Category: Technical Picks
Well it is very important to look at the momentum, price action and volume weighted average price of a stock other than fundamental screeners.
This is what our team has come up with another important feature for selecting the stocks on the basis of more than 10 technical screeners, which can help our investors & members to look for short term positional investing, short term trading and identifying the long term price action trends of their favourite stocks.
Investment Thesis
- Trading at a discount to our valuation, with attractive trading multiples and dividend yield.
- SUL’s four core segments have strong tailwinds/fundamentals. For example, vehicle aftermarket sales continue to be strong (with an increase in secondhand vehicles sold (Supercheap); travellers seeking social distancing and thus moving away from public transportation (Supercheap); with Covid lockdown measures in force, more people would spend their holidays domestically (BCF; macpac), utilising their vehicles (Supercheap); increasing awareness of fit and healthy living (Supercheap); (rebel).
- A strong capital position.
- Strong brands in BCF, Macppac, Rebel, and Supercheap, as well as solid industry positions in oligopolies and a solid store network.
- With over 8 million members, this is an appealing loyalty programme.
- Making the switch to an omni-channel business. Previously, the business was modelled on like-to-like store numbers; however, management now thinks of business metrics in terms of club members and has been capable of growing active club membership much faster than store numbers (store numbers in the last 5 years have grown +2 percent CAGR vs active club members at +10 percent CAGR), supplying an opportunity to expand customer base and thus (most of the customers are omni channel). Management continues to push for increased online sales (Covid-19 added to this tailwind), with online sales currently accounting for 13-15 percent of total sales and expected to rise to 20-25 percent over the next five years.
Key Risk
- Increasing competitive pressures.
- Any supply chain issues, particularly as a result of the impact of Covid-19 on logistics, that have an impact on earnings.
- Increasing cost pressures are eroding margins (e.g. more brand or marketing investment required due to competitive pressures).
- A disappointing income update or failure to achieve the market’s expected growth rates could cause the stock price to re-rate significantly lower.
SUL’s Strong Balance Sheet
- Net cash position of $242.3 million, resulting from a July 2020 equity raise and strong trading throughout the period.
- Fixed charge cover is 3.1x (based on commonplace EBITDAL) and is anticipated to stabilise in the low to mid 2x range.
- SUL has $600 million in undrawn committed debt facilities.
- “While Covid-19-related trading restrictions and lockdowns continue, the Group intends to preserve a very commercially produced position,” said management.
- Once trading conditions have normalised, the Group intends to aim for a long-term net debt/EBITDA position (pre AASB 16) of 0 to 0.5x.”
Company Profile
Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. Macpac: retailer of apparel and equipment with their own designs focused on outdoor adventurers. Rebel: Retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. Supercheap Auto: specialty retail business which specialises in automotive parts and accessories.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment thesis
- Strong market share in Australia, with a strong influence in Asia. As a result, it offers appealing exposure to the growth of both developed and emerging markets.
- The corporation’s newly appointed CEO brings a fresh perspective on company strategy, which can restructure the company for strong volume growth.
- Based on our projections, the valuation is reasonable.
- Going forwards, management appears to be less centred on acquired growth, implying that the Company is less likely to make a value-destroying acquisition.
- The reintroduction of the dividend is a positive sign that management is optimistic about future earnings growth.
- In an environmentally friendly market, focusing on sustainable packaging.
Key Risks
The following are the key challenges to the investment thesis:
- Increased competitive pressures, resulting in further margin erosion.
- Cost pressures on inputs that the corporation would be unable to pass on to users.
- A worsening in Australia’s and Asia’s economic conditions.
- The risk of emerging markets.
- Poor acquisitions or failure to meet synergy targets as PGH shifts away from packaging for food, dairy, and beverage clients and towards more high-growth sectors such as healthcare.
- Negative currency movements (purchased raw materials in U.S. dollars)
Highlights of key FY21 results
- Revenue fell -3 percent to $1,762 million, while underlying EBITDA increased by 4% to $315 million, underlying EBIT increased by 10% to $183 million (EBIT margin increased by 120 basis points to 10.4 percent), and underlying NPAT increased by 28% to $94 million. The positive motivational drivers of group EBIT growth over the year were: margin improvement (+$10m) as a result of disciplined raw material input cost management; volume growth in Packaging & Sustainability (+$9m); and volume increase in Materials Handling & Pooling (+$15m).
