Coles Group Limited

COL Details

Sustainability Linked Loans:  Coles Group Limited (ASX: COL) is engaged in retailing of products such as fresh food, groceries, household goods, liquor, fuel and financial services via stores and online. In the month of August 2021, the company entered Sustainability Linked Loans (SLL) of $1.3 billion with a term of four years under its bilateral debt facilities, which replaced its existing commitments. The company has a long-standing commitment to sustainability and has set ambitious as well as meaningful sustainability targets.

FY21 Financial Summary:

• Growth in Sales Revenue: During FY21, the company recorded total sales revenue amounting to $38.6 billion as compared to $37.4 billion in FY20, reflecting a growth of 3.1%. The sales growth was supported by strategic initiatives which resonated with customers and customers spending more time living and working at home during COVID-19.
• EBITDA and EBIT Growth: COL recorded growth of 5.4% and 6.3% in EBITDA and EBIT to $3.4 billion and $1.9 billion, respectively. This was supported by smarter selling benefits and growth generated operating leverage in all segments.
• Increase in Net Assets: The company closed FY21 with net assets of $2,813 million as of 27 June 2021, reflecting a rise of $21 million as compared to 3 January 2021. COL added that its balance sheet has the decent capability to support future growth.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: The company’s business is exposed to risks arising from a high level of uncertainty with respect to the evolvement of the COVID-19 pandemic both domestically and internationally.
• Competition from Peers: COL may lose its market share if it fails to respond to competitive pressures and changing customer behaviors and expectations.

Outlook:

• The company would be cycling the sales and cost impacts of COVID-19 throughout all segments in FY22. COL expects corporate costs in the range of around $75 million.
• For FY22, COL anticipates smarter selling benefits to be over $200 million.
• COL is likely to release Q1 FY22 corporate sales number on 28^th October 2021.

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

Source: 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: Due to a seasonal unwind in net working capital, the company experienced an increase of $393 million in net debt (excluding lease liabilities) as on 27^th June 2021. The stock of COL is trading below its 52-week’s average of $15.275 - $18.940. The stock of COL has corrected ~6.02% in the past one month. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median P/E multiple, considering the COVID-19 disruptions, stiff competition, and increase in net debt. For the purpose of valuation, peers such as Wesfarmers Ltd (ASX: WES), Woolworths Group Ltd (ASX: WOW), and Synlait Milk Ltd (ASX: SM1) have been considered. Considering the expected upside in valuation, decent outlook, increasing revenue, rise in net assets and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $16.730 as on 30 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

COL Daily Technical Chart, Data Source: REFINITIV 

Evolution Mining Limited

EVN Details

Completion of Placement and SPP: Evolution Mining Limited (ASX: EVN) is involved in the exploration, mine development, mine operations and the sale of gold and gold/copper concentrate in Australia and Canada. EVN has recently completed Share Purchase Plan and raised around $68 million, which follows underwritten institutional placement of $400 million.

• The company would use funds raised from the institutional placement for the acquisition of 100% interest in the Kundana Operations, 51% interest in the East Kundana Joint Venture, 100% interest in certain tenements comprising the Carbine Project and 75% interest in the West Kundana Joint Venture.
• The funds raised from SPP would be utilised for general corporate purposes.

FY21 Financial Summary:

• Declining Gold Production: During FY21, the company recorded gold production of 680,788 ounces (oz) against 746,463 ounces in FY20. EVN recorded an AISC (All-in-Sustained Costs) of $1,215 per ounce.
• Gold Sales: EVN recorded total gold sales of 677,150 oz, which included deliveries into the Australian gold delivery commitments of 100,000 ounces at an average price of $1,829/oz. Revenue for the year fell by 4% to $1,864.1 million.
• Record NPAT Levels: EVN posted a record statutory net profit after tax of $345.3 million, increased by 14% as against $301.6 million in FY20.
• Consecutive Dividend Payment: For FY21, the company declared a fully franked final dividend of 5cps, which took the total FY21 dividend to 12 cents per share. Since 2013, the company has declared 17 consecutive dividends and returned ~$943 million to shareholders.

Dividend Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Price Risk: EVN’s financial and operational performance is exposed to uncertainties in global gold prices. Any unfavorable movement could damper its performance.
• Regulatory Risk: The company’s business is also exposed to a more complex regulatory environment as it operates in various geographies.

Outlook:

• For FY22 and FY23, the company is expecting gold production in the range of 700,000 – 760,000 ounces and 815,000 – 875,000 ounces at an AISC of between 1,220 – 1,280 $/oz and 1,125 – 1,185 $/oz, respectively.
• The company has scheduled to conduct the 2021 Annual General Meeting on 25 November 2021.

