Stocks’ Details

Reliance Worldwide Corporation Limited

Strong Rise in Net Sales: Reliance Worldwide Corporation Limited (ASX: RWC) is a designer, manufacturer and supplier of water flow and control products and solutions for the plumbing industry. The market capitalisation of the company stood at ~A$2.61Bn as on 27^th August 2019. Recently, the company has released its results for the full year 2019, wherein it was mentioned that RWC has Leveraged expanded product portfolio throughout distribution channels. It was also added that Holdrite and John Guest products are enabling further growth beyond the core RWC product range. Despite the headwinds, which includes net higher raw materials costs, Australian housing construction downturn, no US freeze event and Brexit uncertainty, the company reported strong EPS growth.

In FY19, the company successfully delivered a new ERP system in the Asia Pacific. The company witnessed a rise of 43.5% to $1,104.0 Mn in net sales for the year ended 30 June 2019.

RWC reported EBITDA for the year amounting to $242.5 Mn, with a rise of 79.1% on the prior year.These increases reflect the first full year contribution from John Guest.

 
Net Sales Movement (Source: Company Reports)

What to Expect: For FY20, the company is planning the expansion of production in the USA and UK and the development of new product including HydoFlame. It is also planning a new ERP system for EMEA. It expects to achieve sales growth above that of the broader markets in which it operates. It added that the realised margin expansion in FY20 would be partly offset by investment in new product development and commercialisation. The company currently anticipates NPAT for FY20 in the range of $150 Mn -$165 Mn.

Stock Recommendation: RWC expects EBITDA in the ambit of $280 Mn to $305 Mn, which includes the effect of AASB16. The total dividends for the full year 2019 amounted to $71.1 Mn, being 9.0 cps. Hence, considering the above-stated facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$3.490 per share (up 5.758% on 27^th August 2019, owing to the release of FY19 results).
 

Bravura Solutions Limited

Key Takeaways from Results Presentation: Bravura Solutions Limited (ASX: BVS) provides software products and services to clients operating in the wealth management and funds administration industries. The company has a market capitalisation of ~A$1.09 Bn as on 27^th August 2019.  Recently, the company via a release dated 23^rd August 2019, announced that Mr. Brian Mitchell has retired as both Chairman and Non-executive Director of the Board, effective from 23 August 2019. Additionally, the company has appointed Mr. Neil Broekhuizen as Chairman, which also became effective from 23^rd August 2019. However, the Board of the company intends to commence a search to appoint a new Non-executive Director.

Recently, the company has published an investor presentation, wherein it highlighted its financial and operational performance for FY19. The company has entered into an agreement for acquiring Midwinter Financial Services for the consideration amounting to A$50 Mn. The acquisition would be financed by cash and is anticipated to be EPS accretive in the first year of ownership. It was stated that Funds Administration has maintained strong EBITDA margins of 40.0% in FY19 and achieved revenue growth of 22% on the back of increased implementation and project work arising throughout the client base.


FY19 Results Summary (Source: Company Reports)

Future Aspects: The company is well-placed to take advantage of favorable demand for its product portfolio throughout all markets. The company further stated that the acquisition of Midwinter Financial Services represents a strategic fit and growth opportunity. The company is expecting full-year 2020 NPAT growth to be in the mid-teens on the back of strong recurring revenue and new sales opportunities.

Stock Recommendation: In FY19, the company reported return on equity of 22% underpinned by its consistent and long-term investment in product development, deep market knowledge and expertise, sound business model. The company has declared an unfranked final dividend of 4.8 cents per share, with full-year dividends representing 70% of FY19 NPAT. Therefore, considering the above-stated facts and decent outlook and return on equity, we give a “Buy” recommendation on the stock at the current market price of A$4.800 per share (up 6.667% on 27^th August 2019).
 

Bellamy's Australia Limited

New Bellamy’s Branded Formulation-Series: Bellamy's Australia Limited (ASX: BAL) is a producer and distributor of branded food product with a market capitalisation of ~A$894.48 Mn as on 27^th August 2019. The company has recently updated the market that Fort Canning Investments Pte Ltd and each of the associate entities became a substantial holder of the company with a voting power of 6.94% since 24^th July 2019. In another update, the company announced that State Administration for Market Regulation (SAMR) had released a series of approvals, three of which relate to the approval of a new Bellamy’s branded formulation-series to be produced at the ViPlus Dairy facility in Toora, Victoria. The company clarified the market through the release dated 1^st May 2019 that ViPlus Dairy’s formula-series registration amendment has been approved by SAMR, but Bellamy’s organic formula-series application is pending. The following picture provides an overview of the company’s key financial numbers in 1H FY19:


Profit & loss (Source: Company Reports)

Future Priorities: The company is expecting full-year 2019 group revenue to be in the range of $275 Mn-$300 Mn. The group EBITDA margin has been revised to 18-22% on a normalised basis, reflecting increased investment in marketing and the China team. Additionally, the company is confident in the medium-term rebrand and portfolio opportunity.

Stock Recommendation: The current ratio of the company stood at 4.84x in 1H FY19 as compared to the industry median of 1.53x, which reflects that BAL is in a decent position to address its short-term obligations. Currently, the stock is trading below the average of 52 weeks high and low levels of $12.570 and $6.710, respectively with PE multiple of 31.69x. Hence, considering the above-stated facts and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$8.050 per share (up 2.028% on 27^th August 2019).
 

Cann Group Limited

Increasing Capacity of Mildura Facility:Cann Group Limited (ASX: CAN) is engaged into the cultivation of cannabis for medicinal and research purposes as well as manufacturing of medicinal cannabis products. The market capitalisation of the company stood at ~A$241.78 Mn as on 27^th August 2019. Recently, the company has updated the market with the full year 2019 results. The company recorded revenue from customers amounting to $2,347,668 in FY19 as compared to $560,000 in FY18. The company further stated that it is increasing the capacity of Mildura facility by 40%. It was also stated that the increased capacity is anticipated to generate annual revenues amounting to around $220 million to $280 million based on the current wholesale price of cannabis dry flower.


Revenue Summary (Source: Company Reports)

Future Prospects: The company is planning to progress construction & development of the Mildura facility.CAN is also planning the testing of export pathways with Aurora & commencement of exports under the offtake agreement. The company will continue progression towards the establishment of its third-party GMP product manufacturing capability with IDT, enabling the production of value-added formulations which can be supplied to Australian patients, and under the offtake agreement with Aurora.

Stock Recommendation: Coming to the stock’s performance, it delivered returns of -21.06% and -22.85% in the time period of one month and three months, respectively. As per ASX, the stock is trading below the average of 52 weeks high and low levels of $2.950 and $1.525, respectively. Hence, in view of above-stated parameters and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$1.890 per share. The stock was up 10.85% at market close on 27 August 2019, on account of a decent set of results for FY19.
 

Comparative Price Chart (Source: Thomson Reuters)  

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