Woolworths Limited
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Reorganizing business to offset the ongoing performance pressure: Woolworths Limited (ASX: WOW) continued to witness pressure on sales, which reduced 0.2% yoy to of $60.7 billion impacted by the group’s Australian Food, liquor and petrol as well as General Merchandise segments . Earnings before Interest and Tax also marginally declined by 0.7% yoy to $3.75 billion in FY15, due to decrease in EBIT for general merchandise and hotels by 25.3% and 14.9% on a year over year basis. To offset the ongoing performance pressure, WOW undertook measures to revive its business across all the segments and launched an Australian Supermarket Customer first Strategy, thorough which WOW estimates an expansion in sales over the next three years. Woolworthsis focusing on enhancing shopping experience, through offers and better communication. The group invested over $200 million on price during the second half of FY15, and estimates to do the same during the first half of FY16. Accordingly, over 9,000 items from WOW were cheaper as compared to its major competitor Coles during fourth quarter of 2015, as per the Nielsen Homescan reports. Woolworths is also focusing on team hours during FY15 and FY16 to improve the customer service and availability as well as fruit and vegetable offers, leading to a better Net Promoter Score. The group’s transition to Lean Retail Model helped them to achieve significant costs savings of >$500 million, ahead of their targets.
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Lean Retail Model (Source: Company reports)
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Outlook: Woolworths shares plunged over 11.7% in just last four weeks, impacted by Moody’s downgrade of the group’s long-term senior unsecured note to BBB+ rating with a stable outlook from A credit rating with negative outlook. Poor fiscal year of 2015 also contributed to the stock decline. However, the group is making efforts to boost its fiscal year of 2016 performance by investing in price, service and experience. Woolworthsis also a strong dividend player reporting 139 cents per share during the total fiscal year of 2015 and has a dividend yield of 5.3%. The stock downfall have led to a cheaper P/E of 14.8x, as compared to its competitors. Based on the foregoing, we reiterate our “BUY” recommendation on WOW at current price of $25.26.
Australia and New Zealand Banking Group
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Focusing Asia through super-regional strategy:Australia and New Zealand Banking Group (ASX: ANZ) launched super-regional strategy to boost its presence in Asia as compared to its Australian peers. The bank also reaffirmed its China’s growth outlook over 7% to 7.5% per year. As a result, the bank’s global markets business income rose 6% yoy to $1.8 billion during the nine months ended on June 30 of fiscal year of 2015, while the customers for International and Institutional Banking improved 9% yoy, boosted by Asian business. Cross border payments represented over 25% of the institutional total customer revenues as of first half of 2015.
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Raised Capital to meet APRA’s CET-1 Ratio requirements: ANZ rosecapital to boost its capital position and meet the minimum capital regulatory specifications proposed by Australian Prudential Regulation Authority (APRA). ANZ’s APRA Common Equity Tier-1 (CET1) ratio stood at 8.6% during the nine months ended on June 30 of fiscal year of 2015. Through the $2.5 billion Institutional placement, the CET-1 ratio for 2015 improved to 9.2% on a pro forma basis. Additionally, ANZ raised $500 million under the share purchase plan, subsequently enhancing the CET1 Ratio by 13 bps to 9.3%.
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Stock Performance: The bank reported a stable performance for nine months ended on June 30 of fiscal year of 2015, delivering a cash profit increase of 4.3% yoy to $5.4 billion, while statutory profit rose 11% yoy to $5.6 billion in 9M15, against $5 billion in pcp, boosted by the improved customer franchises across Australia, New Zealand and Asia Pacific. On the other hand, the bank’s shares fell over 17.5% in just last four weeks, impacted by slowdown in China. However, this correction led to cheaper valuation leading to an attractive P/E of 10.3x as compared to peers. The bank also has a strong dividend yield of 6.6%. We remain bullish on the stock and reiterate our “BUY” recommendation at the current levels of $26.96.
Flexigroup Limited
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Recent Management changes: FlexiGroup Limited (ASX: FXL) shares plunged over 13% on August 11, impacted by the poor FY15 guidance and board changes. The company’s chairman Chris Beare as well as the non-executive director Anne Ward have declared their resignations. Earlier, the group’s CEO Tarek Robbiati have also exited. Meanwhile, the firm reported a Cash NPAT growth of 6% yoy to $90.1 million in fiscal year of 2015, while volumes rose by 5% yoy to $1,136 million. The group’s Certegy business (No interest ever payment processing primarily in homeowner sector) delivered a cash NPAT increase of 7% yoy in FY15, boosted by enhanced volumes of 9%. Meanwhile, FlexiGroup issued a Cash NPAT guidance in the range of $92 million to $94million for FY16. The Enterprise & SME businesses is expected to affect the FY16 earnings. Dividends are estimated to be in the range of 50% to 60% of Cash NPAT
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Portfolio Income (Source: Company Reports)
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Outlook: FlexiGroup’s stock fell 16.3% in last four weeks and corrected over 11% in just last five days, partly attributed to the management change and lower than estimated results. On the other hand, we view the recent correction as an attractive investment opportunity, as the lower interest rates is expected to drive the demand for loans. The stock is trading at a relatively cheaper P/E of 9.5x as compared to its competitors and has a strong dividend yield of 6.7%. We remain positive on the stock and recommend a “BUY” at the current price of $2.57.
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