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Mid-Cap

Five Stocks worth considering for Buying

October 11, 2015 | Team Kalkine
Five Stocks worth considering for Buying

Suncorp Group Ltd



Bank and Life business coupled with optimization efforts to drive growth: Suncorp Group Ltd (ASX: SUN) bottom line (NPAT) rose 55.2% year on year (yoy) to $1,133 million in the fiscal year of 2015, driven by bank and life business and cost optimization efforts. But, Suncorp’s General Insurance NPAT fell to $756 million during the period, against $1,010 million in FY14, on the back of financial impact related to unexpected natural hazard events, and consequently Natural hazards reached $1,068 million in FY15, which is 473 million more than the FY15 allowance. On the other hand, Suncorp’s Bank NPAT surged to $354 million in FY15, as compared to $228 million in prior corresponding period (pcp) driven by better net interest margin (NIM) to 1.85% against 1.72% in FY14 and decrease in impairment losses. Moreover, the group’s Life business NPAT improved to $125 million during the fiscal year of 2015, as compared to $92 million in FY14. The group estimates Life and Bank business performance to continue in the coming periods. Suncorp is also focusing on cost optimization efforts with $170 million in annual benefits in the 2018 financial year. SUN targets to drive more efficiencies from transformation of claims processes, ongoing rollout of the SMART repair network, simplification, business intelligence efforts; and through technology and procurement.


Suncorp’s significant growth opportunities across segments (Source: Company Reports)

The group’s competitiveness in the industry could be seen from its better customer satisfaction scores, solid customer unit growth in its Australian Personal Insurance products as well as improving customer retention. Suncorp is trading at attractive valuation with P/E of 14.32x and has solid dividend yield of 5.99% given the new low. We maintain our positive stance on the stock and accordingly give a “BUY” recommendation at the current price of $12.69.


SUN Daily Chart (Source: Thomson Reuters) 
 

Mortgage Choice Limited



Mortgage Choice Limited (ASX: MOC) improved its loan book by 4.6% yoy to $49.5 billion and home loans reached $11.5 billion during fiscal year of 2015. Net cash profit after tax was in line at $18.6 million. The group also improved its percentage of gross revenue from diversified sources to 12.1% from 9.5%. Meanwhile, MOC shares delivered a negative year to date returns of 29.6% and fell over 6% in the last four weeks. On the other hand, lowering interest rates would drive the property market, and accordingly Mortgage choice will get stable and recurring income from bank throughoutthe loan life as borrowers would be paying their mortgage. The company has closed its Help Me Choose business unit in order to address the less favorable financial result. MOC has a solid dividend yield of 8.73% and trading at a lower P/E of 11.68x. We recommend a “BUY” on the stock at the current levels of $1.775.
 

MOC Daily Chart (Source: Thomson Reuters)

Bank of Queensland



Acquisitions and new channels to drive growth: Bank of Queensland Limited (ASX: BOQ) is in the news given its full-year EPS outdoing the market forecasts and expectations met by the committed dividends wherein the full-year dividend was improved by 12% to 74 cents per share.


FY15 Performance (Source: Company Reports)

The full-year profit of $318 million, reflecting a 22% rise on its 2014 result has been reported. The bank intends to deliver growth through its channels like BOQ specialist, broker and virgin money mortgages, as well as through acquisitions. The group acquired BOQ specialist during July 2014 which contributed to the overall BOQ performance, resulting in a net profit after tax of $19 million, in line with the company’s estimates. Accordingly, BOQ delivered an increase of 19% of after tax cash earnings to $167 million for the first half of 2015, from $140 million in the corresponding period of last year. BOQ raised over $150 million by issuing Wholesale Capital Notes at a margin of 4.35% over the 6 month Bank Bill Swap Rate. Accordingly, BOQ’s total capital ratio increased to 12.4% in May 2015, from 12% in February 2015. The bank expects to have profitability based on industry-wide moves for investors to go in for mortgages at a higher rate, lower Australian dollar for exporters along with prospect of capital impost on big banks. The acquisitions although have led to an increase in costs but the cost-to- income ratio may remain about 45% with an increase of ~1.7 per cent a year in overall costs partly owing to the move to digitise paper-based loan origination systems. The bank is trading at a reasonable P/E of 14.75x and has an annual dividend of 5.78%. We remain bullish on BOQ and give a “BUY” recommendation at the current price levels of $12.80.

 
BOQ Daily Chart (Source: Thomson Reuters)
 

Crown resorts



Improving tourism prospects to drive growth: Crown Resorts Ltd (ASX: CWN) shares have been under pressure over the past few months, and fell over 16.7% in the last six months. The group’s NPAT fell 17.9% yoy to $525.5 million impacted by Melco Crown’s gaming revenue pressure and asset impairments. Meanwhile, crown’s VIP international marketing efforts led to a better VIP play turnover during the period. The group’s Australian resorts business would be driven by the exclusion of Super Tax on VIP program play at Crown Melbourne. Moreover, tax rate cut of VIP program play from 12% to 9% at Crown Perth would also drive Australia’s business. Melco Crown is opening an entertainment-focused Studio City project, and management believes that the victory of this project could also act as a growth driver for the group. Crown resorts has a decent dividend yield of 3.3%.
 
 
Investments in Large Scale Tourism Attractions (Source: Company Reports)

We view the recent correction as an entry opportunity to investors and based on foregoing we give a “BUY” recommendation to the stock at the current price of $11.48.


CWN Daily Chart (Source: Thomson Reuters)
 

Magellan Financial Group



Improving funds under management performance: Magellan Financial Group Ltd (ASX: MFG) funds generated better returns as compared to the broader index, wherein Magellan Global Fund delivered 29.5%, after fees, during the twelve months to 30 June 2015, beating the MSCI World Net Total Return Index (AUD) by 4.9%. Magellan Infrastructure Fund generated 12.3%, after fees, against Global Infrastructure Benchmark by 4.8% during the period. MFG also launched ASX quoted version of our Global Equities strategy, Magellan Global Equities Fund. Meanwhile, the group’s funds management business continued to grow, with total funds under management rising to $38.7 billion in September 2015 against $38.1 billion in August 2015. Moreover, September witnessed $966 million in net fund inflows with $771 million from institutions and $173 million from retail. MFG also entered into new agreements with AMP and BT/Westpac to start new funds on its respective platforms duplicating the Magellan Global Fund, similar to the Colonial First State Magellan Global Fund Option (CFS) on the Colonial First State Platform (operated by Commonwealth Bank). MFG shares rose 11.5% in the last four weeks and we believe this momentum to continue further. The share price is about 60% higher than one year ago and the FUM growth is also in a good shape than its peers such as Platinum Asset Management. MFG also has a decent dividend yield of 3.6%.
 
 
Retail Global equity Strategy FUM and Net Inflows (Source: Company Reports)

Like the stocks related to commodity prices and resource sector, wealth management stocks may also benefit from weaker USD and MFG would be one such stock. We remain bullish on the stock and recommend a “BUY” to investors at the current price of $20.80.


MFG Daily Chart (Source: Thomson Reuters)

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