Despite a tsunami in taxpayer-funded stimulus measures to combat the coronavirus, Australia's economic recovery is shaping up to be more of a protracted affair than a 45 degree angle snap-back. While interest rates, at close to zero, support the likelihood of a sharper V-shaped economic recovery – don't hold your breath.
But the good news is that the recovery we're most likely to experience will look less like a U or W-shaped recovery, and more like the Nike 'swoosh'. The swoosh is akin to a Goldilocks-type bounce-back – not too hot, yet not too cold. A swoosh-shaped recovery bodes well for these 3 ASX 200 shares that remain seriously oversold since the beginning of the year.
McMillan Shakespeare Limited (ASX: MMS)
A decline in underlying net profit of 21.7% at half-year, plus challenging market conditions, compounded by the coronavirus, have seen the McMillan Shakespeare share price tumble to $9.03. That's 42% lower than the $15.70 it was trading at in late November.
The professional services firm is a market leader in novated leasing, asset management and related financial products and services. But with so much of the workforce currently receiving the government's Jobkeeper wage subsidy, it isn't a great time to be offering these types of services. However, during its COVID-19 update on 8 April, the company expected to see its salary packaging activity go higher on the back of state governments increasing the size of the health workforces.
While the company has withdrawn earnings guidance for FY20 in light of the COVID-19 shutdown, the current MacMillan share price represents a 17% discount to Morningstar's fair valuation of $10.18. Based on a P/E ratio of 12 (at the time of writing), the stock is trading on a discount to its sector peers (14.5) and the overall market at around 15.9.
As with all stocks right now, lack of clarity coming out of the pandemic is a little unnerving. But with McMillan's net debt at around 42% of its market cap, the company's balance sheet looks well positioned to emerge from the downturn ready to capitalise on new opportunities.
Southern Cross Media Group Ltd (ASX: SXL)
The Southern Cross Media share price declined 9.4% last week, but the media company (formerly Macquarie Media Group) – which is responsible for brands including 2Day FM, Triple M and the Hit Network – is already up 66% this week to $0.25 (at the time of writing).
This is great news for shareholders who recently witnessed a 244% increase in Southern Cross' existing shares on issue. This was following a $169 million equity raising early May, issued at a whopping 45.5% discount. The company has also renegotiated its bank loans and plans to draw an extra $57 million from its existing debt facilities.
The expanded war chest will be kept on its balance sheet to improve liquidity, and reduce its net debt position. At the end of 2019, the company had just $22.5 million in cash on hand and $353 million in drawn down debt. With current liabilities ($81 million) equal to 6% of its total assets, the company looks well positioned to trade through the crisis and rebound during the recovery. The fundamentals of the company's business remain sound, and the consensus recommendation on the stock is a strong buy, with Morningstar putting fair value at around $0.34.
AP Eagers (ASX: APE)
Dragged lower by the coronavirus mass sell-down, which accentuated the slowdown in car sales, the AP Eagers share price is trading around 24% lower than its pre-COVID-19 price of $9.01.
The auto dealership group's growth-by-acquisition strategy over the past 20 years has been impressive. Since then, it has boosted sales revenue from $500 million to $5.8 billion. Assuming April marks the low-point – with sales down 48.5% on the previous April – an upswing in car sales could mirror the recent boom in Australia's home improvement market. What will help the company capitalise on the market's recovery is the underlying strength of its balance sheet, which includes $270 million in cash, and undrawn corporate debt facilities.
Together with a further $122 million OEM working capital, AP Eagers has available liquidity of $392 million. The consensus recommendation on the stock is a moderate buy, and at $6.81 it is currently trading at a 26% discount to Morningstar's fair value of $9.24.
