Telstra Corporation Limited

TLS Details

Improving Balance Sheet Through Monetization: Telstra Corporation Limited (ASX: TLS) is a telecommunications and technology company. Its principal activity is to provide telecommunications and information services for domestic and international customers. TLS is exceeding its target of monetizing up to $2bn worth of assets, thereby strengthening its balance sheet. In doing so, the company has sold Velocity and South Brisbane Exchange FTTP networks and also undertaken necessary steps for sale and lease back of the Pitt Street Exchange property.

Consistent Progress on Productivity: TLS is continuously making progress towards its high productivity target. By reducing their underlying fixed costs by 7% ($201mn) during the 1HFY21, TLS increased its productivity targets to $450mn for FY21 and from $2.5bn to $2.7bn by the end of FY22. The company has already delivered a $2bn productivity target under the programme. 

Profit Distribution to the Investors: TLS has announced an interim dividend of $0.080 to its investors. For the purpose, TLS has decided 24 February 2021 as Ex-Date and 26 March 2021 as Payment Date. Further, the company expects to pay 16cps for FY21. TLS also announced to have complete ownership of its bricks and mortar branded retail stores across Australia. TLS has posted a total income of $12.0 bn in 1HFY21, a decline of 10.4% YoY, EBITDA declined by 14.7% YoY to $4.1bn, and NPAT declined by 2.2% YoY to $1.1bn during 1HFY21.

Underlying EBITDA growth and guidance (Source: Company Reports) 

Outlook: As per the company reports, TLS has given guidance on its underlying EBITDA. The company is expecting an Underlying EBITDA in a range of $3.3-$3.6bn for 2HFY21. The company is expecting to post an underlying EBITDA in a range of $7.5-$8.5bn by the end of FY23 as compared with $6.6-$6.9bn in FY21.

Valuation Methodology: EV/Sales 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: In the last one month, TLS has increased by 0.45% and by 1.42% in the last three months. The stock is currently trading below the average 52-weeks’ price level range of $2.66-$3.59. On the technical analysis front, the stock has a support level of ~$2.967 and a resistance of ~$3.291. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering its improving balance sheet, progress with productivity, and encouraging long-term outlook. For the purpose, we have taken peers like TPG Telecom Ltd (ASX: TPG), Vocus Group Ltd (ASX: VOC), to name few. Considering a positive outlook on EBITDA, dividend distribution, increasing ROE, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $3.08, down by ~2.84% as on 26 February 2021.

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

Medibank Private Limited

MPL Details

Robust 1HFY21 Results: Medibank Private Ltd (ASX: MPL) is an Australia-based healthcare company. The company provides private health insurance and health solutions. Its segments include Health Insurance and Medibank Health. MPL has posted an operating profit of $255.2mn during 1HFY21, an increase of 16.6% YoY and registered a NPAT of $226.4mn, increased by 26.8% YoY compared with $178.6mn in 1HFY20. Operating margins were improved by 90 bps and came in at 7.7%. MPL has registered a $71.8mn net investment income in 1HFY21, an increase of 86.5% YoY from $38.5mn.

Growth in Policyholders: As per the company report, growth in low premium policies and returning Australians are driving growth for PHI industry. MPL has registered a turnaround in hospital participation with growth of 26bps to 43.86% over the last 6 months. MPL has registered strong growth in digital acquisitions, which accounted for 32% of joins compared to 22% in 1HFY20. Due to expansion in offerings for its products and services, the company has witnessed growth across its brands. Further, ongoing uplift in Service NPS and Customer NPS were reflected due to an improvement in service quality.  

Policyholder Growth (Source: Company Reports)

Strategic Investment in Myhealth: On 5 February 2021, MPL has announced that it will acquire a non-controlling stake of 33.4% in Myhealth Medical Group for a total consideration of $63mn. The acquisition would help MPL to expand its reach across Australia as Myhealth has 86 clinics across the same region. With such investments, MPL would be able to add a workforce of key professionals as Myhealth has got more than 1300 health professionals. 

