Cedar Woods Properties Limited

CWP Details

H1FY22 Financial Update: Cedar Woods Properties Limited (ASX: CWP) develops commercial properties and residential communities. Its asset portfolio is based in Victoria, Queensland, Western Australia, and South Australia.

• Top line and Margins Update: In H1FY22, the company clocked $174.4 million in revenue, up by ~3% PcP. By the end of H1FY22, the company recorded $560 million in presales relative to $380 million PcP. Almost 28% of presales are expected to settle down in H2FY22 with the balance falling in FY23 and FY24.
• Profitability Update: Gross margin softened to 25% relative to 33% PcP, although the margins estimate for the second half are expected to move close to 30%. CWP registered $14.1 million in H1FY22 NPAT.
• Financial Leverage: As on 31 December 2021, the new bank debt clocked $196 million, with gearing at 48% and net bank debt to total tangible assets at 27%, both falling in the company’s target range. Interest coverage stood strong at 9.5x for CY22. Over $86 million is available under current bank facilities.

H1FY22 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

The recent downturn in household spending and decline in total dwellings in September 2021 quarter, the real estate segment may face cash flow difficulties as presales shrink. The Australian real estate market is facing affordability concerns; hence a supply and demand disequilibrium is created.

Outlook

CWP expects favourable economic conditions, coupled with low interest rates and high employment. The company’s outlook is underpinned by a record presale of $560 million. Moderate earnings growth is expected in FY2022 with robust growth over the medium-term subject to construction sector conditions.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: On 21 February 2022, Mr. Nathan John Blackburne, a director of CWP, acquired 2,061 shares by Stephanie Super Fund at a consideration of $4.84 per share. The stock of CWP gave a negative return of ~-29.088% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $4.790 - $7.700. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the recent distress in real estate market and unusual impact from construction sector, the company might trade at a slight discount to its peers. For valuation, few peers like LendLease Group (ASX: LLC), Servcorp Ltd (ASX: SRV), Eureka Group Holdings Ltd (ASX: EGH) and others have been considered. Given the considerable presales, decent leverage position, high interest coverage, current trading levels, upside indicated by valuation, and key risks associated to the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $4.880, as of 22 February 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.

CWP Daily Technical Chart, Data Source: REFINITIV

Volpara Health Technologies Limited

VHT Details

Q3FY22 Operating Activities: Volpara Health Technologies Limited (ASX: VHT) is involved in the development of digital health solutions to enable personalized breast cancer screening software applications.

• Quarterly Customer Receipts: In Q3FY22, VHT collected NZ$7.0 million in quarterly cash receipts from customers, up by nearly 50% PcP. The subscription-based receipts clocked over NZ$6.7 million, up by nearly 51% PcP.
• Cash Flow Position: Net operating and investing cash outflow stood at NZ$3.6 million, a marginal improvement from N$3.8 million outflow in Q2FY22. As on 31 December 2021, VHT holds NZ$21.3 million in cash balance.
• Software as a Service (SaaS) Highlights: The annual recurring revenue (ARR) stands at US$21.5 million, up by almost US$1.1 million from Q2FY22. Average revenue per user (ARPU) clocked over an installed base of US$1.47 by Q3FY22 end.

H1FY22 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

The SaaS market is highly competitive in lungs and breast contracts with minimum product differentiation. The currency movements, delayed regulatory approvals, and increasing expenditure amid due to heavy investments in software development.

Outlook

VHT projects to deliver NZ$25 million in revenue for FY22. The company holds sufficient cash balance to maintain strong growth while curtaining net operating and investing outflows. The improved ARR and ARPU metrics signal favourable growth prospects.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock’s historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of VHT gave a negative return of ~48.805% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.750 - $1.525. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the high investment levels and negative operating cash flows, the company might trade at a slight discount to its peers’ average EV/Sales multiple. For valuation, few peers like Nova Eye Medical Ltd (ASX: EYE), Ansell Ltd (ASX: ANN), Cochlear Ltd (ASX: COH) and others have been considered. Given the favourable growth in ARR and ARPU metrics, high revenue projection, current trading levels, upside indicated by valuation, and key risks associated to the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.750, down by ~3.847%, as of 22 February 2022.

VHT Daily Technical Chart, Data Source: REFINITIV

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 for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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