Stocks’ Details
 

Baby Bunting Group Limited

 
Robust FY 2019 Guidance: Baby Bunting Group Ltd (ASX: BBN) operates as a nursery retailer and one-stop-baby shop. For the FY2018, the company’s total sales were clocked at $303.1 Mn exhibiting a growth of 9% on Y-o-Y basis. The company achieved a growth in the gross profits of 5.9%, and it stood at $100.9 Mn. The results were subdued on account of price deflation through the Australian retail market thus affecting margins which ultimately resulted in low earnings and profits against what was anticipated for.
The company is focussed on expanding the Baby bunting’s range of exclusive products. The outperformance in this segment continued during the year with sales increasing by 100% and now accounting for 20.9% of the aggregate sales. This growth is on account of its key suppliers expanding the range of their products which are sold exclusively through the company’s stores. Additionally, the firm has also released its FY2019 guidance stating that it expects the EBITDA to be in the range of $24-27 Mn materializing into the growth of 30-45% on PCP. This guidance is heavily based on the assumption that the firm will be able to capitalize on the void created with the exit of its competitors.
 
On the valuation front, as the company is a retailer, net sale is an important performance metric. The company is trading at an EV/Sales ratio of 0.8 times, which is at a relative discount with the Industry median, hence on that front, the stock seems under-priced. Also, the pre-tax ROE for 2018 stands at 13.03% which outperforms the pre-tax ROE (previous five years average, i.e., FY13-17) of the company which is 12.20 %, this signifies that the company is performing better now as compared to its past.
 

 
Private label and exclusive products as a % of sales (Source: Company Reports)
 
Meanwhile, the stock price has fallen by a modest 8.37% over the past three months as on 27 November 2018 and traded at below 52-week high level. The market cap of BBN has recorded at $276.91 Mn, with P/E of 31.74x and beta below 1.0x, showing decent opportunity at the current level. Hence, considering the strong FY 2019 guidance and prospects of a re-rating on account of its growing sales, we maintain our “Buy” recommendation on the stock at the current market price of $2.260 (up 3.196% on 28 November 2018).
 

Super Retail Group Limited

 
Strong segmental growth & expanding online presence: Super Retail Group Ltd (ASX: SUL) operates a chain of retail stores throughout Australia. The stores sell a wide range of automotive parts. For FY 2018, the group recorded a sale of $2.57 Bn, a growth of 4.2% on PCP. This was on the back of increased customer transaction which grew by 2.5% to reach 45.6 Mn. Moreover, the company saw growing traction towards its online platform leading to an online sales growth of 152% and 85% in the sports and auto segments, respectively. The trading update for the 16 weeks ended 24 October 2018, stated that all its business segments are doing well, particularly their ‘MacPac’ segment witnessed 8.4% like for like growth. EBIT grew by 5.9% on PCP to reach at $219.6 Mn. This was on the back of improvements in the working capital management via improved supply chain efficiencies and improving trade partner payment terms.
 
In our view the company has a bright future as the group focuses on expanding its market share in order to preserve its market position. Further, the company will look into optimizing its costs in the era of increasingly competitive Retail sector market.
 

Segmental Sale Growth Percent (Source: Company Reports)
 
From the analysis standpoint, the company is trading at a price/ cash flow ratio of 5.5 times, which is at a relative discount with the Industry median of 8.2 times, hence from the cash flows generation aspect the stock seems to have potential upside at current valuations. Also, the ROE for 2018 stands at 16.50% which outperforms the ROE (previous five years average) of the company which is 12.84% & also the Industrial median of 12.6%, this signifies that the company is performing better as compared to the industry as a whole. If we look at the past six month’s performance, the stock has receded by 8.55% as on 27 November 2018 and traded at reasonable PE multiple of 11.68x. By looking at its strong segmental performance and expanding online presence across the region, we maintain our “Hold” recommendation on the stock at the current market price of $7.43 (down 2.108% on 20 November 2018).
 

WAM Capital Limited

 
Constant Growth in Assets: WAM Capital Ltd (ASX: WAM) is an investment company incorporated in Australia. The objectives of the fund are to achieve a high real rate of return, preserve capital and create strong dividend flow. The fund invests in ASX listed and unlisted securities, bills of exchange and other negotiable investments, as well as cash management trusts.

