Stocks’ Details

BWX Limited

Overvalued at the Current Juncture:BWX Limited (ASX: BWX) is a vertically integrated beauty and personal care production and distribution company. The market capitalisation of the company stood at ~$575.28 million as on 21^st November 2019.

In FY19, the company reported net revenue of $149.5 million, with momentum in the US business a stand-out driver. In the second half of FY19, the company saw 19.5% of sales growth against the backdrop of delivering targeted stock levels in markets and channels.The company reported underlying EBITDA amounting to $21.3 million, which was supported by a strong performance in the second half, that doubled to $14.2 million as compared to $7.1 million in the first half. The company has improved its balance sheet and completed refinancing on improved terms while ensuring flexibility for growth. BWX increased its gross margins by 120 bps in the second half and expects the margins to expand further in FY20.


FY 2019 Results Highlights (Source: Company Reports)

Guidance for FY20: The company reaffirms its FY20 guidance, which was provided by the company in August. The company will continue to invest in brand building, process improvement, capability and innovation to support 20% to 25% revenue growth and 25% to 35% EBITDA growth in FY20.

Stock Recommendation: The company has ~124.25 million shares outstanding with the market capitalisation of ~$575.28 million and a beta of 1.81x (5Y Monthly). On TTM basis, it reported a higher EV/EBITDA of 25.2x and P/E of 60.13x as compared to the industry (Personal & Household Products & Services) median of 9.8x and 18.5x, respectively, showing that the stock isovervalued. As per ASX, the stock has gained 183.18% and 97.02% in the past six months and three months, respectively. Currently, the stock is trading near to its 52-week high levels of $4.70. Hence, considering the substantial gains in the past 6 months, decent results and higher valuations, we are of the view that most of the positives are factored in at the current juncture. Hence, we suggest investors to book profit and recommend a “Sell” rating on the stock at the current market price of $4.440 per share, down by 4.104% on 21st November 2019.
 

Select Harvests Limited

1HFY19 Financial Overview:Select Harvests Limited (ASX: SHV) is engaged in the business of growing, processing, packaging and marketing of almonds from owned orchards and investor owned orchards, and the processing, packaging and marketing of nuts, fruit based, and associated products to the Australian retail and industrial markets. The market capitalisation of the company stood at ~$704.62 million on 21^st November 2019.

In 1HFY19, the company reported almond volume of 22,200 to 22,500 MT, which were up by 41.4% to 43.3%. The growth in volumes were due to maturity profile, which continues to deliver underlying volume growth. Almond prices also saw an increase of 6.8% to 8.1% to $8.60/kg to $8.70/kg.

EPS of the company increased by 81% to 21 cps and it also declared an interim dividend of 12 cents per share, fully franked.Annualised ROCE increased by 5 ppts to 12.4%. This improvement in ROCE was witnessed as orchards mature and start yielding with improved efficiency.
 

1HFY19 Financial Overview (Source: Company Reports)

Crop Update for 2019: Mr Paul Thompson, Managing Director, has announced that the 2019 yields are above the industry standard and exceed the previous forecast.The continuous improvement in the SHV’s almond yields shows the benefit of the ongoing focus on high-performance horticultural programs. With 95% of the crop now processed the company is forecasting a crop volume of 22,200 -22,500 MT. The remaining 5% represents the tail end of the crop, which is generally of lower yield and poorer quality.

Future of the Company: The company’s tree health is excellent, and they have more volume coming on stream from its greenfield orchards at the same time almond pricing remains firm.Work has started on the 2020 crop horticultural program where the company aims to continue to achieve yields above the industry average at a lower cost per kg. SHV will continue to concentrate on bringing new products to market in the Food Division and further grow its industrial customer base.

Stock Recommendation: As per the ASX, the stock is trading higher than the average of 52-week high-low levels. The stock is trading at a P/E ratio of 20.390x. It is trading at an EV/EBITDA multiple of 8.8x on TTM basis, which is below the industry (consumer non-cyclicals) average of 31.8x. The company is going to announce its full year result on 29^th November 2019. Therefore, we advise investors to keep a close eye on this event and its outcome, as it might contain some important financial information in the form of outlook and current trading scenario of the business.Based on its current trading position, valuation and upcoming event, we have a wait and watch stance on the stock at the current market price of $7.390 per share, up 0.408% on 21^st November 2019.
 

Asaleo Care Limited

Highlights of 1HFY19 Results:Asaleo Care Limited (ASX: AHY) is a leading personal care and hygiene company that manufactures, markets, distributes and sells personal care and hygiene products throughout Australia, New Zealand and the Pacific Islands.  The market capitalisation of the company stood at ~$526.83 million on 21^st November 2019.

The company reported underlying EBITDA of $39.4 million from continuing operations and a statutory NPAT of $7.3m in 1HFY19.The company’s performance for 1HFY19 was as per the expectations, and it successfully finished the sale of the Consumer Tissue Australia business. The money from sale of asset was mainly used to reduce debt to make a strong and healthy balance sheet, which will allow it to invest in the higher margins and higher growth brands.


Key Financials (Source: Company Reports)

Outlook for Remaining FY19: The company’s outlook for remaining of FY19 remains unchanged with continuing operations underlying EBITDA forecast to be in the range of $80 - $85 million. The company anticipates seeing some benefits of continued easing in pulp prices, partially offset by the softer Australian dollar. Full-year free cashflow is expected to be minimal after unwinding FY18 tactical working capital initiatives and investment in strategic capex.
Stock Recommendation: As per the ASX, the stock is trading near to its 52-week high levels with EV/Sales multiple of 1.7x on TTM basis, which is below the industry (personal and household products and services) average of 4.6x on TTM basis. The company’s strategy to drive growth is focused towards becoming leader in the personal care and hygiene in Australasia by deploying towards the brands and putting the needs of the customers and consumers first. The stock is quoting at a price to earnings multiple of 3,233.33x. Considering that the company has made payments towards its debt, there are expectations that the company’s balance sheet might be stabilised. Thus, we recommend a “Hold” rating on the stock at the current market price of $0.965 per share, down by 0.515% on 21^st November 2019.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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