4 Stocks: Star Performers and Laggards of this reporting season - CHC, WOR, CBA, COH

Charter Hall Group

Trading at Higher Level: Charter Hall Group (ASX: CHC) is primarily engaged in investment in property funds. The company recently updated that AMP Limited has been ceased to be a substantial shareholder of it. In another recent update, the company notified that it has partnered to acquire 100% of the freehold interest in the Melbourne CBD Global headquarters of Telstra. The transaction is expected to be settled in 1HFY20 for a total consideration of $830 million. With the strong yield profile and growth prospects, the deal is expected to support the company’s long-term outlook of the Melbourne CBD office market.

1HFY19 Highlights: During the period, the company reported operating earnings of $107.5 million, up 13% on the prior corresponding period. Statutory profit after tax for the period rose by 10.7% to $133.5 million. The company witnessed a growth of 6.7% in its Property Investment portfolio and generated 12% total property investment return. The period was marked by a modest balance sheet gearing ratio of 5.5%.


1HFY19 Performance Highlights (Source: Company Reports)

FY19 Guidance: In FY19, the company expects post-tax operating earnings per security to witness a growth of approximately 24% over FY18. The guidance provided earlier was in the range of 14% - 17%. The company also updated that it expects net revaluations for the six months ended 30 June 2019 to be approximately $450 million across the funds management platform. Funds under management as at 30 June 2019, are expected to be around $30.2 billion, representing an increase of 30% or $7.0 billion for FY19.

Stock Recommendation: Over a period of 1 year and 6 months, the company’s stock generated returns of 75.49% and 42.86%, respectively. Currently, the stock is trading close to its 52 weeks high level of $11.910. During FY19, the company attracted record equity inflows from wholesale, listed and private investors, witnessing robust growth across all business aspects. The company upgraded the guidance on the back of growth in funds under management, strong transactional activity and the performance of funds. The company has a Price/Earnings multiple of 20.53x, which is higher than the industry median of 17.4x. We are of the view that most of the positives are factored in at current level, given the higher valuation and significant rise in stock price. Hence, considering the above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of $11.600, down 0.172% on 26 July 2019.
 

WorleyParsons Limited

Acquisition of Jacob ECR to Underpin Growth:WorleyParsons Limited (ASX: WOR) is engaged in providing engineering, design and project delivery services. In the month of May, the company secured a services contract from Thai Oil Public Company Limited, to provide engineering, procurement and construction management services for its oil refinery in Thailand.

Acquisition Update: On 26 April 2019, the company completed the acquisition of Jacob Engineering Group Inc’s ECR division, for a total consideration of A$4.55 billion. The new merged entity will comprise of a workforce of 57,600 people across 51 countries and is expected to deliver cost synergies of approximately A$130 million at the cost of A$160 million, within two years. The company has now adopted “Worley” as its brand name and will be renamed as Worley Limited, upon approval of member at the AGM in October 2019.

Financial Highlights: During the six months ended 31 December 2018, aggregate revenue was reported at $2,566.2 million, up 11.1% on pcp. Underlying EBIT for the period amounted to $156.3 million, up 17.6% on pcp. Underlying NPAT for the period stood at $98.4 million, representing a rise of 25.8% on the prior corresponding period.


1HFY19 Results Summary (Source: Company Reports)

Outlook: On the outlook front, the company expects to deliver improved earnings in FY2019 before including the contribution of the Jacobs ECR acquisition. This growth is expected on the back of Worley’s growing position in the resources and energy markets.

Stock Recommendation: The stock of the company generated returns of 11.74% and 11.20% over a period of 1 month and 3 months, respectively. As reflected by the recent level of contract awards, the company is expected to grow its position in the resources and energy markets with earnings weighted to the second half. The acquisition of Jacob’s ECR division is also expected to deliver significant benefits to the shareholders in the near term. In 1HFY19, the company had a gross margin of 8.0% as compared to 7.2% in pcp. The company’s net margin during the period stood at 3.3% as compared to 2.8% in pcp. Considering the above factors, we give a “Buy” recommendation on the stock at the current market price of $16.090, up 1.195% on 26 July 2019.
 

Commonwealth Bank of Australia

CET1 at 10.3% for 3Q19: Commonwealth Bank of Australia (ASX: CBA) is one of Australia’s leading providers of integrated financial services. The company recently updated that it became a substantial shareholder for Arena REIT Limited, GDI Property Group Limited and RHIPE Limited.

The bank inked a deal to sell Count Financial Limited to CountPlus Limited for a consideration of $2.5 million. The company is expected to save on a loss of approximately $13 million in FY19 through this transaction.
Financial Highlights:During 3QFY19, the bank witnessed a decline of 3% in Net interest income (NII). Operating income during the period reported a decline of 4% owing to factors including weather events, unfavourable derivative valuation adjustment and other seasonal factors. The bank had a Common Equity Tier 1 ratio of 10.3% at the end of the period. Profits during the period were impacted by pre-tax additional customer remediation provisions amounting to $714 million, with an unaudited statutory net profit of $1.75 billion.


CET1 (Source: Company Reports)

Stock Recommendation: The stock of the company generated returns of 0.75% and 10.01% over a period of 1 month and 3 months, respectively. During the first half, the company had CET1 ratio of 10.3%, which is lower than APRA’s requirement of 10.5% from Australian banks. Profits were also impacted by provisions for additional customer remediation. However, the company reported a strong balance sheet and capital position during the period. The company’s stock is currently priced close to its 52 weeks high level of $83.990. The company has a Price/Earnings multiple of 16.17x, which is higher than the industry median of 11.7x. Price/Book multiple for the company stands at 2.2x in comparison to the industry median of 1.5x. Given the backdrop of aforesaid factors, we give an “Expensive” recommendation on the stock at the current market price of $82.590, down 0.494% on 26 July 2019.

Cochlear Limited

Bottom-Line posted double-digit growth in 1H19: Cochlear Limited (ASX: COH) is engaged in providing implantable hearing solutions. The company recently updated that Hyperion Asset Management Limited has been ceased to be a substantial shareholder of it.    
                                                                                                                                          
1HFY19 Highlights: During the first half, the company generated revenue amounting to $711.9 million, up 11% in comparison to the prior corresponding period. Net profit for the period amounted to $128.6 million, up 16% on pcp. The period saw a strong cash flow position resulting in 11% increase in the interim dividend.

Sales revenue in the Americas witnessed a rise of 3%. Revenue in the EMEA and Asia Pacific regions increased by 8% each. Growth in EMEA was backed by strong services revenue growth in Western Europe. In the Asia Pacific, Japan experience strong unit growth and Australia delivered strong growth in sound processor upgrades.


Key Financial Highlights (Source: Company Reports)

FY19 Guidance: The company issued FY19 net profit guidance of $265 million - $275 million, representing a growth of 8% - 12% in comparison to the prior corresponding year.

Stock Recommendation: The stock of the company generated returns of 6.61% and 22.07% over a period of 1 month and 3 months, respectively. The stock of the company is currently priced close to its 52 weeks high level of $225.450 and has a market capitalisation of ~$12.97 billion. During the first half, the company witnessed strong growth of 26% in upgrades revenue. Moreover, the period saw an increase in sales revenue across all regions. However, it can be presumed that majority of the above positive factors have been discounted for in the stock price. Hence, we give an “Expensive” recommendation on the stock at the current market price of $222.040, down 1.166% on 26 July 2019.

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