Helloworld Travel Limited

HLO Details

Contract Extension with HLO QBT Pty Ltd: Helloworld Travel Limited (ASX: HLO) is a travel management service provider in Australia and New Zealand. Their services include retail travel networks, destination management, corporate travel management, wholesale travel, air ticket consolidation and online operations. On 19 May 2021, the Department of Finance extended their Travel Management Services contract with QBT Pty Ltd (a wholly-owned subsidiary of HLO) for the WoAG with a one-year tenure (1 July 2021 – 30 Jun 2022) which shall provide a sustainable revenue stream.

Key Financial Highlights of Q3FY21: The TTV results for Q3FY21 stood at ~$261.5 million, down by 79.6% relative to Q3FY20. Despite this hit, March 2021 recorded the highest TTV of ~$112.5 million in FY21 so far. Revenue for the period amounted to ~$15.0 million, down by 75.8% on a Y-o-Y basis. Underlying EBITDA loss increased to ~$4.4 million in Q3FY21 as compared to ~$2.7 million in Q2FY21. The unfavourable financial health was a result of lockdown in January and February 2021, higher overhead costs and redundancies, partially offset by open borders across Australia.

Quarterly Performance (Source: Company Reports)

Federal Government Backing for Consequential Industry Support: In December 2020 and March 2021, the government rolled out significant industry assistance packages totalling ~$258 million, which incorporated ~$130 million for independently owned travel agencies in Australia. Moreover, the Federal Government introduced 880,000 half-price ticket schemes to a range of destinations across Australia. The aforementioned government support shall enable HLO to sustain market disruptions during pandemic uncertainties.

Key Risks: HLO may expect to assume the considerable risk of lockdowns and closed borders due to any forthcoming wave of COVID-19. Furthermore, heavy competition in the tourism industry may drain significant market opportunities.

Outlook: HLO expects favourable TTV levels, considering the open state borders across Australia and the commencement of quarantine free trans-Tasman travel. For FY21, HLO anticipates a ~$1.0 billion TTV and an underlying EBITDA loss of ~$14.0 million to ~16.0 million. After the opening of Australia state borders, trans-Tasman bubble and other limited international bubbles reopening in the second half of 2021, HLO seeks underlying EBITDA loss of ~$1.0 million to ~$3.0 million in Q1FY22 and positive underlying EBITDA in Q2FY22.

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

Data Source: Refinitiv, Thomson Reuters, 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: Over the last month, the stock of HLO went down by ~19.08%. The stock made a 52-weeks’ low and high of $1.397 and $3.360, respectively. The stock has a support level of ~$1.305 and a resistance level of ~$2.685. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of an upside of high double-digit (in percentage terms). We believe that the company can trade at a modest discount as compared to its peer’s average considering high COVID-19 uncertainties and fierce competition. We have taken peers like Sealink Travel Group Ltd (ASX: SLK), Flight Centre Travel Group Ltd (ASX: FLT), Experience Co Ltd (ASX: EXP), to name a few.  Taking into account the current trading levels, increasing revenue expectations, rising industry support and securing government contracts, and associated key risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.675, down by ~3.180% as on 20 May 2021.

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

Ainsworth Game Technology Limited

AGI Details

Key Financial Highlights of H1FY21: Ainsworth Game Technology Limited (ASX: AGI) is involved in designing, developing, and manufacturing gaming machines, software, and related equipment. During H1FY21, revenue stood at ~$72.1mn, an increase of 71% relative to H2FY20 and a decline of 33% relative to H1FY20, wherein international sales contributed 73% of total revenue. During the period, loss after tax drastically increased to ~$50.1mn from ~$4.0mn in H1FY20. After adjusting for currency translation loss and one-off impairment charges of ~$19.1mn, positive adjusted EBITDA stood at ~$5.8mn against ~$19.1mn in H1FY20. The notable decay in financial performance resulted from the closure of customers’ venues, lockdown restrictions and deferred capital expenditure commitments resulting from the COVID-19 scenario. In addition, one-off impairment charges of ~$29.2mn and currency transaction loss of ~$13.4mn lead to aggravated losses.

Profit & Loss Summary (Source: Company Reports)

Key Risks: AGI is exposed to high credit risk. On 31 December 2020, AGI recognized impairment losses of ~$6.05 million, predominantly related to expected credit losses. Considering the rising revenue dependency on international operations and relatively strong AUD levels, AGI may assume high currency risk. Moreover, the COVID-19 situation may inherent uncertainties.

Outlook: AGI expects PBT of ~$1 million and EBITDA of ~$13.2 million in H2FY21, after adjusting for non-recurring charges. In March 2021, AGI will recognize sales revenue of ~$3.3 million from the sale of a surplus parcel of land. As per the 18 May 2021 announcement, AGI went into an exclusive agreement, commencing on 1 July 2021, with GAN Limited to license Ainsworth online real money games in the US and supply GAN Limited with exclusive online rights of 79 unique slots. AGI expects to receive ~$10 million in cash in H1FY22 and ~$20 million overtime with the agreement in place. AGI’s diversification approach via international operations will leverage its growing product portfolio to boost Free Cash Flow in forthcoming years. However, COVID-19 poses an exponential business risk for AGI.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

Stock Recommendation: Over the last month, the AGI stock went up by ~30.28%. The stock made a 52-weeks’ low and high of $0.275 and $1.175, respectively. The stock has a support level of ~$0.764 and a resistance level of ~$0.984. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of an upside of high single-digit (in percentage terms). We believe that the company can trade at a marginal discount as compared to its peer’s average, considering its credit risk exposure, currency risk due to international operations and COVID-19 pandemic disruptions caused in hotels, resorts and casinos. We have taken peers like Star Entertainment Group Ltd (ASX: SGR), Aristocrat Leisure Ltd (ASX: ALL), Mighty Craft Ltd (ASX: MCL), to name a few.  Considering the current trading levels, increasing cash-generating avenues and international diversification, partially offset by high credit risk, currency risk and associated risks of the COVID-19 situation, we give a ‘Hold’ rating on the stock at the current market price of $0.925, up by ~3.93% as on 20 May 2021.

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

Note: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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