Outlook: As per the company reports, MPL is expecting growth in its market share and to achieve more than 3% growth in the number of policyholders. MPL has a productivity target of $20mn with additional productivity planned of $30mn during FY22-23. Dividend payout ratio is expected to be at a higher range of 75%-85%.

Valuation Methodology: P/B Based Market Multiple 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: In the last one month, MPL has decreased by 5.74% and by 3.46% during the last three months on ASX. The stock is currently trading slightly below its 52-weeks’ price level range of $2.45-$3.13. On the technical analysis front, the stock has a support level of ~$2.62 and a resistance of ~$2.93. We have valued the stock using a P/BV multiple based illustrative market multiple valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium as compared to its 5-year average P/BV multiple, considering a robust financial performance and growth in policyholders. Considering the increase in policyholders, robust 1HFY21 results, valuation, decent long-term outlook, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $2.77 as on 26 February 2021.

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

SSR Mining Inc.

SSR Details

FY20 Results Announced: SSR Mining Inc. (ASX: SSR) is an explorer, miner, and producer of gold with assets and operations in the USA, Turkey, and Canada. It operates Marigold mine, Çopler gold mine, Seabee gold operation and Puna operations. As on 26^th February 2021, the market capitalisation of the company stood at ~$4.19 billion. The company recorded revenue of US$853.08 million for FY20 as compared to US$606.85 million in FY19 due to higher average realised prices of gold and silver. Its gross margin stood higher at 36% in FY20 vs 28% in FY19. SSR produced 418.74 ounces of gold in FY20 vs 332.36 oz of gold in FY19. The company held cash and cash equivalents of US$860.6 million as on 31 December 2020. This was due to influx of US$270.4 million of cash and cash equivalents from the acquisition of Alacer Gold Corporation and income from mine operations of SSR. Coming to fourth quarter 2020 details, the company registered revenue of US$370.72 million as compared to US$177.60 million in Q4FY19. The gross margin was higher at 40% during Q4FY20 versus 33% in Q4FY19.

Q4FY20 & FY20, Financial Highlights (Source: Company Reports)

Outlook: For FY21, SSR estimates to produce 720k-800k of gold ounces on a consolidated basis from its all-operating mines at an All-In-Sustaining Costs (AISC) of $1,050-$1,110 per ounce of gold. It estimates free cash flows in FY21 to be ~75% weighted to the 2H21 due to the ramp-up of the flotation circuit at Çopler, capex timing across all sites, and seasonality of working capital at Seabee plant.

Valuation Methodology: EV/EBITDA 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 stock of SSR gave a negative return of 16.67% in the past three months and a negative return of 23.63% in the past six months. The stock is currently trading at its 52-weeks’ low level of $18.64. The stock of SSR has a support level of ~$18.443 and a resistance level of ~$19.261. We have valued the stock using an Enterprise Value to EBITDA multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering its FY20 results, growth in top-line, higher gold production & sales, and higher average realised prices. For the purpose, we have taken peers like Northern Star Resources Limited (ASX: NST), OceanaGold Corp (ASX: OGC), St Barbara Limited (ASX: SBM), to name a few. Considering the current trading levels, growth in results (production, revenue, and net income) of FY20, robust cash position, decent outlook, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $18.640, down by ~2.409% on 26^th February 2021.

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

Bravura Solutions Limited

BVS Details

Half Yearly (Ending on 31 December 2020) Results Declared: Bravura Solutions Limited (ASX: BVS) is a provider of software solutions for life insurance, wealth management and funds administration industries. As on 26^th February 2021, the market capitalisation of the company stood at ~$721.72 million. For 1H21, BVS reported fall in revenue to $115.7 million, down by 14% YoY on pcp basis impacted by lower UK project work and lower funds administration licence fees, both driven by COVID-19. Its recurring revenue is 86% of 1H21 group revenue, and contracted recurring revenue increased by 8% during 1H21 on a year over year basis. During this period, BVS entered several new deals which, includes a key subscription-based contract with Aware Super – it is a new and “digital first” operating model for superannuation. For 1H21, BVS registered lower NPAT at $9 million, down by 54% on 1H20, in-line with the guidance. During 1H21, the Group restructured and took measures to reduce employee expenses and occupancy costs. In October 2020, BVS acquired Delta Financial Systems for consideration of $42 million, which complements company’s core offering (Sonata), expands BVS’ present portfolio and aids the transition of BVS to a subscription-based offering.  The company declared an interim dividend (unfranked) of A$0.026 per share for 1H21 to be paid on 26 March 2021. BVS held a cash balance of $56.44 million as on 31 December 2020.

