Sydney Airport Holdings Ltd
Concerns over domestic traffic performance: Sydney Airport Holdings Ltd (ASX: SYD) aims to release its full year results ended December 31, 2016 on February 16, 2017. As per the December 2016 updates, the group believes that 2016 was an outstanding year, with international passenger growth of 8.9%. The group also added almost 2.5 million incremental seats in 2016. The international passenger growth was 7.2% in the month of December compared to the prior corresponding period (pcp). The inbound nationalities reflected growth with Indonesia (+45.6%), Japan (+29.4%), India (+13.4%), USA (+10.0%) and China (+8.5%) while Australian outbound passengers recorded 4.7% growth above the pcp. However, domestic passenger numbers were only 1.0% above pcp for the month. The domestic passenger numbers grew only 3.2% above prior corresponding period (pcp) for the month of November. The group had received a Notice of Intention (NOI) issued by the Commonwealth Government and the notice sets out the material terms for SYD to develop and operate the Western Sydney Airport. SYD stock has fallen 17.21% in the last six months as on February 08, 2017 but still trading at higher levels. We give an “Expensive” recommendation on the stock at the current price of – $ 6.17
Transurban Group
Distribution guidance upgrade: Transurban Group (ASX: TCL) recently reported its half year 2017 results and upgraded its FY17 distribution guidance to 51.5 cps, which is a growth of 13.2% over FY16. The group’s networks delivered average traffic growth of 4.8% while toll revenue growth has been 10.9%. TCL has a 62.5% interest in Transurban Queensland whose Logan Enhancement Project got approved recently. Moreover, the project would generate more than $1 billion in economic benefits and would create 1,300 direct construction jobs. The construction of the project is scheduled to start in mid-2017. On the other hand, TCL stock has fallen 10.4% in the last six months as on February 08, 2017 while trading at unreasonable valuations. We believe that the stock is “Expensive” at the current price of – $ 10.95
Aurizon Holdings Ltd
Review of the carrying value of assets: Aurizon Holdings Ltd (ASX: AZJ) will be announcing its FY2017 interim results on February 13, 2017. The group aims to achieve transformation benefits of $380m between FY2016-FY2018 and an operating ratio of 70% in respect of FY2018. Further, an average of 10.5% return on invested capital (ROIC) over the FY2016 - FY2017 period is expected by the group. Recently, AZJ has undertaken a review of the carrying value of its assets as at December 31, 2016, and the company board has decided to recognize impairments and significant items of $321 million, in 1HY FY2017 accounts. $85 million is related to the transformation and redundancy program as previously communicated to the market. Moreover, AZJ has reaffirmed the guidance of FY 17 and expects the underlying earnings before interest and tax (EBIT) to be in the range of $900-950 million and the total above-rail tonnages is expected to be flat in the range of 255 –275 million tonnes (mt). Looking at the trading levels, we maintain an “Expensive” recommendation on the stock at the current price of – $ 5.12
Brambles Ltd
Revenue and cost pressure for the North America pallets business: Brambles Ltd (ASX: BXB) has recently come-up with realignment of Brambles’ organisational structure and consequential changes to the Brambles Executive Leadership Team (“ELT”), to take effect from March 2017. This primarily includes a flattening of the organisational structure. Further, Pallets Asia Pacific will comprise pallet operations in Asia Pacific and the Pallecon Asia Pacific business, while Pallets Europe, Middle East & Africa (EMEA), will comprise pallet operations in Europe, Middle East, Africa and India and the Pallecon EMEA business, in addition to the Global Automotive business. Pallets Latin America will comprise pallet operations in Latin America, and Pallets North America will comprise pooled pallet operations in Canada and the USA, the CHEP Recycled business and the Pallecon North America business. BXB expects first-half constant-currency sales revenue growth of over 5% and constant-currency Underlying Profit growth of about 3% for six months ended December 31, 2016. But, in the first half, BXB expects the constant-currency sales revenue and underlying profit growth for the year ending June 30, 2017 to be below its current guidance range for constant-currency sales revenue growth of between 7% and 9%, and underlying profit growth of between 9% and 11%. Additionally, for the North America pallets business, the company has experienced some revenue and cost pressures during late first half due to US retailer destocking which impacted volumes, rising transport and plant costs related with higher-than-expected pallet returns. In addition, the first half results include a small loss arising from investment in the HFG joint venture, which continues to operate in challenging market conditions. Meanwhile, BXB stock has fallen 19.9% in the last six months as on February 08, 2017. Given the challenges, we believe that the stock is “Expensive” at the current price of – $ 10.43
Macquarie Atlas Roads Group
Toll increases on the APRR and AREA motorway networks: Macquarie Atlas Roads Group (ASX: MQA) will announce its full year results ended December 31, 2016 on February 23, 2017. MQA reported that the tolls on the APRR and AREA motorway networks would enhance by 0.90% and 0.93%, respectively, effective February 2017. Moreover, APRR and AREA have entered into an in-principle agreement with the French State to amend their current contractual relationships. The agreement includes the investment plan with a total value of over €220 million, which would partly be financed by the local authorities. In addition, there would be supplemental toll increases in the years 2019 to 2021 to compensate for the additional investments, amounting to 0.287% per annum at APRR and 0.413% per annum at AREA. We give a “Hold” recommendation on the stock at the current price of – $ 5.30
Programmed Maintenance Services Ltd
Secured offshore oil and gas agreement: Programmed Maintenance Services Ltd (ASX: PRG) has secured a major agreement with Technip Oceania Pty Ltd (Technip) to offer manning and logistical support services in support of the hook?up and commissioning phase of the Prelude FLNG project, operated by Shell Australia. PRG would start preparatory works immediately and the work offshore is expected to start from 2017. Trading at a decent dividend yield, we give a “Speculative Buy” recommendation on the stock at the current price of – $ 1.78
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