- As a result of strong operating performance and working capital management, cash flow performance improved, with free cashflow increasing by +44 percent to $104 million.
- Balance sheet gearing decreased slightly year on year, working to improve to 2.4x (within the targeted range of 3.0x) from 2.6x. The company has $317 million in liquid assets (undrawn debt capacity).
- Strong capital returns, with a +120bps increase in ROIC to 11.8 percent. The Board declared a final dividend of 6cps (65 percent franked), helping to bring the year’s total dividends to 11cps (vs 3cps in the pcp).
Company Description
Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother in law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs and manufactures packaging (plastic resin and steel) for many productsin the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
as evidenced by penetration of over 75% in Australia and New Zealand and 40% in North America. Moreover, the device patent expires in 2025, leading to slower volume growth in the medium term. Moreover, the device patent expires in 2025, leading to slower volume growth in the medium term. In 2021 consumables contributed 63% of group revenue.
Nanosonics primarily distributes via GE Healthcare, its partner across multiple geographies. We estimate consumables to roughly earn a gross margin of 85% and devices 65% by fiscal 2026. Outside of trophon, the company expects to launch a new product in flexible endoscope cleaning in 2023. Previously, management intimated the addressable market to be equivalent to trophon and there is greater awareness of the infection issue this product addresses.
Financial Strength
Nanosonics is in a net cash position and free cash flow positive. The operating model does not require significant capital investment, with the key investments for growth stemming from ongoing R&D spending, building out a salesforce and working capital. Despite having 60-day terms from distribution partners, the current net investment in working capital runs at approximately 28% of revenue due to high inventory holding levels which average roughly 200 days in stock. phase. The company first posted a profit in fiscal 2016 and is yet to pay a dividend, nor do we expect it to in the future as it invests in underpenetrated markets and its pipeline product.
Our fair value for narrow-moat Nanosonics by 13% to AUD 3.50 following fiscal 2021 results. Roughly half of our upgrade is attributed to increasing consumable usage across the trophon installed base and the remainder due to a stronger USD. A clear highlight was second-half fiscal 2021 consumables revenue in North America, or NA, increasing 30% sequentially to AUD 33 million as ultrasound procedure volumes recovered. For the first time since fiscal 2016, new installations in NA increased year on year, with 2,490 trophon units added in fiscal 2021.
While the second half added 1,360 new units in NA, the run-rate has significantly declined from 2,000 new installations in first-half fiscal 2017. Revenue in the region declined 1% sequentially to just AUD 3.6 million in the second half. Nanosonics is in a strong financial position with AUD 96 million in net cash at fiscal 2021 year-end. Nanosonics’ next major product, dubbed Coris, aims to automate flexible endoscope cleaning but has been delayed to calendar 2023. Details remain scant and we continue to expect uptake of Coris to mirror that of the trophon post-launch. This results in AUD 84 million in sales by fiscal 2031, or 23% of group revenue.
Bulls Say’s
- Nanosonics is the market leader in automated HLD of ultrasound probes with significant further market penetration potential in most regions.
- Establishing its direct distribution model should increase the gross margins achieved by Nanosonics once it reaches critical mass.
- The company has reached a pivotal point where higher margin consumables dominate the revenue stream. This revenue stream is also protected by patents and the installed trophon device base.
Company Profile
Nanosonics is a single-product company and its trophon device provides high-level disinfection, or HLD, of ultrasound probes used in semi-critical procedures. The patented technology uses low temperature sonically activated hydrogen peroxide mist that is suitable for probes sensitive to damage. Automated HLD is increasingly being adopted as the standard of care globally as it is superior in preventing cross-infection across patients. Nanosonics’ revenue is made up of capital sales of trophon units, ongoing consumables sales, and service revenue. At June 2021, there were 26,750 trophon units installed globally. Market penetration rates range from over 75% in Australia and New Zealand, roughly 40% in the United States to low-single-digit penetration in EMEA and elsewhere in Asia-Pacific.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.