Finbar Group Limited

FRI Details

Change of Directors Interest: Finbar Group Limited (ASX: FRI) is an apartment development company mainly involved in investment in properties and their development, including medium-high density buildings. On 1 December 2021, one of the company’s Directors, Mr. Ronald Chan, acquired 18,185 ordinary shares of the company at a total consideration of $14,184.30 via on-market purchase.

Received Approval for Garden Towers JV Project: On 29 November 2021, FRI notified that it has received Development Approval for its proposed Garden Towers joint venture apartment development on the eastern edge of the Perth CBD. Its construction is expected to be commenced on at the end of CY2022.

FY21 Result Highlights:

• Improved Profitability: For the year ended 30 June 2021 (FY21), FRI reported a profit after tax of $8.86 million, represents an increase of 25% compared with the previous year’s profit after tax of $7.06 million.
• Dividend Update: For H2FY21, the company has paid a final dividend of $0.02 per share, taking the full year dividend to $0.04 per share, fully franked.
• Improved Cash Balance: As at 30 June 2021, the company has cash of $52.6 million, up from $30.6 million as at 30 June 2020.

Profit After Tax Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to the downturn in the Real Estate segment due to COVID-19 pandemic. The company is vulnerable to the risks associated with the business cycle, which the company tries to mitigate by adding new properties and reach economies of scale and thereby spreading the risk.

Outlook: In FY22, the company expects to commence construction at both Aurora in Applecross and The Point in Rivervale. Further, the company seems well positioned to fund all of its continued capital commitments for the Civic Heart in South Perth and AT238 in Perth.

Stock Recommendation: At CMP of $0.785, the company’s annual dividend yield stood at 5.03%. Over the last six months, the stock has corrected by 10.05% and is trading lower than the average 52-week price level band of $0.75- $0.96. On a TTM basis, the stock is trading at a price to book multiple of 0.9, lower than the industry median (real estate operations) of 1.1x, demonstrating that the stock might be undervalued. Considering the company’s decent results in FY21, improving cash balance, recently received approval for Garden Towers JV Project, modest outlook, current trading level, valuation on TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.785, down by 1.285% as on 5 January 2022.

FRI Daily Technical Chart, Data Source: REFINITIV

Chorus Limited

CNU Details

New Fibre Regulatory Regime Update: Chorus Limited (ASX: CNU) is New Zealand’s leading telecommunications infrastructure company that provides wholesale access to its network. On 16 December 2021, the company notified that the Commerce Commission has determined a regulated asset base of $5.425 billion, compared to $5.427 billion in its August draft decision. Further, the Commission has determined a maximum allowable revenue (MAR) of $690.2 million to $789.5 million (nominal) for the first regulatory period for fibre (RP1, 2022- 2024) with total revenue of $2.227 billion.

2021 AGM Highlights: On 27 October 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that the regulatory outcomes in FY21 have been a poor advertisement for investment in the future public-private partnerships. Some of the key points highlighted at the AGM are as follows:

• FY21 Results: Due to COVID-19 effects on the broadband market and competition from alternative networks, the company’s revenue for FY21 declined by NZ$12 million to NZ$947 million. The company witnessed a modest increase in EBITDA, which was up NZ$1 million to NZ$649 million in FY21.
• Dividend Update: For H2FY21, the company has paid a final dividend of NZ 14.5 cents per share, fully imputed, bringing total dividends for FY21 to NZ 25 cents per share.
• Trading Update: In the first quarter of FY22, the number of fibre connections on the company’s network increased by 23,000 to 894,000, reflecting strong performance despite the impact of alert level 4 and then 3 in significant parts of New Zealand.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to COVID-19 pandemic, as it could impact the overall broadband market. Further, the company is exposed to the risks related to the competition from alternative networks.

Outlook: In the recently held UBS Australasia Conference, the company confirmed that it is on track for its target of 1 million fibre connections in 2022. The company is focused on winning in its core fibre business, optimising its non-fibre assets, growing new revenues, and developing the long-term future of its business. The company will release its H1FY22 results on 21 February 2022.

Valuation Methodology: EV/EBITDA 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

Stock Recommendation: In the last six months, the stock has provided a return of 14.67%. The stock has 52- week high and low price of $8.295 - $5.570, respectively. The stock has a support level of ~$6.62 and resistance of ~$6.92. The stock has been valued using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainty surrounding the COVID-19 pandemic and regulatory changes, etc. For the valuation, peers such as Spirit Technology Solutions Ltd (ASX: ST1), Spark New Zealand Ltd (ASX: SPK), TPG Telecom Ltd (ASX: TPG), and other have been considered. Considering the company’s decent stock price performance in the last six months, indicative downside in valuation and uncertainty surrounding the COVID-19 pandemic and regulatory outcomes, we suggest investor to book profit and give a “Sell” rating on the stock at the current market price of $6.88, as on 5 January 2022, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

CNU 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.

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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