Southern Cross Media Group Limited

SXL Details

Southern Cross Media Group Limited (ASX: SXL) is involved in the making of audio content for distribution on broadcast (AM, FM, and DAB radio) and digital networks. It also broadcasts free-to-air television content in regional markets.

1HFY22 Highlights:

• For the half-year ended 31^st December 2021, the company recorded an increase of 0.2% on pcp basis in its revenue to $259.8 million. Audio revenue grew by 11.5%, whereas Television revenue was on lower side due to affiliation change.
• Even after a fell of $5.9 million in expenses, EBITDA for the half-year fell by 36.0% to $48.2 million, versus $75.3 million in 1HFY21.
• The company declared a fully franked interim dividend of 4.5 cents per share, with an NPAT of $16.8 million (48.3% fall on pcp basis). With a net debt of $68 million, the company closed 1HFY22 ending 31^st December 2021 with a cash balance of $60.4 million.

Cash Balance Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Stiff Competition: The company’s operational and financial health could be impacted by the rising market share of its peers in the industry in which it operates.
• Technology Risk: The company is exposed to a risk arising from the extreme change in technology, which could change the way of doing business.
• New Products: SXL’s business could also be impacted by the entry of new products in the market, which are more compelling than Linear Radio.

Outlook: The company’s January audio revenue was up by ~3%, which makes company positive about its February and March revenue. On the other hand, Television revenue is expected to be similar as 1H. it anticipates its non-revenue costs to be ~$300 - $305 million and capital expenditure costs to reduce from ~$35 million to ~$30 million for FY22. With an anticipated reduction in cash interest costs from ~$7.9 million in FY21 to ~$3.5 million in FY22, total financing costs is expected to be ~$16 million in FY22 versus ~$21.8 million in FY21.

Valuation Methodology: P/E 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: The stock of SXL is currently trading near its 52-week low of $1.700. The stock has been corrected by ~5.05% and ~9.84% in the past one and three months, respectively. The stock has been valued using a P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 Led uncertainties and minimal rise in top-line, etc.  For the purpose of valuation, peers such as Nine Entertainment Co Holdings Ltd (ASX: NEC), HT&E Ltd (ASX: HT1), and PRT Company Ltd (ASX: PRT) have been considered. Considering the expected upside in valuation, lower debt levels, rising gross margin, growing audience, optimistic long-term outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing market price of $1.740, down by ~3.334%, as on 2 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

SXL Daily Technical Chart, Data Source: REFINITIV 

COSOL Limited

COS Details

1HFY22 Results: COSOL Limited (ASX: COS) is an asset management company in Australia and provides software and services to the clients operating in asset intensive industries. 

• Revenue: With an increase of ~44% Y-o-Y on group revenue to ~$22.6 million, the company’s EBITDA margin recorded as ~16%.
• NPAT: The company reported ~41% Y-o-Y growth in NPAT, which came in at ~$2.6 million for 1HFY22.
• Cash Position: The group recorded positive cash flow from operating activities with an increase in cash receipts from customers to ~$24.93 million in 1HFY22. The accounts were closed with a cash balance of ~$5.65 million versus ~$9.364 million (including client advances) on pcp.
  

Cash Balance Highlights; (Analysis by Kalkine Group)

Key Risks: The company might face the risk of volatility and uncertainty due to changing customer’s preferences and high competition in the market, followed by COVID-19 headwinds.

Outlook: With an expectation of strong growth in 2HFY22, the company focusses on expanding in North America, growing presence in Hitachi Ellipse market, growing IP revenue, and prospective acquisitions.

Stock Recommendation: The stock of COS has given a negative return of ~11.72% in the past nine months and is trading below the average of its 52-weeks’ low and high levels of ~$0.550 to ~$0.780, respectively. In addition, the stock is trading at a P/E multiple of 18.5x as compared to the industry mean (Professional & Commercial Services) of 24.5x on a TTM basis. Thus, it seems that the stock is undervalued at the current trading levels. Considering the valuation on TTM basis, anticipation of growth in FY22 & FY23, decent liquidity position, increasing gross margins, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.640, up by ~3.225%, as of 2^nd March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

COS 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 for 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 is 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 the 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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