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

Source: 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: During FY21, the company generated a free cash flow of $327.3 million, which enabled the company to reward shareholders $273.4 million in the form of dividends and repayment of $95.0 million of debt. The stock of EVN is trading below its 52-weeks’ average levels of $3.270 -$6.460. The stock of EVN negative return of ~10.74% in the past one month. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 uncertainties and gold price risk. For the purpose of valuation, peers such as Newcrest Mining Ltd (ASX: NCM), Northern Star Resources Ltd (ASX: NST), IGO Ltd (ASX: IGO), and others have been considered. Considering the expected upside in valuation, decent outlook, record NPAT level, consistent dividend payments, high EBITDA and net margin and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $3.450 as on 30 September 2021, 11:30 AM (GMT+10), Sydney, Eastern Australia.

EVN Daily Technical Chart, Data Source: REFINITIV 

Monadelphous Group Limited

MND Details

Contract Secured by Joint Venture: Monadelphous Group Limited (ASX: MND) provides engineering and construction services to the energy, resources, and infrastructure sector in Australia. Recently, the company’s joint venture (55%) Zenviron Pty Ltd has won a contract with Rye Park Renewable Energy Pty Ltd, wherein, Zenviron is expected to execute $250 million of the works under the contract.

FY21 Financial Summary:

• Growing Revenue: As a result of increased demand for its services as the industry recovered from the delays and disruptions faced during the initial phases of COVID-19, the company recorded an increase of 18.3% in revenue to $1.95 billion. MND’s Engineering Construction division recorded a rise of 59% in revenue to $979.0 million, supported by the major progress witnessed on its large portfolio of major construction contracts.
• Increase in Bottom Line: MND posted a net profit after tax of $47.1 million, reflecting a growth of 29% over pcp. NPAT indicated earnings per share of 49.7 cents against 38.7 cents in FY20.
• Dividend Payment: The company declared a fully franked final dividend of 21 cps, which took the full-year dividend to 45 cps.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Contracts Pricing Risk: The company’s business is exposed to risk arising from the change in pricing of contracts, which could impact its financial health.
• Skilled Labour Shortage: The international border restriction caused by COVID-19 has created a shortfall in skilled labour, which is likely to remain a key challenge and could impact its operations.

Outlook:

• Looking forward, the company is optimistic that buoyant resources, energy and infrastructure sectors are expected to provide a solid pipeline of opportunities.
• Due to the timing of new major projects, the company expects revenue for FY22 to be lower. However, it anticipates stronger construction activity in FY23.
• MND has scheduled to conduct 2021 Annual General Meeting on 23 November 2021.

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

Source: 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 company closed FY21 with a cash balance of $175.7 million against $208.3 million as on 30^th June 2020. The stock of MND is trading below its 52-weeks’ average levels of $8.910-$15.550. The stock of MND has corrected ~14.21% in the past one month. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/E multiple, considering the increasing revenue, rising NPAT, and decent liquidity position. For the purpose of valuation, peers such as Downer EDI Ltd (ASX: DOW), Service Stream Ltd (ASX: SSM), and Boral Ltd (ASX: BLD) have been considered. Considering the expected upside in valuation, decent outlook, rising revenue and NPAT, decent liquidity position, high return on equity, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $9.100 as on 30 September 2021, 03:33 PM (GMT+10), Sydney, Eastern Australia.

MND Daily Technical Chart, Data Source: REFINITIV 

Virtus Health Limited

VRT Details

Update on the Acquisition of Adora Fertility: Virtus Health Limited (ASX: VRT) provides medical day procedure services, fertility, and diagnostic services in Australia, Singapore, Ireland, the UK, and Denmark. VRT recently announced that the Australian Competition and Consumer Commission (ACCC) would undertake a public review on the ongoing acquisition of the Adora Businesses comprising Adora Fertility and three-day hospitals. VRT is coordinating with the ACCC to facilitate the review, and the deal is not subject to regulatory sanction. VRT expects the transaction to be finalised in Q2FY22.

FY21 Highlights:

• Top-Line Growth: The company posted revenue growth of 25.4% YoY to $324.6 million in FY21 due to growth witnessed across the Australian and international businesses (UK, Ireland, Denmark, etc.).
• Increase in EBITDA: The company posted a reported EBITDA of $93.4 million in FY21 versus $46.2 million in FY20.
• Improved Leverage: VRT improved its leverage position to 1.5x as of 30 June 2021 versus 2.2x as of 30 June 2020.
• Refreshed Corporate Strategy: In FY21, VRT advanced its corporate strategy to incorporate growth initiatives such as the Precision Fertility Digital Platform development and investment in expanding the ARS clinic network. The company also undertook the restructuring of its Fertility Diagnosis & Reproductive Genetics Service.
• Final Dividend Declaration: VRT declared 12 cents per share of fully franked final dividend with 8^th October 2021 as the ex-date and 29^th October 2021 as the payment date. The total dividend for FY21 stands at 24 cents per share.
  

