carsales.com Limited

Strong Growth in International Portfolio: carsales.com Limited (ASX: CAR) is engaged in the provision of online advertising services, data research and services.

FY19 Financial Highlights: During the year ended 30 June 2019, the company generated revenue amounting to A$417.5 million, up 11% on prior year revenue of ~A$377 million. Adjusted EBITDA for the period stood at ~A$210 million, up 7% on ~A$196 million on year-on-year basis. Adjusted net profit after tax was reported at ~A$131 million, up 3% in comparison to FY18 value of A$128 million. Adjusted earnings per share for the period was reported at 53.9 cents, as compared to 52.7 cents in prior corresponding year. A final dividend of 25 cents per share was declared by the Board, representing an increase of 5% on prior corresponding period.


FY19 Financial Summary (Source: Company Reports)

Business Performance: Growth in revenue was attributable to continued progress in Australian classifieds businesses. Dealer and Private businesses witnessed growth of 7% and 4%, respectively. The period was also marked by strong revenue growth from the international portfolio, with stand-out performance in South Korea and Brazil. South Korea witnessed underlying local currency revenue growth of 13% and Brazil’s revenue grew by 35%. EBITDA margin contracted slightly to 50.3%, due to the impact of lower margin from early stage businesses.

Divestment Update: In order to focus completely on its core business growth opportunities, the company has decided to divest its stake in Stratton Finance.

Outlook: The company has entered into FY20 with a solid start in its core Australian Dealer, Private and Data businesses. Moreover, the company is also expecting to report an improved trajectory for the Display segment in FY20, amidst challenging market conditions. Growth in Brazil and South Korea is expected to be in-line with FY19. Profitability in the Group’s Chilean business is expected to witness an improvement as compared to FY19. In addition, the company is also anticipating an investment in the Mexican and Argentinian businesses similar to FY19 levels.

Stock Recommendation: The stock of the company has generated YTD returns of 30.24%. In FY19, the business benefitted from diverse revenue streams and investment in new products & markets. International portfolio witnessed revenue growth of 39% and EBITDA growth of 29% in FY19. The company’s investment in the global platform is resulting into positive operational metrics that represent its progress towards attaining market leadership in all the countries of operation. On the back of recent developments, the company is expecting decent growth in revenue, adjusted EBITDA, and adjusted NPAT for FY20. Currently, the stock is priced close to its 52-week high level of $16.450 with PE multiple of 25.07x and an annual dividend yield of 3.15%. Given the backdrop of aforesaid factors and current trading trading levels, we give a “Hold” recommendation on the stock at the current market price of $15.570, up 10.897% on 21 August 2019, owing to the release of decent set of numbers in FY19 and bright outlook for FY20.
 

Computershare Limited

Increase in Revenue and EBITDA: Computershare Limited (ASX: CPU) is into the operation of investor services, employee share plan services, communication services, etc. The market capitalisation of the company stood at ~A$8.01 Bn as on 21^st August 2019. Recently, the company with the help of a release announced that Simon David Jones has made a change to his holdings in the company by acquiring 2,000 Ordinary shares at the consideration of $29,639.25. In FY19, the company reported revenue amounting to $2,411.4 Mn with a rise of 4.8% and EBITDA of $685.9 Mn, up by 10.2%.


FY19 Results Summary (Source: Company Reports)

What to Expect: On a constant currency basis, in FY 2020, the company is expecting management EPS to fall by around 5.0%. The company anticipates group tax rate to be around 27.0% in FY20 as compared to 26.5% of FY19. The company continues to lay the foundations for sustained growth with disciplined investments in growth engines and selective complementary acquisitions.

Stock Recommendation: The balance sheet of the company remains strong following funding Equatex acquisitions and organic growth initiatives, which might attract the attention of market players. It added that the net debt to EBITDA leverage ratio remains conservative at 1.84x. Hence, considering the above-stated facts, we give a “Hold” rating on the stock at the current market price of A$14.830 per share (up 0.474% on 21^st August 2019).
 

Nine Entertainment Co. Holdings Limited

Full Year Result Announcement:Nine Entertainment Co. Holdings Limited (ASX: NEC) is primarily into the television broadcasting and program production. The market capitalisation of the company stood at ~A$3.03 Bn as on 21^st August 2019. Recently, the company via a release dated 14^th Aug 2019 announced that CFO of the company, Mr Greg Barnes, will depart from NEC at the end of August, after delivering the FY19 results to the market. Inother updates, the company announced a $1.46 per share all-cash off-market takeover offer to acquire all the outstanding shares in Macquarie Media Limited through its wholly owned subsidiary Fairfax Media Limited.

It further added that the Offer equates to an enterprise value (EV) of $275.4 Mn, which includes MRN’s net debt of $22 million as at 30^th June 2019 and payment of its August 2019 dividend. Additionally, the acquisition would be 100% financed from cash reserves and existingdebt facilities.The company will be releasing its full year results for FY19 on 22^nd August 2019. The following picture provides an idea of Broadcast Video On Demand (BVOD) market:


Growth in BVOD Market (Source: Company Reports)

Future Aspects: The company is uniquely placed through the combination of the operating strength of its traditional media assets and enhancing exposure to continued transition of the market towards digital media assets. Also, as can be seen from its 1H FY19 current ratio, NEC has a decent liquidity level, which might help it in making deployments towards the strategic business objectives moving forward.

Stock Recommendation: The gross margin and EBITDA margin of the company stood at 39.3% and 50.8% in 1H FY19, reflecting YoY growth of 5.5% and 27.4%, respectively. The current ratio of the company stood at 1.78x in 1H FY19 as compared to 1.66x in 1H FY18, showing a decent liquidity level to address its short-term obligations.

It posted an asset to equity ratio of 1.67x in 1H FY19 against 1.70x in 1H FY18. Currently, the stock is trading slightly below the average of 52 weeks high and 52 weeks low price of $2.565 and $1.305, respectively with reasonable PE multiple of 8.24x and an annual dividend yield of 5.63%, proffering a decent opportunity for accumulation. Hence, considering the above-stated facts coupled with decent outlook and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$1.805 per share (up 1.69% on 21^st August 2019).

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