Encouraging Household Spending and Digitalization Programs Bolstering Retail Industry – 3 Stocks to Watch Out

This report is an updated version of the report published on the 01^st August 2022 at 3:55 PM GMT.

Quick Event Snapshot

Favourable Macro Factors Pushing-up Retail Trade

Investment and Support to Digital Economy to Expand the Reach of Retail Services

Key Risks and Challenges

Outlook

Considering the digital infrastructure developments and favourable macro parameters, 3 ASX stocks are identified to showcase the momentum.

(1) PWR Holdings Limited (Recommendation: ‘Buy’ at AUD 8.200, Potential Upside: Low Double-Digit)

(M-cap: AUD 837.47mn, Annual Dividend Yield: 1.13%)

Company Overview: PWR Holdings Limited (ASX: PWH) is engaged in prototyping, designing, production, validation, and sale of advanced cooling products and solutions for motorsports and original equipment manufacturing (OEM).

Continued Growth in OEM Delivery and Emerging Technology Programs: In FY21, revenue increased by 20.5% to AUD 79.21mn, and the EBITDA margin expanded. Operating cash flow stood at AUD 31.37mn, up by 54.3% YoY. FY21 stood ahead of FY22, with growth witnessed among all key markets and geographies.

Extensive Organic Growth Opportunities to Progress: Revenue increased by 22.3% PcP to AUD 45.52mn in 1HFY22, and EBITDA edged up by 16.6% and stood at AUD 14.22mn. Operating cash flow shrank by 44.6% to AUD 9.61mn in 1HFY22, affected by AUD 2.0mn COVID-19 support payments and AUD 6.4mn increase in working capital to manage supply chain constraints.

Outlook: The company is continuing to ramp up OEM programs with the expected commencement of the Mercedes AMG X1 program in H2FY22. The online store has launched ahead of the target date of 15^th December 2021, a vital sales channel to supplement existing strategies.

(2) Seven West Media Limited (Recommendation: ‘Speculative Buy’ at AUD 0.450, Potential Upside: Low Double-Digit)

(M-cap: AUD 755.30mn, Annual Dividend Yield: 0.00%)

Company Overview: Seven West Media Limited (ASX: SWM) is involved in content production across broadcast television, publishing and digital.

Capitalising on Market Recovery with Prudent Financial Restructuring: In FY21, underlying group EBIT was raised by 141% to AUD 229mn, with net debt reduced by 40% to AUD 240mn. The metropolitan free-to-air TV advertising market rebounded by 25.8% in 2HFY22 and 11.5% in FY21. The company was engaged in a significant transformation strategy involving financial restructuring to repair the balance sheet.

Growth Prospects Underpinned by Boost in Advertising Market: SWM returned to the #1 rank in ratings, revenue, and Broadcast Video on Demand (BVOD). The total TV advertising market expanded, catering 27% YoY increase in revenue to AUD 820mn and a 31% increase in underlying EBITDA to AUD 215mn. The company completed the assets acquisition of Prime Media Group with Pro-forma leverage of 0.9x.

Business Update: SWM will release its FY22 financial results on 16^th August 2022.

Outlook: Broadcast and BVOD market strength has continued into 2HFY22 with 3QFY22 metro bookings tracking a 13% PcP increase, including the Winter Olympics and Ashes Test series. Group EBITDA target upgraded to a range of AUD 315mn to AUD 325mn.

(3) Eagers Automotive Limited (Recommendation: ‘Hold’ at AUD 12.320, Potential Upside: Low Double-Digit)

(M-cap: AUD 3.21bn, Annual Dividend Yield: 5.65%)

Company Overview: Eagers Automotive Limited (ASX: APE) sells new and used motor vehicles, distribution & selling parts, accessories, and repair services.

Elevated Financial Position to Support Operating Metrics: In FY21, APE clocked a statutory profit after tax of AUD 330.7mn relative to AUD 156.2mn in FY20. The containment measures led to AUD 25mn reduction in underlying operating profit before tax. The company retained an elevated financial position with available liquidity of AUD 733.1mn and net corporate debt of AUD 128.4mn.

High Operational Efficiency and Asset Restructuring Unveil Growth Prospects: In 1HFY22, APE expects to report statutory net profit before tax (from continued operations) to nearly AUD 246mn, exceeding the upper bound of the guidance (AUD 240mn). The improved outlook for the period is despite continued supply barriers to new car deliveries. APE witnessed a record order book and benefits from ongoing productivity and cost-saving strategies.

Outlook: APE completed the Bill Buckle Auto Group sale and associated freehold property on 30^th June 2022 to the Australian Motor Group, engaging cash proceeds of nearly AUD 88mn. The company stands in an elevated financial position with available liquidity of AUD 843mn.

Comparative Price Chart

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

Note 1: Past performance is not a reliable indicator of future performance. 

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 01^st August 2022. The reference data in this report has been partly sourced from REFINITIV. 

Note 3: Investment decisions should be made depending on an individual’s appetite for upside potential, risks, holding duration, and any previous holdings. An ‘Exit’ from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above. 

Technical Indicators Defined: - 

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock. 

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock. 

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

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