Stocks’ Details

Event Hospitality & Entertainment Limited  

Business Update: Event Hospitality & Entertainment Limited (ASX: EVT) is engaged in cinema exhibition operations in Australia and New Zealand. It also owns, operates and manages hotels and resorts in Australia and overseas. The market capitalisation of the company as on 22 December 2020, stood at ~$1.42 billion. As per a recent update, Vue International Bidco plc (Vue) failed to meet its obligations for the proposed acquisition of EVT’s German cinema exhibition operation (Cinestar).

FY20 Financial Highlights: The company reported total revenue of $784.06 million in FY20 from $1,009.31 million in FY19. It incurred a loss of $11.36 million during the year, against a profit of $111.89 million in FY19. EVT had total bank debt outstanding of $488.30 million and a cash balance of ~$67 million as on 30 June 2020.

FY20 Financial Performance (Source: Company Reports)

Outlook: The sector in which the company operates has been impacted by the COVID-19 pandemic. However, the company will look to grow its existing revenue, with enhanced sales models and structures, product innovation and divestment of non-core assets.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company believes that the gradual easing of restrictions would be beneficial for the company with increased revenue visibility. The stock of EVT gave a negative return of 8.66% in the past three months and a negative return of 8.18% in the past one month. As per ASX, the stock of EVT is trading below its average 52 weeks’ trading range of $5.440-$14.280. On a technical front, the stock of EVT has a support level of $7.749 and a resistance level of $11.034. We have valued the stock using an EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Ardent Leisure Group Limited (ASX: ALG), Crown Resorts Limited (ASX: CWN) and Skycity Entertainment Group Limited (ASX: SKC). Considering the current trading levels, healthy balance sheet and positive near term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $8.75, down by 1.130% as on December 22, 2020.

Genworth Mortgage Insurance Australia Limited

Update on Reserving Review: Genworth Mortgage Insurance Australia Limited (ASX: GMA) is engaged in the provision of lender's mortgage insurance (LMI) under the authorisation from the Australian Prudential Regulation Authority (APRA). The market capitalisation of the company as on 22 December 2020, stood at ~$928.15 million. As per a recent update, the company has completed its annual review of the premium earning pattern and expects a reduction of ~$110 million in pre-tax net earnings impact of the reserving review for 4QFY20.

3QFY20 Earnings Highlights: During this period, GMA reported NPAT of $24.6 million, compared to $25.1 million in 3QFY19. The 3QFY20 results include reserves for anticipated future claims expected. There was an increase of 22.2% in new insurance written (NIW) to $7.8 billion in 3QFY20, from $6.4 billion in 3QFY19, reflecting decent performance and low-interest rates. Net earned premium (NEP) increased by 4.6% to $79.7 million, during the same period

3QFY20 Financial Performance (Source: Refinitiv, Thomson Reuters)

Outlook: The company’s business has been impacted due to the COVID-19 pandemic, and GMA had over 31,000 active repayment deferrals from lender customers as on 30 September 2020. It continues to monitor the impact of repayment deferrals and changes in delinquency behaviors on the timing of claims incidence and associated reserving.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: GMA has a decent capital position with surplus capital of $255 million, above the top of the target range as on 30 September 2020. It also maintained a comfortable solvency ratio of 1.79 times the prescribed capital amount (PCA). The stock of GMA gave a return of 66.91% in the past three months and a negative return of 2.63% in the past one month. As per ASX, the stock of GMA is trading below its average 52 weeks’ trading range of $1.220-$4.060, proffering a decent opportunity for the investors to enter the stock. On a technical front, the stock of GMA has a support level of $1.634 and a resistance level of $2.473. We have valued the stock using an EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as AUB Group Limited (ASX: AUB), QBE Insurance Group Limited (ASX: QBE), Insurance Australia Group Limited (ASX: IAG), to name a few. Considering the aforesaid facts, current trading levels, and valuation, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.220, down by 1.334% as on December 22, 2020.

Ardent Leisure Group Limited

FY20 Financial Update: Ardent Leisure Group Limited (ASX: ALG) is engaged in investing and operating leisure and entertainment businesses in Australia and the USA. The market capitalisation of the company as on 22 December 2020, stood at ~$285.42 million. During FY20, the company reported revenues of $398.3 million as compared to $483.3 million in FY19, owing to COVID-19 pandemic. There was an improvement in the EBITDA from $11.7 million in FY19 to $25.7 million in FY20. However, net loss increased to $136.6 million in FY20. ALG had a cash position of $161.6 million as on 30 June 2020. There was a reduction in net debt to $78.4 million during the same period.

FY20 Income Statement (Source: Company Reports)

Outlook: As per the company, it has witnessed an improvement in the sales trend in recent months and has opened 42 out of its 42 centers. It dedicated a part of its marketing cost to safety and health measures. ALG will continue to review operations and cost base in view of the current scenario.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company has continued to preserve cash to see through the difficult and uncertain period in the short term, and capitalise on the expected tourism flourish later on.  The stock of ALG gave a return of 25% in the past three months and a negative return of 27.27% in the past one month. As per ASX, the stock of ALG is trading below its average 52 weeks’ trading range of $0.105-$1.650, proffering a decent opportunity for the investors to enter the stock. On a technical front, the stock of ALG has a support level of $0.544 and a resistance level of $0.876. We have valued the stock using a P/CF multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Event Hospitality and Entertainment Limited (ASX: EVT), Experience Co Limited (ASX: EXP) and Village Roadshow Limited (ASX: VRL). Considering the current trading levels, easing of operating restrictions, reduction in net debt, potential valuation upside and key risk associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.600, up by 0.840% as on December 22, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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