Ampol Limited

ALD Details
 
Improved Capital Discipline to Maximise Shareholders’ Return:Ampol Limited (ASX: ALD) is a leading transport fuel supplier, with ~1,900 company-owned or affiliated sites. The company recently updated that the voting power of AustralianSuper Pty Ltd increased from 7.23% to 9.17%. In another update, the company announced the appointment of Matthew Halliday as the Managing Director and Chief Executive Officer, effective 29^th June 2020.
Change of Name:The company was earlier listed as a Caltex Australia Limited, however, it was later named after its iconic brand, Ampol. The move indicated the company’s transition back to Ampol, which will support its evolution into growing regional fuels and convenience businesses.

Caltex Refiner Margin (CRM) Update: In April’20, CRM was US$4.83/bbl, slightly above the March 2020 CRM of US$4.62/bbl. The margin was below the prior comparable period margin of US$10.96/bbl.
 

CRM April 2020 (Source: Company Reports)
 
FY19 Highlights: In FY19, the business performed well in a challenging operating environment and delivered a solid underlying result. Implementation of Fuels & Infrastructure and Convenience Retail growth strategies was up to the mark and will help capture further value for shareholders. The company also expanded its capabilities in Ampol trading and shipping business, earnings growth in Gull and Seaoil, the divestment of 25 higher and better use sites for ~$136 million, and the successful launch of Caltex Woolworths Metro. 

On the financial front, net profit after tax on a historic cost profit basis stood at $383 million. Fuels & Infrastructure business reported earnings before interest and tax of $450 million, down 21% on the previous year. Total fuel sales came in at 21.1 billion litres, up 3% on pcp. Performance in the F&I segment was supported by improved results across Gull and Seaoil in the international business, with international sales volumes increasing by 36% on pcp. The Convenience Retail business delivered earnings before interest and tax of $201 million, down 35% on pcp. However, retail fuel margins strengthened in the second half of 2019.

Quarterly Update: During the first quarter ended 31^st March 2020, Convenience Retail (CR) EBIT increased substantially on the pcp, due to favourable industry retail fuel margins. CR fuel volumes were impacted by bushfires, floods, and broader economic weakness, and fell by 8%.Total Fuels & Infrastructure (F&I) fuel sales volumes increased 11% to 4.9BL in 1Q 2020, driven by growth in international sales volumes.


1QFY20 Performance (Source: Company Reports)
 
Outlook:The company updated that it will not be providing unaudited profit guidance for the half year ended 30 June 2020, due to the business disruption from the COVID-19 pandemic and continued hydrocarbon market volatility. The company remains committed to its well-articulated strategy to create significant long-term value for shareholders. The company has incorporated capital discipline into the business through the cost-out program to deliver $100 million of sustainable savings and the divestment of around 50 retail sites. The company also announced the opening of new trading and shipping office in Houston, USA, to expand into new locations, products, and services, which will deliver meaningful earnings growth over the next 5 years. The company expects to release its 1HFY20 results on 25^th August 2020.

Risks:A setback in demand for gasoline and diesel due to COVID-19 restrictions may impact business volumes, going forward. With the continuously evolving transport fuels and convenience retail landscapes, the company should be proactive in seizing opportunities to complete in the market. Adapting to changes in customer demand, technology and products can be a challenge and may impact the earnings.

Valuation Methodology:  P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The stock of the company gave positive returns of 26.41% in the last three months and is currently inclined towards its 52-week high price of $35.960. At the end of FY19, the company had total debt amounting to $1,780.7 million and cash and short-term investments amounting to $35 million. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a price correction of single-digit (in % terms). For the purpose, we have considered peers like Oil Search Ltd (ASX: OSH) and Santos Ltd (ASX: STO). Considering the valuation and current trading levels, we advise investors to wait for better entry levels and suggest a watch stance on the stock at the current market price of $29.32, up 4.009% on 30^th June 2020.

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

Vmoto Limited

VMT Details
 
Exuberant Growth in International Sales:Vmoto Limited (ASX: VMT) is engaged in the development, manufacture, marketing and distribution of electric powered two-wheel vehicles. In a recent market update, the company announced that it achieved record international unit sales year to date (YTD) to May 2020, up 42% on pcp (2019) and 107% on pcp (2018). Vmoto Limited expanded its international distribution network, with new exclusive distributors appointed in Japan, Costa Rica, Panama and Thailand. During the period, the company delivered all 2,000 units of ride-sharing products previously ordered by Go Sharing, Netherlands and secured another offer for 1,200 units to be delivered between July and September 2020. Another 60 units of ride-sharing electric scooter, were delivered to re.volt, Czech Republic.


International Sales (Source: Company Reports)
 
SPP Details: In May 2020, the company’s Share Purchase Plan to raise $1 million was heavily oversubscribed on closure, with a total of $3.95 million confirmed received, demonstrating shareholder support for its strategy of selling high quality electric two-wheel vehicles into international markets.

FY19 Highlights: During the year ended 31^st December 2019, the company reported revenue amounting to $45.67 million, up ~133% on pcp, due to increased international sales into the electric two-wheel vehicle market. Profit after tax came in at $1.3 million as compared to a loss of $0.9 million on pcp. A major milestone during the year was the formation of a 50-50 joint investment agreement with Super Soco, to establish a new Chinese registered manufacturing company, Nanjing Vmoto Soco Intelligent Technology Co, Ltd.

Outlook:In the recent trading update, the company highlighted that the impact of Covid-19 on personal transportation and government initiatives supporting electric vehicles are expected to have longer-term positive impact on its business. The company has a global growth strategy to become a leading producer and manufacturer of high-quality electric two-wheel vehicles. In 2020, it will continue to streamline its manufacturing operations and increase market share in European and other international markets.

Key Risks: The company operates in an industry involving green and electric vehicle technology, which is prone to risks of technological obsolescence. Any such event can impact the company’s financial performance.To mitigate the risk, the company invests in research and development to monitor the market. The newly formed company with Super Soco exposes the company to risk of business cooperation and circumstances of Super Soco, which could impact Vmoto’s financial results.

Stock Recommendation: The stock of the company gave positive returns of 85.33% in the last three months and is currently trading towards its 52-week high price of $0.350. The company retains a decent financial position with surplus cash reserves to execute its growth strategy and deliver revenue and sales growth in 2020. The recently raised funding from the SPP will be utilized for expansion of B2C international distributors and dealers’ network and operations, expansion of B2B operations, and increasing promotional activities. At the end of FY19, the company had total debt amounting to $2.65 million and cash and short-term investments amounting to $6.65 million. On a trailing twelve months (TTM) basis, EV/Sales of 2.0x and EV/EBITDA of 44.7x is currently above the industry median multiples of 1.7x and 14.5x respectively indicating the stock to be overvalued. Hence, considering the aforesaid facts, price movement in the recent past, and current trading levels, we put our watch stance on the stock at the current market price of $0.29, up 5.455% on 30^th June 2020 and suggest investors to wait for better entry levels.

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

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