GrainCorp Limited 

GNC Details

Focusing on Enhancing Return on Invested Capital: GrainCorp Limited (ASX: GNC) provides a range of products and services across the food and beverage supply chain. It operates through three segments: Grains, Malt and Oils. GNC is planning to leverage its core assets to generate an additional $25mn in annualized EBITDA by 2023-24. GNC is likely to optimize its port capacity with other commodities such as woodchips, fertilizer, and cement. GNC expects an improvement of $240mn in its EBITDA by 2023-24 with the completion of international expansion in 2HFY21. GNC is focused on network rationalization, operational improvements, and the establishment of the Crop Production Contract to reduce earnings variability.

Dividend Declaration: GNC has announced an interim dividend of $0.0800 for its shareholders. The ex-date for the dividend will be on 7 July 2021, and the payment date will be on 22 July 2021. 

1HFY21 Financial Highlights: GNC has reported an increase in revenue to $2,563.4mn in 1HFY21 against $1,959.1mn in 1HFY20. The company has reported a decline in its profit to $50.5mn in 1HFY21 against $77.8mn in 1HFY20. The company has seen an increase in its cash and cash equivalent position to $130.8mn as on 31 March 2021 against $124.7mn as on 30 September 2020.

Cash Position (Source: Company Reports)

Key Risks: GNC is mainly engaged in agribusiness and source raw materials from many countries. Any disruption in the supply chain will lead to a decline in sales for the business and may impact the profitability of the company. Moreover, the company holds interest-bearing liabilities. Thus, changes in interest rate may directly affect profitability.

Outlook: GNC has provided its guidance for full-year FY21. Post 1HFY21 results, the company has upgraded its Underlying EBITDA guidance in a range of $255-$285mn and Underlying NPAT in a range of $80-$105 mn, from its previous guidance in a range of $230-$270mn and $60-$85 mn, respectively. Due to higher demand for Australian grain and oilseeds, the earnings guidance has been upgraded. The company is expecting a positive winter crop in FY22, considering soil moisture and a positive rainfall outlook in many parts of the East Coast of Australia. 

Valuation Methodology: EV/Sales based Relative Valuation Method (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: The stock of GNC gave positive returns of ~1.49% in the last one month and ~15.29% in the last three months. The current market capitalisation of GNC stands at ~$1.18bn as of 13 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$3.130-~$5.590. On the technical analysis front, the stock has a support level of ~$4.910 and a resistance of ~$5.597. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the stock might trade at a premium as compared to its peer median EV/Sales (NTM Trading multiple), considering an increase in dividend and increase in revenue in 1HFY21. For this purpose, we have taken peers such as Metcash Ltd (ASX: MTS), Ridley Corporation Ltd (ASX: RIC), Coles Group Ltd (ASX: COL). Considering an increase in cash and cash equivalents as of 31 March 2021, growth strategies, upward revision in earnings outlook and valuation, we recommend a “Hold” rating on the stock at the current market price of $5.430, up by ~5.232% as on 13 May 2021.

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

The Food Revolution Group Limited

FOD Details

An Update on 3QFY21 Activities: The Food Revolution Group Limited (ASX: FOD) has reported a 14% YoY increase in its gross sales revenue to $10mn in 3QFY21. The company has reported cash receipts of $7.8mn during Q3FY21. FOD has reported an un-audited EBITDA of $284k in Q3FY21 against a loss of $697k in the last year. Original Juice Co and FOD fresh juice has delivered a growth of 25.9% in major supermarkets in Australia. The company has reported sales revenue growth of 14% year-to-date. 

1HFY21 Financial Highlights: FOD has registered an increase in its revenue to ~$18.24mn in 1HFY21 against ~$14.98mn in 1HFY20. The company has posted a profit of $32,022 in 1HFY21 against a loss of ~$1.78mn in 1HFY20. The company has broadly maintained a cash and cash equivalents position to $2.936mn as of 31 December 2020.

Revenue & Profit (Source: Company Reports)

Key Risks: The company holds interest-bearing liabilities. Changes in interest rate may affect the profitability of the company. FOD is mainly engaged in retailing of food products; any disruption in supply chain will lead to a decline in sales for the business.

Outlook: FOD has the potential to enhance its portfolio for Original Juice Co and Juice Lab and deliver higher growth in future, as seen in Q3FY21. The company is focusing on optimizing its operations through cost reduction and increasing production to meet the higher demand for its products. 

Stock Recommendation: The stock of FOD gave negative returns of ~6.06% in the last one month and ~8.82% in the last three months. The current market capitalization of FOD stands at ~$28.40mn as of 13 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.025-~$0.060. On the technical analysis front, the stock has a support level of ~$0.025 and resistance of ~$0.037. On a TTM basis, the stock of FOD is trading at an EV/Sales multiple of 1.1x, lower than the industry median (Food & Tobacco) of 1.4x. Considering the increase in top-line in 1HFY21 and profits in the same period as against losses in previous corresponding period, growth across its brands, associated risks with the business, and valuation on a TTM basis, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.031, up by ~3.333% as on 13 May 2021.

FOD 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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