FIVE BLUE CHIP STOCKS IN OUR RADAR

 

Telstra Corporation Ltd

             TLS Dividend Details
 
Ongoing investments to deliver mobile and services growth: Telstra Corporation Ltd (ASX: TLS) witnessed a solid revenue growth in three years across its mobile division, which rose 10.2% yoy to $10.65 billion in fiscal year of 2015. Retail customer services improved by 664,000, leading to a total of 16.7 million. The group’s 4G network penetrated to over 7.7 million 4G devices, while its 4G services reaches to over 94% of the Australian population. Telstra enhanced its fixed data revenue by 7.3% yoy during the period driven by the better subscriber growth as well as higher average revenue per user to offset voice pressure. The firm also improved its NBN connections by 126,000 to 211,000 during the period as well as added 280,000 retail bundles boosted by Entertainer bundles and robust offers in market. Telstra would be enhancing its capex to 15% of sales in the coming two years, and investing > $5 billion on its mobile services and network in the next couple of years to June 2017. TLS is investing on growth areas and accordingly focusing on Network Applications and Services (NAS) portfolio as well as growth areas like Telstra Health, Telstra Media, the Telstra Software Group (TSG) and Telstra Ventures. The group is also focusing on Asia region for long term. Subsequently, Telstra is witnessing ongoing NAS growth boosted by present as well as new acquisitions and the segment reported an outstanding increase of 23.2% yoy to $2.42 billion during the fiscal year of 2015. Telstra finished the acquisition of Pacnet in April 2015 to expand its network and services in Asia.
 

FY16 Priorities (Source: Company Reports)
 
Stock Performance: Telstra stock fell over 15.74% (as of November 13, 2015) in the last three months partly impacted by the Australian Competition and Consumer Commission’s final decision on Telstra demanding the firm to cut access prices by 9.4%, which TLS charges other operators who use the group’s network.  This decision might add further pressure to the group’s earnings in the coming periods, who is already struggling to deliver a single digit top line growth, given its core fixed segment’s ongoing pressure. Telstra reported a slight total income increase of 1.2% yoy to $26.6 billion in FY15, but the group’s reported net profit after tax (from continuing operations) fell by 5.8% yoy to $4.3 billion during the period. Moreover, TLS did not announce any buyback plans which might further hurt the investor’s sentiment (Telstra finished over $1 billion buy back during FY15 at a share price of $4.6 which gave some support to the stock). Telstra might continue to be under pressure in the coming months and accordingly we reiterate our “Expensive” recommendation for the stock at the current price of  $5.16.
 
 
TLS Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corp

                   WBC Dividend Details
 
Service focused strategy: Westpac Banking Corp (ASX: WBC) recently raised its interest rates to comply with CET1 ratio requirements, with home loan variable rates rising by 20 basis points per annum to 5.68% per annum and residential investment property variable rates improving by 20 basis points per annum to 5.95% per annum. The group also undertook a renounceable entitlement offer to raise around $3.5 billion of ordinary equity, with the price of the offer at $25.50 per ordinary share. In fact, the retail component of its fully underwritten pro-rata accelerated renounceable entitlement offer has been completed. Meanwhile, WBC reported a decent FY15 results, with statutory net profit rising by 6% yoy to $8,012 million while its cash earnings slightly improved by 3% yoy to $7,820 million, driven by better customer gains. The group is increasing its focus on service to enhance its customer relationships and accordingly improved its annual investment by 20% to over $1.3 billion for service, growth and efficiency. Subsequently, WBC estimates to add about 1 million new customers from 2015 till 2017 and also is building a Customer Service Hub by merging multiple technology systems to a single view of the customer. WBC confirmed a full-year cash profit of $7.82 billion which is a 3% rise for the year driven by loan growth. On the other hand, Westpac was ordered by ASIC to pay refunds for WBC clients for selling insurance to them when they did not need it as well as for collecting unnecessary premiums. As a result, WBC shares have fallen in the last three months and we believe the pressure on stock might continue in the coming months due to ASIC investigation impact and the group’s efforts to comply CET1 ratio targets. Based on the foregoing we reiterate “Expensive” recommendation to the stock at the current price.
 
