Coronavirus fear hits the Australian markets hard: FNP, VOC end the day in red

The growing number of coronavirus cases across the globe has raised serious concerns amongst the economies worldwide. On Monday, 09 March 2020, stock markets tumbled on the back of the rising number of cases in Europe and the US, coupled with emergency measures taken by Saudi Arabia.

Also, the steep fall in oil prices, due to a breakdown in talks between OPEC and its allies to lower production levels, led to negative sentiments. The S&P/ASX 200 index closed the day’s trade at 5,760.6 points on 09 March 2020, a decline of 7.91% over its previous close (6,216.2 points).

Let us look at two ASX-listed stocks – FNP, VOC - that were impacted by the global recessionary fears and ended the day’s trade in the red.

Freedom Foods Group Limited (ASX:FNP)

Freedom Foods Group Limited is an Australian FMCG company that is engaged in the production and selling of soy yogurts, beverages, dips and vegetarian soy-based foods. The Company is also involved in the distribution of natural foods and canned seafood.

Strong Performance in the first half of 2020 But China poses a threat for next few months: For the first half of FY2020, FNP reported a 43.4% growth in net sales revenue of $299.7 million compared to the previous corresponding period. There was an increase of 55.6% in the Operating EBDITA compared to the previous corresponding period at $32.7 million. Gross margin expanded to 27.1% from 24.7% during the period.

The Company reported a 42.1% rise in the operating net profit after tax at $9.1 million compared to the previous corresponding period. The growth was due to an increase in the operating EBDITA, which was partially offset by an increase in depreciation and amortisation costs. The growth in the topline and bottom line numbers were on the back of increased sales and earnings contributions from Dairy Beverage, Nutritionals and Plant Beverage business units, which were partially offset by reductions in Cereals & Snacks and Specialty Seafood as compared to the previous corresponding period. The Company reported a 45.6% rise in the statutory net profit after tax to $5.4 million, including the one-off non-operating costs of $3.4 million.

For 1H 2020, the effective tax rate was 34%, which was higher than the average tax rate on the back of the impact of overseas operations that also included the newly established Chinese wholly owned enterprise (WOFE) and non-recognition of losses due to changes in the North American operation. Moreover, the Company achieved growth in key branded categories and channels, as it posted 23% growth in Australian retail grocery, which is more than the category average growth rates of 1.3%.

There was a 152% growth in the sales of the MilkLab range in 1H 2020 compared to the previous corresponding period. MilkLab sales grew 39% compared to the six months ended 30 June 2019. The Company reported a 100% growth in Messy Monkeys compared to the previous corresponding period and 30% growth compared to the six months ended 30 June 2019 in the healthy snacks retail channel.

The Company, during the first half of FY2020, had launched 40 new product formats into retail, grocery, out of home and export markets. FNP had also launched specialised Nutritional Ingredients, that included Lactoferrin (LF), Micellar Casein (MCC) and Whey Protein Isolate (WPI).

Outlook: For the second half of FY2020, the Company anticipates higher sales and earnings growth due to seasonality of the business and further growth in its activities related to key business. The Company expects short-term disruption to China demand (forms ~15% of the net sales) over the next few months due to a problem in the internal supply chain.

Source: Company Presentation

Stock Performance:

FNP stock last traded at $4.430 on 09 March 2020, a decline of 9.035% compared to the previous day’s closing price. The Company has a market capitalisation of $1.34 billion and 274.66 million outstanding shares. FNP has an annual dividend yield of 1.13% and a P/E ratio of 101.460x.

Vocus Group Limited (ASX:VOC)

Vocus Group Limited is a leading integrated player in telecommunications that focusses on offering specialist fibre and network solutions. The Company has a presence in the Asia-Pacific region, including Australia and New Zealand.

Decent Performance in 1H2020 & Outlook for FY2020: For the first half of 2020, VOC reported a 2% increase in the underlying EBITDA on the back of strong cost control measures taken across all business units, which led to 8% decline in overheads in the first half compared to the first half last year. The Company reported a 7.5% increase in the Statutory EBITDA to $181.2 million, but there was 8.2% fall in the Statutory EBIT to $45.9 million as compared to the previous corresponding period. During the period, a 7% fall was reported in total revenues with lower nonrecurring revenues compared to the prior comparable period driven by the construction of the Coral Sea Cable.

The Company reduced its direct costs proportionately. VOC posted a 4% fall in the gross margin due to the legacy revenue declines in the Australian retail business. EBITDA for Vocus Networks stood at $111 million, an increase of 11% compared to last year. Vocus Networks is the largest contributor to group EBITDA and currently forms more than 60% of the group EBITDA. New Zealand continues to grow strongly with a 6% increase in the EBITDA.

The Company did not declare an interim dividend as it had signed an expanded Syndicated Facility Agreement with the lenders. According to this agreement, the Company will not have to pay dividends unless the Company’s Net Leverage Ratio is less than 2.25x for two successive testing dates. At the end of December 2019, the Company’s Net Leverage Ratio stood at 2.81x, which was below the covenant testing threshold of 3.5x in December. VOC had generated a 15.6% increase in the net cash from the operating activities to $121.1 million. The Company’s net cash outflow from the investing activities had fallen to $105.6 million compared to $215.1 million in the previous corresponding period. At the end of December 2019, the Company’s net cash and cash equivalents position stood at $89.290 million.

Outlook: For fiscal 2020, VOC expects the underlying EBITDA to be in the range of $359 million to $379 million. Underlying EBITDA growth in Vocus Network Services is projected to be in the range of $20 million to $30 million, and capital expenditure is expected to be in the range of $200 to $210 million.

Stock Performance:

VOC stock last traded at $3.090 on 09 March 2020, a decline of 9.384% compared to the previous day’s closing price. The Company has a market capitalisation of $2.12 billion and 620.57 million outstanding shares. VOC has a P/E ratio of 69.880x.


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