Metcash Limited

MTS Details

H1FY21 Financial Highlights: Metcash Limited (ASX: MTS) is a wholesaler to independent retailers in the food, grocery, liquor, hardware & automotive industries. The market capitalisation of the MTS stood at ~$3.76 billion as on 30 March 2021. During the period, the company’s total revenue increased 12.2% year over year and stood at $7.1 billion. The rise in revenues was on the back of higher sales growth in the Food and Liquor pillars, along with higher Hardware sales. Underlying EBIT stood at $203 million, representing an increase of 30.4%, primarily due to significant growth in sales volumes across all Pillars. Underlying profit after tax came increased 43% on pcp to $129.6 million. The company paid an interim dividend of 8 cents per share during the period (fully franked). Operating cash inflow for the period stood at $314.9 million, with cash realisation ratio of 151.8%.

Key Highlights (Source: Company Reports)

Change in Director’s Interest: Recently, the company announced that Helen Elizabeth Craig Nash, a director of the company, has acquired 13,758 fully paid ordinary shares for a consideration of $3.63 per share.

What to Expect: Metcash Limited expects construction activity to be supported by population growth as well as undersupply of housing. The company remains on track with decent growth in sales in the first five-week of the period and expects the same to continue in 2HFY21. The company’s food sales grew by 2.4% in the first five weeks of 2HFY21, and the supermarket sales up by 12.1%. The company has increased its target dividend payout ratio to 70% of underlying profit after tax from 60%, effective from FY21.

Valuation Methodology: P/E 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:  The company reported a decent net cash position of ~$172.5 million at the end of 1HFY21. As per ASX, the stock of MTS is trading close to its 52-weeks’ high level of $3.77. The stock of MTS gave a positive return of ~34.4% in the past nine months and a positive return of ~30.5% in the past six months. On a technical analysis front, the stock of MTS has a support level of ~$3.35 and a resistance level of ~$3.769. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a correction of mid-single-digit (in % terms). We believe that the company might trade at a slight discount to its peer median, considering the negative impact of the prior supply deal to 7-Eleven, negative impact of bushfires in 2H20 and stringent government policies. For the purpose, we have taken peers such as Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), to name a few. Considering the current high trading levels, recent rally in the stock price, market volatility, and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $3.66, down by 0.544% as on March 30, 2021.

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

People Infrastructure Ltd

PPE Details

PPE to Acquire SwingShift Nurses business: People Infrastructure Ltd (ASX: PPE) is involved in workforce management and staffing solutions. The market capitalisation of the company stood at ~$334.29 million as on 30 March 2021. On 15 March 2021, the company announced that it has inked a deal to buy SwingShift Nurses business (“the Business”), for a purchase consideration of $3.1 million payable in cash. The acquisition will be financed by PPE’s existing cash reserves. The buyout is projected to be earnings accretive. Post its completion, PPE expects the SwingShift Nurses business to produce ~$1 million in EBITDA in the 12 months period. 

1HFY21 Key Highlights:  During the period, the company reported revenue and EBITDA amounting to $200.96 million and $20.99 million, reflecting a rise of 3.1% and 49.3%, respectively. Normalised NPATA for the period amounted to $13.67 million, depicting a growth of 51.5%. The growth in the company’s financial performance indicated continued demand for staffing services in the sectors in which PPE operates.

1HFY21 Key Financials (Source: Company Reports)

Outlook: The company expects FY21 earnings guidance of Normalised EBTIDA to be in the range of $35 million to $37 million, subject to market conditions. Further, for 2HFY21, normalised EBITDA is expected to be in the range of $14 million to $16 million.

Valuation Methodology: P/E 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:  The company has informed the market that it has declared a dividend of AUD 0.045, on 24 March 2021, with an ex-date of March 4, 2021, and a payment date of March 31, 2021. As per ASX, the stock of PPE is trading close to its 52-weeks’ high level of $3.91. The stock of PPE gave a positive return of ~79.5% in the past nine months and a positive return of ~13.96% in the past one month. On a technical analysis front, the stock of PPE has a support level of ~$3.202 and a resistance level of ~$3.673. We have valued the stock using a P/E multiple-based illustrative relative valuation and have arrived at a correction of low single-digit (in % terms). We believe that the company might trade at a slight discount to its peer median, considering the decline in cash balance, lower margins, integration risk and, increase in competition. For the purpose, we have taken peers such as Mcmillan Shakespeare Ltd (ASX: MMS), Seek Ltd (ASX: SEK), to name a few. Considering the current high trading levels, recent rally in the stock price, reduction in the cash level of the company and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $3.50, down by 3.315% as on March 30, 2021.

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

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