YoY, mainly  driven by the lower purchases by GE Healthcare in Q1FY21 due to the impacts of COVID-19 and the impact of a stronger Australian dollar. Operating profit before tax for the period fell from $6.7 million in H1FY20 to $0.2 million in H1FY21 as a result of the impacts of COVID-19, mainly in Q1FY21 revenue, and the continuing investment in the company’s growth strategy. A sharp decline in operating profit before tax and increase in income tax expense led to a 74% YoY decline in NPAT to $1.5 million for the period.

Key Data (Source: Company Reports)

Recent Update:

The company, on 28 June 2021, informed the market that it would be  launching new infection prevention digital product platform, Nanosonics AuditPro, offering digital traceability, reporting and compliance.

Outlook:

The company expects continued revenue growth and profitability based on improvement in market conditions. It believes that the underlying fundamentals for the business remain strong and it would continue to invest in the strategic growth priorities. The launching of Nanosonics AuditProTM is likely to emerge as a key driver of revenue for the company in the upcoming years. In the meanwhile, the company estimates that total operating expenses for FY21 would be at the lower end of the $75 million to $78 million range.

Key Risks:

There is a risk of COVID-19 related restrictions on the company’s operations, including its global supply chain. Further, the key distribution customer accounts for ~54% of overall revenue, the majority in the USA, losing of the same will have a huge negative impact on the earnings of the company. Meanwhile, the potential for increased competition exposes the company to the risk of losing existing and new market share. Besides, the company is part of  a highly regulated industry.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

After the past two weeks of a sharp fall in prices, the stock has given a stronger close for the week, forming a ‘Bullish Harami’ pattern on the chart with a bullish candle of the ongoing week contained in a bearish candle of the previous week, suggesting a bullish reversal for the stock. The technical indicator RSI with a reading around 44 and a curve at the end pointing up, indicates neutral to up momentum for the stock.

Going forward, the stock may have resistance around the 50% retracement level of $6.12 whereas support could be around the lower Bollinger band of $5.03.

Stock Recommendation:

The company’s gross margin and EBITDA margin for H1FY21 stood at 79.4% and 7.7%, better than the industry median of 70.5% and 7.3%, respectively, implying more efficient management of input and operating costs.  The  current ratio for H1FY21 stood at 8.69x, better than the industry median of 3.13x, implying that the company possesses better capabilities to meet its short-term obligations than its peer group.

We have applied EV/Sales multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering better gross margin.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of $5.420 per share, up by 3.435% on July 13, 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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.

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