Cash Receipts from Customers Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 disruptions in its ARS (Assisted Reproductive Services) market, delays in specific treatments, along-with stringent infection control protocols. Given its ongoing acquisition deal, VRT faces the risk of integration benefits to the business.

Outlook:

• The company plans to commence its ARS “hub” strategy in Denmark and egg donation program in Ireland in FY22.
• VRT is developing new state-of-the-art clinics and labs in Brisbane, Nepean, and Copenhagen in FY22.
• With the Board approval in hand, VRT will develop its Precision Fertility Digital Platform in FY22/23 to drive growth.
• VRT expects ARS demand to continue in FY22 despite relatively competitive market conditions and to be influenced by trends in fertility choices, success rates improvements, and maternal age in the medium term.
• VRT will hold its AGM on 18 November 2021 at 11 AM (AEDT).
  

Valuation Methodology: Price-to-Earnings Multiple Based Relative Valuation (Illustrative)

Source: 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 VRT gave a positive return of 9.21% in the past nine months and a positive return of 50.51% in the past year. The stock is currently trading slightly above the 52-weeks’ average price level band of $3.810 - $7.470. The stock has been valued using a Price-to-Earnings Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average P/E multiple, considering its high debt-to-equity ratio in FY21 and the risks associated with COVID-19 and competition in the ARS market. For the purpose of valuation, few peers like Healius Limited (ASX: HLS), 1300 Smiles Limited (ASX: ONT), Australian Pharmaceutical Industries Limited (ASX: API), and others have been considered. Considering the current trading levels, improved bottom-line and top-line in FY21, valuation, positive demand outlook for ARS market, refreshed growth strategies for FY22, integration benefits from the acquisition, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $5.810, as on 30 September 2021, 11:10 AM (GMT+10), Sydney, Eastern Australia.

VRT Daily Technical Chart, Data Source: REFINITIV

Australian Vintage Limited

AVG Details

Increase in Shareholding: Australian Vintage Limited (ASX: AVG) is engaged in making and marketing of wine and vineyard management. Its portfolio includes the McGuigan, Tempus Two, Nepenthe, etc. On 23 September 2021, MA Financial Group Limited (MAF) and its listed companies increased their shareholding from 6.19% to 7.77% in the company.

FY21 Results:

• AVG posted operating revenue growth of 2.6% YoY to $273.96 million in FY21 due to the increased sales of the McGuigan, Nepenthe, BVWC, and Tempus Two brands (up 12% YoY).
• The NPAT grew by 79% YoY to $19.6 million during FY21 due to efficiency on the capital spend and investment in people.
• The net cashflows from operations increased to $45.02 million in FY21 compared to $22.25 million in FY20 owing to higher cash receipts collected.
• The net debt decreased by $24.5 million to $42.8 million in FY21.
• Other key metrics such as the ROCE (Return on Capital Employed), rose to 7.5%, reflecting an improvement of ~70% on the prior period.
• A final dividend of 2.7 cents per share, franked at 60% was declared (25 November 2021 being the Ex-Date).

Total Revenue & Net Income Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 impact, climate changes, tariff imposition on wine in China, limited grape supply as potential business risks.

Outlook:

• AVG targets to achieve a high single-digit ROCE in the medium term.
• The company enters FY22 on a positive note and will provide a business update at its Annual General Meeting in November 2021.
• The DRP (Dividend Reinvestment Plan) will remain suspended for the final dividend payable on 17 December 2021.
• AVG is committed to growing business in China via its China-based distribution firm and considering multiple options to continue the sale of its core brands in China.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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 AVG gave a positive return of 13.45% in the past six months and a positive return of 38.67% in the past nine months. The stock is currently trading above the 52 weeks’ average levels of $0.472-$0.922. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average EV/Sales multiple, considering its decent financial results in FY21, and business expansion plans in China. For the purpose of valuation, few peers like United Malt Group Limited (ASX: UMG), Coles Group Limited (ASX: COL), Top Shelf International Holdings Limited (ASX: TSI), and others have been considered. Considering the improved financial metrics and growth across segments in FY21, consistent dividend payments in the last five years, higher ROE and decline in net debt in FY21, plans to expand in China, continued investment in brands and assets in FY22, valuation upside, and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.805, up by ~0.625%, as on 30 September 2021.

AVG Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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