Rural Funds Group

RFF Details

Decent Growth in Financial Results: Rural Funds Group (ASX: RFF) is involved in the leasing of agricultural properties and equipment. The market capitalisation of the company stood at ~$801.90 Mn as on 22^nd October 2020. For the year ended 30^th June FY20, RFF reported property revenue of ~$72.0 million, reflecting a rise of 8% over pcp. Adjusted funds from operations (AFFO) per unit for the year stood at 13.5 cents, which was in line with its guidance. These results showcased the ongoing growth of the group and the increased valuation of agricultural assets. In addition, positive FY20 results were also supported by the continuing expansion of the portfolio, largely in the cattle sector, and independent valuations of several assets. The company declared distributions per unit (DPU) of 10.85 cents for FY20, which was in-line with the guidance.

Key Financials (Source: Company Reports)

Guidance: For FY21, the company is expecting AFFO of 11.7 cpu and DPU of 11.28 cents, which is in-line with the growth target of 4%.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation:  In the past six months, the stock of RFF has moved up by 22.16%. As a result, the stock is inclined towards its 52-week high level of $2.440.  Considering this, we have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). In addition, we have considered 14-day RSI (Relative Strength Index), and default values have been used. After careful consideration, it was observed that the stock is currently in the overbought zone. On the technical analysis front, the stock price of RFF has a support level of ~$2.251 and a resistance level of ~$2.431. Thus, considering the upside movement in the stock, RSI level and higher valuations, we suggest investors to “book profit” and give a “Sell” rating on the stock at the current market price of $2.370 per share on 22^nd October 2020.

RFF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Pengana International Equities Limited

PIA Details

A Look at Monthly Portfolio Performance: Pengana International Equities Limited (ASX: PIA) invests its capital into ethically screened businesses that are listed on global exchanges. The market capitalisation of the company stood at $294.73 million as on 22^nd October 2020. In the recent September 2020 performance report, the company stated that it has sold its remaining positions in Alphabet and Microsoft due to disruptions in the capital market. This led PIA to have zero exposure to any of the US technology giants.  During September 2020 quarter, the company’s portfolio has provided a return of 5.1%, and the benchmark return of 3.7%. This proves to be an attractive result on the back of its underweight position in US and US large-cap technology stocks.

Portfolio Performance (Source: Company Reports)

FY20 Financial Highlights: For the year ended 30^th June 2020, the company reported a total investment income of $40.9 million, reflecting a rise of 49% over FY19. This was supported by strong portfolio performance.  As on 30^th June 2020, the investments of the company stood at $288.1 million, while the cash position stood at $37.7 million.

Volatility in Capital Markets: The company expects that the upcoming months may witness heightened volatility and a drawdown in equity markets. In addition, PIA stated that extremely weak monetary policy by central banks along with ever rising and potentially unmanageable debt levels on every balance sheet has led to an unnatural situation for capital markets.

Stock Recommendation: As on 16^th October 2020, the net tangible asset value after provision for tax on unrealised income and gain stood at 130.27 cents per share. The stock of PIA has moved up by 16.03% and 27.46% in the past three and six months, respectively. The 52-week low-high range for the stock stands at $0.720 - $1.230, respectively. On a technical front, the stock of PIA has a support level of ~$1.146 and a resistance level of ~$1.230. We have considered 14-day RSI (Relative Strength Index), and default values have been used. After careful consideration, it was observed that the stock is currently at the overbought zone; hence we expect a correction in the stock price in the coming times. Therefore, considering the expected heightened volatility in the equity markets, RSI levels and upside movement in the stock within few months, we suggest investors to “book profit” and give a “Sell” rating on the stock at the current market price of $1.230 per share, up by 6.034% on 22^nd October 2020.

PIA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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