Seven Group Holdings Limited

SVW Details

Seven Group Holdings Limited (ASX: SVW) is a diversified operating and investment company focused on businesses in industrial services, oil and gas, and media.

Result Performance – For the First Half Ended 30 December 2020 – (H1FY21)

• Trading Revenue stood at $2.4 billion, up 4.2% YoY, driven by revenue from Product sales that stood at $643.3 million in H1FY21 from $556.9 million in H1FY20, followed by revenue from Product support that stood at $1,240.7 million in H1FY21 versus $1,193.9 million in H1FY20.
• Underlying Earnings Before Interest and Tax stood at $396.1 million, up 23% on H2FY20 and down 5% YoY. WesTrac underlying EBIT growth of 14% on both H2FY20 and YoY. Coates underlying EBIT growth of 6% on H2FY20 and 1% YoY. Beach underlying EBIT down 54% YoY, impacted by lower realized oil prices (in Australian dollar).
• Underlying operating cash flow stood at $367 million, up 14% YoY.

Result Summary (Source: Company Reports)

Recent Updates:

• As per the release dated 28 July 2021, the company stated that it has received an acceptance to increase its interest in Boral Shares totaling to 61.87%.
  

Outlook:

The company has cemented its operating business and investments to capitalize on growing opportunities in its respective markets. As per the management, the industrial demand and activity are bettered and expected to continue their winning streak in FY21. WesTrac is outperforming with strong results in WA and is on schedule to realize FY21 high single-digit EBIT growth. However, Coates is expected to report low single-digit underlying EBIT growth on pcp basis. 

Key Risks:

The company is exposed to the risks associated with pandemics like COVID-19, which has impacted certain underlying markets, customers, supply-chain and negatively impacted macroeconomic conditions and commodity prices. The prices of oil and natural gas are volatile due to multiple factors, including global supply and demand, the level of economic activity in the markets that its energy investments. These factors, if turn unfavorable could negatively impact the business of the company accordingly. 

Valuation Methodology: Price/Earnings Per Share Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock of the company rose by ~11.61% in the past nine months and ~38.22% in one year. It has made a 52-week low and high of $16.90 and $24.50, respectively. We have valued the stock using a Price/Earnings Per Share (P/E) multiple-based illustrative relative valuation and have arrived at a target price with a correction of lower double-digit (in % terms).  The company might trade at a slight discount compared to the peer’s average, considering a longer cash conversion cycle at 179.2 days in H1FY21 versus Industry Median of 73.0 days and Higher Debt to Equity of 1.10x in H1FY21 versus Industry Median of 0.92x. For the said purpose, peers such as CIMIC Group Ltd. (ASX: CIM), Southern Cross Electrical Engineering Ltd. (ASX: SXE), SRG Global Ltd. (ASX: SRG), to name a few have been considered. Given the positive gains in stock prices, downside valuation potential, and risks associated with the business, we recommend investors to book profit and give a “Sell” rating on the stock at the current market price of $24.120, down by ~0.864% on 11 August 2021.

SVW 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 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.

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