Stocks’ Details
 

Metcash Limited

Successful Completion of Institutional Placement: Metcash Limited (ASX: MTS) is a wholesaler to independent retailers in food, grocery, liquor, hardware and automotive industries. As on 21 April 2020, the market capitalization of the company stood at $2.76 billion. The company has recently completed fully underwritten institutional placement of $300 million by issuing 107.1 million new fully paid ordinary shares. These proceeds will enhance the financial flexibility and will be utilized to invest in MFuture growth program.

During 1H20, group sales of the company witnessed a slight increase of 0.5% over the pcp and stood at $7.2 billion. In the same time span, EBIT of the company was $149.7 million and Underlying profit after tax stood at $95.7 million. The company also reported a strong balance sheet.


 
1H20 Financial Highlights (Source: Company Reports)

Future Expectation: The business is continuing to progress its growth initiatives under the MFuture program and is focused on costs to help offset the impact of cost inflation. The business has good initiatives and will continue to invest in the network alongside its retailers.

Valuation Methodology: Price to Earnings Multiple Based Valuation

Price to Earnings Multiple Based Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of MTS gave a return of 19.22% on the YTD basis and a return of 16.92% in the past three months. The stock is also trading close to its 52-weeks’ low level of $2.17, proffering a decent opportunity for accumulation. During 1H20, EBITDA margin of the company witnessed an improvement over the previous half and stood at 3.6%, up from 2.9% in 2H19. In the same time span, current ratio of the company was 1.11x, higher than the industry median of 0.66x. Considering the current trading levels, improvement in margins and positive outlook, we have valued the stock using price to earnings multiple based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $2.630, down by 13.487% on 21 April 2020. 

Vista Group International Limited

VGL Completes Placement and Institutional Entitlement Offer: Vista Group International Limited (ASX: VGL) is engaged in the sale, support and associated custom development of software for the cinema industry, online cinema ticketing website and online data analysis and marketing. As on 21 April 2020, the market capitalization of the company stood at A$246.67 million. The company recently completed its underwritten placement of NZ$25 million under the placement and entitlement offer and the Institutional Entitlement Offer of its fully underwritten 1 for 4.37 pro-rata accelerated entitlement offer. 

During FY19, total revenue of the company went up by 11% to NZ$144.5 million but operating profit witnessed a decline of 14% to NZ$21.3 million. Vista Group retains a strong balance sheet and generated positive cashflow from operating activities to fund the company’s software investments.


FY19 Financial Highlights (Source: Company Reports)

Future Expectations: Vista Group has a large and loyal global client base and is actively working to support cinema customers with solutions while cinemas remain closed. Vista Group entered the COVID-19 pandemic with good stakeholder support and a strong underlying business as a global leader in software and data solutions for the film industry. However, the uncertainty and unpredictability of the spread of the COVID-19 might impact the duration of cinema closures.

Stock Recommendation: As per ASX, the stock of VGL gave a negative return of 55.08% in the past three months but a positive return of 4.02% in the last one month. The stock is currently trading close to its 52-weeks’ low level of $0.995. During FY19, net margin of the company stood at 8.9%, lower than the industry median of 15.5%. Considering the volatility in returns and uncertain outlook due to global pandemic, we have a watch stance on the stock at the current market price of A$1.325, down by 10.473% on 21 April 2020. 

Rhipe Limited

$34 million Capital Raise: Rhipe Limited (ASX: RHP) is engaged in the sale and support of subscription software licenses to IT service provider resellers in the Asia Pacific region. As on 21 April 2020, the market capitalization of the company stood at $248 million. The company has successfully completed unconditional placement of $33.6 million to institutional and sophisticated investors and a conditional placement of $0.2 million to Directors and employees. These proceeds will strengthen the company’s balance sheet and will allow the company to pursue acquisitions.

During 1H20, sales of the company went up by 33% to $152.7 million and operating profit witnessed an increase of 26% to $7.1 million. The growth in sales was driven by continued strong growth in public cloud and Microsoft CSP.


Growth in Gross Sales (Source: Company Reports)

Growth Opportunities: The company continues to retain a strong balance sheet with significant cash reserves. It is also maintaining appropriate liquidity in an increasingly volatile and uncertain time.

Stock Recommendation:As per ASX, the stock of RHP gave a return of 16.07% in the last one month and is trading close to its 52-weeks’ lower levels. This is a good opportunity for the investors to enter the market. During 1H20, gross margin of the company stood at 94%, higher than the industry median of 74.8%. In the same time span, net margin of the company was 12.2% as compared to the industry median of 7.9%. Considering the returns, current trading levels, and strong balance sheet, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.65, down by 6.78% on 21 April 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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