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Telstra Corporation Ltd
Expect ongoing weakness: Telstra Corporation Ltd (ASX: TLS) stock has fallen over 11.52% in the last six months as on February 01, 2017 impacted by concerns over their top line growth. The group has appointed Robyn Denholm as its Chief Operations Officer. TLS also cancelled 50, 190, 465 shares brought back from shareholders under its buy-back program. Meanwhile, the group’s strategic partner Vita group has agreed new commercial terms, according to which the remuneration structure will change and there will also be additions to the group’s network of Telstra-branded stores. Moreover, TLS intends to use more than $1.5 billion building networks for the future, and over $1 billion in accelerating the digitization of the business and up to $500 million in other customer experience related improvements. TLS is expecting to reduce the net underlying core fixed costs by over $1 billion by FY21. But, TLS’s outlook for ‘mid to high’ single digit revenue growth, and ‘low to mid’ single digit EBITDA growth in 2017 remains a concern. We give an “Expensive” recommendation on the stock at the current price of – $ 5.03
Australia and New Zealand Banking Group Ltd
Offloading certain assets to focus on core business: Australia and New Zealand Banking Group Ltd (ASX: ANZ) has announced for interest payment details for CNY 2.5 billion 4.75% fixed rate subordinated notes due January 2025. ANZ also reported about selling of UDC Finance to China’s HNA Group for $660 million. In addition, the group had reached an agreement to sell its 20% stake in Shanghai Rural Commercial Bank (SRCB) to China COSCO Shipping Corporation Limited and Shanghai SinoPoland Enterprise Management Development Corporation Limited. Based on the agreement, COSCO and Sino-Poland Enterprise would each acquire 10% of SRCB for a total consideration to ANZ of RMB9,190 million (A$1,838 million). With this sale, ANZ would enhance their APRA CET1 capital ratio by about 40 basis points. ANZ has a decent dividend yield and is trading at a reasonable P/E. The stock has risen 14.2% in the last six months as on February 01, 2017, and we believe the momentum would continue. The FY17 trading update is due on February 17, 2017. Accordingly, we give a “Buy” recommendation on the stock at the current price of – $ 29.39
National Australia Bank Ltd
Positioned well for regulatory changes: National Australia Bank Ltd.’s (ASX: NAB) wealth division has been under pressure and is forced to pay about $36.5 million to its customers as it wrongly charged fees to superannuation fund members and incorrectly denied insurance claims, as determined by the Australian Securities and Investments Commission. On the other hand, NAB had announced about issuance of AUD275 million Subordinated Notes in January 2017. The group earlier reported the statutory net profit of $352 million in FY 16, which is a slump of 94.4% due to the loss on sale for both CYBG PLC (CYBG) and 80% of NAB Wealth’s life insurance business. But, excluding the discontinued operations, the statutory net profit has decreased only 5.6% to $6.42 billion. Moreover, NAB reported 4.2% growth in the cash earnings of $6,483 million in FY 16. On a cash earnings basis, the revenue grew 2.5%. NAB is making changes in its structure and business, and seems to be well-placed to meet the regulatory changes. The group will release first quarter 2017 trading update on February 06, 2017. The stock has risen 14.08% in the last six months as on February 01, 2017, while we maintain a “Buy” recommendation on the stock at the current price of – $ 30.40
Commonwealth Bank of Australia
Disposed Visa Inc. shareholding: Commonwealth Bank of Australia (ASX: CBA) has disposed their remaining shareholding in Visa Inc. for $439 million, which would generate an after-tax profit on sale of $278 million. Moreover, the group has undertaken a review of its capitalized software assets as at December 2016, leading to a one-off acceleration of amortization on certain capitalized software assets, principally relating to digital and direct banking channels, totaling $275 million after tax. On the other hand, the concerns of the property market decline remain a major concern to the stock. Further, group’s division, Bankwest has lately refunded $4.9 million to some of its customers owing to failure to consider offset accounts for calculating interest on home loans. CBA will announce its interim results on February 15, 2017. Despite having a decent dividend yield, we give an “Expensive” recommendation on the stock at the current price of – $ 82.01
Westpac Banking Corp
Weak cash earnings in FY 16: Westpac Banking Corp (ASX: WBC) has reported the cash earnings of $7,822 million in FY 16, which is in line with the prior year while the cash earnings per share fell 5% to 235.5 cents. Moreover, the total revenue fell 3% to $20,985 million and the net interest income grew 8% to $15,348 million. The group reported for sound domestic fundamentals but global conditions remain volatile. Further banking-sector competition and structural changes in many other sectors and regions are bound to add stress and impact the performance. We maintain our “Expensive” recommendation on the stock at the current price of – $ 32.01
Wesfarmers Ltd
Better than expected earnings in 1H FY 17: Wesfarmers Ltd (ASX: WES) is expected to report the earnings before interest and tax (EBIT) of between $135 million and $140 million for the first half of the FY 17, exceeding the previous guidance provided in October 2016 of a broadly breakeven EBIT for the half. This strong production would lead to a higher than expected sales volumes aided by improved shipping timing and higher realized prices for both Curragh and Bengalla. The group has also completed the Coles credit card transaction with Citi. On the other hand, the rising competition from local and store retailers remains a concern while the stock has fallen 4.98% in the last six months as on February 01, 2017. We give an “Expensive” recommendation on this dividend yield stock at the current price of – $ 40.64
Macquarie Group Ltd
Takeover of Central Petroleum Limited: Macquarie Group Ltd (ASX: MQG) had announced about its plan for the takeover of Central Petroleum Limited through the acquisition of the issued capital of Central by way of a scheme of arrangement at 17.5 cents per share, late last year. On the other hand, Standard and Poor’s (S&P) had affirmed the ratings of the Macquarie Group of companies and changed the outlook from stable to negative as a consequence of its assessment of Australian economic conditions. The group has not issued any new fully paid ordinary shares during December 2016. We believe that some pressure would continue to prevail over the stock in the coming months. We give an “Expensive” recommendation on this dividend yield stock at the current price of – $ 83.92
Woodside Petroleum Ltd
Strong Fourth Quarter: Woodside Petroleum Ltd (ASX: WPL) stock has risen 18.34% in the last six months as on February 01, 2017 and the company in the fourth quarter ended December 2016 has reported for annual production growth of 3% over 2015. The group reported for record annual LNG production with 9% growth over previous record of 2014. The LNG production in Q4 is lower than Q3 2016 due to the higher ambient temperatures impacting LNG capacity and execution of the planned turnaround at Vincent (oil). The reliability has exceeded 99% for the second consecutive quarter at Karratha Gas Plant, Pluto LNG and offshore gas facilities. The sales revenue grew on previous quarter due to the strengthening of oil price. Moreover, the 2016 capital expenditure was US$1.4 billion, more than US$250 million lower than previous guidance. WPL’s 2017 budget is free cash flow neutral at US$35 per barrel. The Wheatstone project is approaching LNG Train 1 construction completion, all modules are on-site and final hook-up and commissioning has started. We maintain a “Buy” recommendation on the stock at the current price of – $ 32.21
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