Service Stream Limited

SSM Details

Completion of Entitlement Offer: Service Stream Limited (ASX: SSM) is an essential network services firm that offers integrated end-to-end asset life cycle services across essential infrastructure networks within the Utilities and Telecommunication sectors.

• On 12 August 2021, the company completed its previously announced 1 for 3 pro-rata augmented non-renounceable retail component entitlement offer of new shares in Service Stream (New Shares).
• The company has raised $185 million via an Entitlement Offer (consisting of an institutional and a retail component) and share placement.
• Under the retail entitlement offer, SSM raised ~55 million shares, which was closed on 9 August 2021.

Purchase of Lendlease’ Services Business: On 21 July 2021, SSM signed an agreement with Lendlease Group to acquire its Services business for $310 million. The deal will be finalized upon the close of CY21. SSM believes the acquisition will lead to the expansion of its service offerings and scale of operations. 

FY21 Key Results Highlights: As per the company’s unaudited FY21 results, revenues declined by 13.4% on pcp, owing to lower Telco segment revenues and reduced activation and assurance volumes. In FY21, EBITDA from operations went down by 25.7% on pcp. The combined entity with the Lendlease Services generated ~$1.597 billion of revenue (Pro-forma) and ~$137.2 million reported EBITDA (Pro-forma) in FY21.

Adjusted NPAT Highlight (Analysis by Kalkine Group) 

Key Risks: The company is exposed to the risk of the COVID-19 pandemic as it may result in elevated restriction of workforce movement, and reduction in demand from the company’s customers, which could impact SSM’s operations.

Outlook: SSM is advancing well on multiple business development opportunities in the telecom sector for its fixed-line and wireless telecommunications infrastructure. The company remains well placed with a balanced and stable portfolio of long-term contracts. The acquisition of Lendlease Services is expected to deliver robust EPS accretion of ~30% on FY22 pro forma basis.

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 moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: As per ASX, the stock of SSM is trading below its average 52-weeks’ levels of $0.817-$2.431.   The stock of SSM gave a negative return of ~46.98% in the past six months. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount to its peers’ average, considering declining top and bottom line, lower revenues from Telco segment & reduced activation and assurance volumes. For the purpose of valuation, peers like TPG Telecom Ltd (ASX: TPG), Telstra Corporation Ltd (ASX: TLS), and Hubify Ltd (ASX: HFY) have been considered. Considering the expected upside in valuation and current trading levels, synergies from Lendlease Services acquisition, robust contract pipeline, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.890, down by ~0.559% as on 23 August 2021.

SSM Daily Technical Chart, Data Source: REFINITIV

Event Hospitality & Entertainment Limited

EVT Details

Key Financial Highlights for FY21: 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 Decline in Top-line: The company reported total revenues of $692.45 million in FY21, down 32.8% year over year, due to COVID-19 restrictions.
• Bottom-Line Details: The company made a loss of $48.04 million during the year, against a loss of $56.98 million in FY20.
• A Decline in Normalised EBITDA: The company achieved a positive normalised EBITDA of $27.2 million in FY21, down from $96.55 million in FY20.
• Segmental Revenues: In FY21, the company reported $33.45 million in revenues from the Hotels & Resorts division, down from $61.02 million reported in the year-ago period.
• Balance Sheet Details: EVT had total bank debt outstanding of $476.43 million and a cash balance of ~$120.98 million as on 30 June 2021.
  

FY21 Revenue Growth (Analysis by Kalkine Group)

Key Risks: The company is exposed to property market condition risk, which might have an adverse impact on the company’s earnings. Also, disruption to corporate and international inbound travel as a result of COVID-19, increasing competition in the hotel industry, shortage of staffing and skills due to international border closures adds to the woes.

Outlook: The company remains on track to grow its existing revenue, with enhanced sales models and structures, product innovation and divestment of non-core assets. The company also expects a quick rebound post the upliftment of the restrictions. For FY22, the company anticipates having a robust line-up of blockbuster titles. Further, EVT expects debt to remain relatively consistent with current levels, with potential for further reduction from proceeds of non-core property sales.

Stock Recommendation: The stock of EVT gave a positive return of ~15.82% in the past six months. The stock is currently trading higher than the 52-weeks’ average price level band of $7.76 - $13.49. The stock has a support level of $11.2 and a resistance level of $14.19. On a TTM basis, the stock of EVT is trading at an EV/Sales multiple of 6.7x, lower than the industry (Hotels & Entertainment Services) average of 7.5x, thus seems under-valued. Considering the valuation on a TTM basis, rebound post the restriction upliftment, decrease in losses, and decent balance sheet position, we give a ‘Hold’ rating on the stock at the current market price of $13.250, up by ~6.169% as on 23 August 2021.

EVT 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.