Seven Group Holdings Limited

Company Overview: Seven Group Holdings Limited (ASX: SVW) is an investment company based in Australia, operating with businesses and investments in industrial services, oil and gas, and media. SVW functions through six segments: WesTrac, Coates Hire, Energy, Media investments, AllightSykes, and other investments. The company started trading on ASX on 30 April 2010.

SVW Details

Key Takeaways from 1HFY22 Financial Results:

• Financial Position: Operating cash flow declined by $6.9 million, primarily attributed to increased WesTrac inventory with reduced underlying EBITDA cash conversion to 62% in 1HFY22. Closing net debt stood at $4,122 million comprising of $1,903 million net cash in Boral and $6,025 million net debt in SGH ex-Boral.
• Improved Prospects for Industrial Services: Iron ore, zinc, coal, copper, and lithium commodity prices have crossed the long-term average. The industrial services segment is managing supply chain discrepancies with $179 million investment in working capital.
• Merits of Beach Energy's Diversified Portfolio: Beach Energy held six production hubs supplying three gas markets. Beach has a 33% stake in the Santos operated Moomba carbon capture and storage project, which has recently achieved Final Investment Decision (FID).
• Operating Metrics: SVW clocked a revenue from continuing operation of ~$3.96 billion, edged up by ~68% on a reported basis and inclined by ~3% on a pro-forma basis. The company's continuing operations EBITDA stood at $749 million, up by 42% and continuing operations EBIT was registered at $510.9 million, up by ~28.9% on a reported basis.

Half Yearly Key Metrics; (Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 60.95% of the total shareholding, while the top 4 constitute the maximum holding. North Aston Pty. Ltd. and Ashblue Holdings Pty. Ltd.  are holding a maximum stake in the company at 34.17% and 16.37%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company has reported a substantial improvement in ROE performance from 1HFY21 at 11.8% to 25.1% in 1HFY22, and net margins have also improved over the same period. Its current ratio seems stable over a period of 1HFY21 to 1HFY22.

Liquidity Profile & Profitability Metrics (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Omicron & COVID-19 Pandemic: Due to COVID-19 and the new variant, the company is prone to its impacts from lockdowns.
• Changes In Consumer Demand: The demand for products from different industries might get impacted by changes in consumer & client preferences, along with the supply chain constraints attached with the industries.
• Diversification Risks: The company operates with different businesses from different industries, which makes it prone to the risks associated with variety of industries.
• Foreign Currency Risk: The company is also exposed to fluctuations in foreign currency, which might impact the profitability too.

Outlook: The company is optimistic about its growth prospects in the Industrial services vertical, aided by an increase in activity in mining production and subsequent increase in the pipeline of infrastructure activity. The outlook for commodity prices remains encouraging, and the company expects higher infrastructure investment to support growth in construction activity and capital sales in Western Australia and New South Wales. The company is positive about its growth prospects in the future and believes its operating business segments and investments are well placed to leverage the opportunities in its respective markets. The management expects a positive outlook for Seven West Media with a recovery in advertising markets. SVW has upgraded its EBITDA target for Seven West Media from $315 million to $325 million. For FY22, Group guidance for EBIT is anticipated to be up 8-10% on FY21. The company remains on track to pay a regular dividend, depicting its solid capital structure. Its healthy balance sheet allows further investment in the business.

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 SVW gave a negative return of ~16.18% in the past three months and a negative return of ~10.52% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $18.280 - $24.550. The stock has been valued using the P/E-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 the impact of lockdowns during COVID-19, and supply chain disruptions. For this purpose of valuation, a few peers like Emeco Holdings Ltd (ASX: EHL), Reece Ltd (ASX: REH) and Coventry Group Ltd (ASX: CYG) have been considered. Considering the current trading levels, growing sales & ROE, rising net margins, continuing customer demand in construction machinery, WesTrac on track to deliver FY22 guidance, upgradation in the guidance despite supply chain disruptions, indicative upside in valuation, and associated key business risks, we give a ‘Buy’ rating on the stock at the closing market price of $18.790, down by ~1.777%, as of 31^st May 2022.

SVW Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.

Disclaimer

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