The WAM leader’s board has declared that they have entered into a pact to merge with the Century Australia Investments Limited.In the said arrangement, WAM leader will acquire 100% of Century Australia shares on a pre-tax NTA basis. This merger will lead to increased net assets of $885 Mn, a reduced management expense ratio due to the removal of duplicated expense. The company also stated that the WAM capital’s shares have been allotted to the shareholder of Wealth Defenders Equity Ltd on account of the successful takeover of the latter company.

WAM Capital’s Investment portfolio performance remained subdued for the month of October with the Investment portfolio declining by 7.8%. This was on account of the volatility in the global stock markets with the S&P/ASX all ordinaries index falling by 6.5% over the month. Its portfolio has shown outperformance when considered S&P/ASX all ordinaries index as a benchmark of 0.5% on YTD basis and by 2.7% p.a. over three years. It has paid a fully franked final dividend of 7.75cps as on 26 November 2018.


Number of Active ETF Unitholders Quarterly Trends (Source: Company Reports)
 
Meanwhile, the share price has receded by 9.47% in the past one month as at November 27, 2018. The company had a pre-tax margin of 88.7% and a pre-tax ROE of 13.1% for the year ended June 2018 which is decent enough as per the concerned industry standards. Considering a constant growth in the Net Trading assets due to the strategic acquisitions, we maintain our “Hold” recommendation on the stock at the current market price of $2.190 as it is trading close to lower level.
 

Magellan Global Trust

 
Strong US Economy Could Drive the Company Performance: Magellan Global Trust. (ASX: MGG) is a listed investment trust in Australia. The objective of the fund is to deliver investors a target cash distribution of 4% per annum in the medium to long-term. The fund will invest in a focused portfolio of 15-35 investments in outstanding global companies and up to 50% in cash and cash equivalents.

Through an ASX release, the company reported a NAV of $1.6103 as at 23 November 2018. Through a Fund update dated 31 October 2018, the company stated it has the highest exposure in the consumer defensive segment with a 19% allocation. In terms of geography, the trust is heavily invested in the U.S. markets with a ~47% stake.

For the FY 2018, the fund reported a return after fees of 11.4% from its inception on 18 October 2017 to June 30, 2018. This performance was on account of the outperformance shown by the U.S stocks in which the fund is heavily invested into & robust global economic conditions.

The company has a cautious outlook going forward considering that the funds' performance totally depends upon the performance of the business it has invested into. However, considering the fact that the assets price is at their record all-time highs, major central banks across the world are tightening their stance towards interest rates which will result into less liquidity infusion into markets going forward.
 

 
Geographical Exposure by Source of Revenue (Source: Company Reports)
 
Meanwhile, the share price has given a return of 6.80% in the past six months as of November 27, 2018.Considering the expectations of a robust U.S. economy going forward and a gradual tightening of policy rates, we maintain our “Buy” recommendation on the stock at the current market price of $1.660.
 
 

Ramsay Healthcare Limited

 
Robust Australian Demand- a Growth Catalyst: Ramsay Healthcare Ltd. (ASX: RHC) provides health care services. The Company offers private hospital services, including, rehabilitation, psychiatric care, day, and complex surgery. Ramsay Health Care owns, operates, and manages health care facilities throughout Australia, Indonesia, and Europe. For FY 2018, the company saw its EBIT rising by 6.8% on PCP, to stand at $1.008 Bn. This was on the back of admissions growth rate being above the industry growth rate. However, this was partially offset by the affordability concerns and the negative focus on the private health insurance. In the future, the company is committed to invest in the brownfield projects to meet the ever-growing demand generated as a result of increasingly ageing population. These investments are expected to contribute in a significant manner to the FY 2019 earnings. Also, the company continues to target core EPS growth of up to 2% in FY 2019. The company expects the ongoing challenging operating conditions to continue across its all key regions thus expecting a subdued FY 2019.
 

RHC’s Financial KPI’s (Source: Company Reports)
 
On the valuation front, the company is trading at an EV / Sales ratio of 1.5 times, which is at a relative discount with the Industry median of 1.9 times, hence from the sales generation aspect, the stock seems to have potential upside at current valuations. Also, the pre-tax ROE for 2018 stands at 26.2% which is decent enough considering the concerned industry. In the meantime, if we look at the past one month’s performance, the stock is marginally down by 0.68% as on 27 November 2018. However, considering strong Australian demand and undervaluation at current levels, we maintain our “Buy” recommendation on the stock at the current market price of $54.150.
 
 
Stock Price Comparative Chart (Source: Thomson Reuters)
 

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