 
WBC Daily Chart (Source: Thomson Reuters)
 

 

Australia and New Zealand Banking Group Ltd

            ANZ Dividend Details
 
Ongoing core business growth: Australia and New Zealand Banking Group Ltd.’s (ASX: ANZ) Australia Division continued to maintain its leading position and delivered a cash profit increase by 7% year on year (yoy) in fiscal year of 2015, driven by New South Wales customer’s growth. The group’s cash profit in New Zealand enhanced by 3% yoy boosted by the division’s improving market penetration through home loans and credit cards growth. ANZ’s Global Wealth Division also reported a cash profit by 11% driven by solid insurance and private wealth businesses boosted by the group’s innovative products and digital solutions launches like ANZ Smart Choice Super. Meanwhile, ANZ continued to enhance its Institutional and Corporate Banking share in Asia with focus on China. But cash profit fell by 2% in International and Institutional Banking during the year impacted by the ongoing slowdown in China leading to volatile global market business. Subsequently, ANZ’s shares also corrected over 20.54% (as of November 13, 2015) in the last six months impacted by tough market conditions in China. On the other hand, to offset this performance pressure, the group improved its capital position and almost doubled its total assets to $890 billion.
 

Provisions (Source: Company Reports)
 
ANZ has built a solid core business and we believe that its Australia and New Zealand business would continue to perform well in the coming periods. Moreover, the recent correction in the share prices placed the ANZ at attractive valuation, with ANZ trading at a very cheap P/E of 9.69x. The bank also has solid annual dividend yield of over 6.88%. We continue to maintain our “BUY” recommendation on the stock at the current levels of  $28.82
 

Commonwealth Bank of Australia

CBA Dividend Details
 
Capital Position and Stock Performance: Commonwealth Bank of Australia (ASX: CBA) improved its Common Equity Tier 1 (CET1) APRA ratio by 70 basis points to 9.8% during the September quarter, to comply with the APRA regulatory targets by enhancing its capital position via entitlement offer. The bank’s customer deposit funding was at 63% while the average tenor of the wholesale funding portfolio was at 3.8 years. The FirstChoice and Custom Solutions delivered an overall net flows of $0.9 billion during the September quarter in the wealth management business. CBA also decreased its bad and impaired assets to $5.5 billion during the quarter while the total loan impairment expense reached $220 million during the quarter. On the other hand, Commonwealth Bank of Australia’s Net Interest Margin continued to decline during the quarter impacted by lower trading income as compared to the quarterly average of FY15 and higher liquid assets. Funds under administration fell by 2% due to investment markets pressure. The shares of CBA corrected over 6.78% (as of November 13, 2015) in the last three months, impacted by the tight regulations, slowdown in performance on the back of tough market conditions and rising competition. We believe that the pressure on the stock would continue in the coming months and accordingly, give an “expensive” recommendation at the current price of $74.78
 
 
CBA Daily Chart (Source: Thomson Reuters)
 

National Australia Bank Ltd

                           NAB Dividend Details
 
Improving capital position: National Australia Bank Ltd (ASX: NAB) improved its asset quality during fiscal year of 2015, wherein its total charge for Bad and Doubtful Debts fell by 5% year on year (yoy) to $823 million on the back of decrease in Australian Banking and UK Banking. The bank is focusing to enhance its capital position to offset the pressure to comply with the APRA regulatory requirements and decreasing net interest margins. NAB hiked the interest rates on its new as well as current variable rate home loans by 0.17% per annum to 5.60% per annum which would be effective from November 12, 2015, to boost its capital position related to residential mortgages. The bank’s Common Equity Tier 1 ratio rose by 137 basis points to 10.2% as at September 2015, against March 2015, mainly driven by proceeds from rights issue. The group entered into a long term relationship with Nippon Life Insurance, to create life-insurance products as a part of the bank’s initiative to boost its wealth division that has insurance business. Nippon Life Insurance might offer a deal in the range of 200 billion and 300 billion yen or US$2.5 billion, to buy National Australia Bank’s insurance operation, which would further boost NAB’s capital position. NAB’s wealth division is focusing on customer satisfaction and recently reported that they finished over $1.7 million in payments to 87 customers since February after resolving their claims for compensation.
 

Year 2015 Snapshot (Source: Company Reports)
 
Stock performance: National Australia Bank stock fell over 20.76% (as of November 13, 2015) in the last six months affected by the UK operations divestments charges, regulatory changes, tough market conditions and ex dividend impact. On the other hand, the bank is focusing on core business and boosting capital position by offloading non-core assets. NAB is investing over 300 million in its Wealth business for the next four years and also focusing on customer relationships. Moreover, the correction in the stock placed NAB at attractive valuation with a relatively cheaper P/E of 11.18x and annual dividend yield of 7.01% also looks decent. We maintain our positive stance and reiterate a BUY recommendation on the stock at the current stock price of  $27.86
 

NAB Daily Chart (Source: Thomson Reuters)
 

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.