1H21 Financial Highlights (Source: Company Reports)

Outlook: As per a new commercial strategy, BVS expects to transition to a consumption-based subscription pricing model over time. The transition will expand the total addressable market for BVS and benefit its clients to reduce costs, spread the investment over a longer time, and access greater digital tools and automation.

Valuation Methodology: Price/Earnings 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 stock of BVS gave a negative return of 17.02% in the past three months and a negative return of 23.52% in the past six months. The stock is currently trading below the 52-weeks’ average price band of $2.69-$5.20. The stock of BVS has a support level of ~$2.562 and a resistance level of ~$2.983. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering its decline in revenue and NPAT for 1H21, impact of ongoing COVID-19 restrictions in the UK, regulatory concerns, and foreign currency fluctuation risks. For the purpose, we have taken peers like TechnologyOne Limited (ASX: TNE), Iress Limited (ASX: IRE), Link Administration Holdings Limited (ASX: LNK), to name a few. Considering the current trading levels, enhancement of shareholder’s value, acquisition synergies, decent long-term outlook, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $2.730, down by ~6.507% on 26^th February 2021.

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

JB Hi-Fi Limited

JBH Details

A Look at 1H21 Results: JB Hi-Fi Limited (ASX: JBH) operates as a Group with JB Hi-Fi and The Good Guys brands under its umbrella. JB Hi-Fi is a retailer of consumer electronics & technology and The Good Guys sells home appliances and consumer electronics. As on 26^th February 2021, the market capitalisation of the company stood at ~$5.23 billion. The company reported total sales of $4,941.2 million for 1H21, up by 23.7% YoY on 1H20. This was due to continued demand from customers for consumer electronics, home appliances and significant online growth. During 1H21, JBH invested continuously in supply chain and online operations. It upgraded Group’s websites and expanded warehouse and delivery options. Its NPAT rose to $317.7 million, up by 86.2% YoY basis. During 1H21, JBH’s cost of doing business (CODB) improved to 10.08% vs 11.88% in 1H20. The company declared an interim dividend of 180 cents per share, up by 81.8% YoY last year. The Group held $472.8 million cash as on 31 December 2020 and generated higher net cash flows from operations, amounting to $446.7 million during 1H21.

1HFY21, Financial Highlights (Source: Company Reports)

Outlook: The Group has experienced robust sales momentum into January across all its brands. For JB Hi-Fi, the Group aims to optimise the allocation of category space to maintain floor space productivity and optimise its store network. For New Zealand, JBH remains on track to execute a performance improvement strategy. Given the present uncertainty due to COVID-19, the Group is unable to provide guidance for FY21 on its sales and earnings.

Valuation Methodology: EV/Sales 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 stock of JBH gave a positive return of 16.94% in the past nine months and a positive return of 16.91% in the past one year. The stock is currently trading above the 52-weeks’ average price band of $20.79-$55.25. The stock of JBH has a support level of ~$42.13 and a resistance level of ~$44.86. We have valued the stock using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering the uncertainty led by COVID-19 impact on its business, store closure as per government guidance, and ambiguity to provide an outlook for FY21. For the purpose, we have taken peers like Eagers Automotive Limited (ASX: APE), Premier Investments Limited (ASX: PMV), Super Retail Group Limited (ASX: SUL), to name a few under the Specialty Retail category. Considering the above factors, declaration of fully franked interim dividend, decent growth in 1H21 results, robust cash position and higher net cash flows from operating activities, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $43.410, down by ~4.699% on 26^th February 2021.

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

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