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REA, joint 2nd cheapest stock we cover, 0.06x assets
🎯 🌴 📈 GBP316
Last 12-month cashflow -USD15.3m ⬆️
October 20th, 2020
⏰ 1 minute read
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Sales
Sales growth was +10.4% in the first half of this year, the seventh consecutive semester of positive sales growth, but 8% below our forecast. Growth was mainly from higher prices; own fruit production was up +4.2%, oil +2.2% on less fruit purchases. We expect prices to continue to rise & forecast sales to grow +10.7% this 12 months to USD144.9m.
Cashflow
Cashflow was still negative in the 1H, -USD7.8m excluding working capital +USD12.8m. But cashflow has improved significantly from the -USD62.9m for the 12 months to the 1H of last year as investment spending has halved. We assume continued low investment spending & this together with our sales forecast gives a positive average semester cashflow of USD7.2m this next 12 months.
Sales growth was +10.4% in the first half of this year, the seventh consecutive semester of positive sales growth, but 8% below our forecast. Growth was mainly from higher prices; own fruit production was up +4.2%, oil +2.2% on less fruit purchases. We expect prices to continue to rise & forecast sales to grow +10.7% this 12 months to USD144.9m.
Cashflow
Cashflow was still negative in the 1H, -USD7.8m excluding working capital +USD12.8m. But cashflow has improved significantly from the -USD62.9m for the 12 months to the 1H of last year as investment spending has halved. We assume continued low investment spending & this together with our sales forecast gives a positive average semester cashflow of USD7.2m this next 12 months.
10% sales growth ➡️ Positive cashflow ➡️ 5.6x higher target price...
Balance sheet
Because of the years of investment spending & resulting negative cashflow, the balance sheet remains in net debt which was at USD231m as of the 1H. But this is less than the USD243m in the last low cycle. With our forecast for positive cashflow ahead & assuming there’s no dividend, net debt will reduce to USD217m in 12 months time.
Profit
After a profit in the 2H last year, there was a net loss again -USD 8m in this 1H. The cash cost ratio of net profit add back depreciation minus sales as a % of sales was higher again at 90.2%. We use the last 12 months average 77% as sales rise to predict a next 12 months profit USD4.4m.
Value
REA has of course been raising capital, USD112m since 2014, but that’s less than the USD119m as of end 2019. We assume payments now accelerate. At just USD31.7m, it’s 0.22x sales, 0.08x assets, 0.13x equity with a 2.1% forecast profitability, no yield. Our cashflow forecast USD14.3m at 1.6% with an 0.2x adjustment gives a much higher target price of GBP316.3.
Because of the years of investment spending & resulting negative cashflow, the balance sheet remains in net debt which was at USD231m as of the 1H. But this is less than the USD243m in the last low cycle. With our forecast for positive cashflow ahead & assuming there’s no dividend, net debt will reduce to USD217m in 12 months time.
Profit
After a profit in the 2H last year, there was a net loss again -USD 8m in this 1H. The cash cost ratio of net profit add back depreciation minus sales as a % of sales was higher again at 90.2%. We use the last 12 months average 77% as sales rise to predict a next 12 months profit USD4.4m.
Value
REA has of course been raising capital, USD112m since 2014, but that’s less than the USD119m as of end 2019. We assume payments now accelerate. At just USD31.7m, it’s 0.22x sales, 0.08x assets, 0.13x equity with a 2.1% forecast profitability, no yield. Our cashflow forecast USD14.3m at 1.6% with an 0.2x adjustment gives a much higher target price of GBP316.3.