Stocks in Discretionary and Commercial Services’ Sectors

Retail Food Group Ltd

         RFG Dividend Details
 
Strong Outlook: Retail Food Group Ltd (ASX: RFG) shares fell over 20.18% in the last six months (as of December 18, 2015) impacted by the subdued consumer sentiment. But, investors need to note that the group delivered a strong FY15 performance wherein underlying Net Profit after Tax surged by 49.3% year on year (yoy) to $55.1 million. RFG is targeting international markets growth and accordingly acquired Cafe2U, a mobile coffee van franchise; Gloria Jean’s Coffees Group and Di Bella Coffee in FY15. Consequently its international brand systems EBITDA surged 619% yoy (includes coffee & allied beverage sales to brand systems franchisee) to $15.1 million. Management reported a strong YTD FY16 performance, with the group’s outlets growing more than forecasted at domestic as well as international markets. RFG’s new outlets increased 140, which is over 70% of its overall organic outlet in FY15. The group continues to grow its presence at Malaysia, Turkey and China regions and is on track to reach its FY16 forecasts of 250 outlets. Despite tough retail environment and rising competition, the group enhanced its QSR Division Average Transaction Value by 5.5% in the last twenty weeks driven by its promotional activities, menu improvement, quality product focus and exceptional service.
 

FY15 performance highlights (Source: Company Reports)
 
Management reported that the group could deliver an underlying NPAT growth of over 25% in 1H16 while generate an organic growth of 35% against prior corresponding period. RFG reiterated its FY16 Guidance of 20% of underlying NPAT growth in FY15. RFG stock have been consolidating since the last three months, slightly increasing by 0.5% and we believe the shares could deliver a better performance in the coming months. Based on the foregoing, we reiterate our “BUY” recommendation on this high dividend yield stock at the current price of  $4.51
 
 
RFG Daily Chart (Source: Thomson Reuters)
 

Fonterra Ord Unit

   FSF Dividend Details
 
FTA agreement might support further growth: FONTERRA ORD UNIT (ASX: FSF) stock fell over 2.12% during this year to date (as of December 18, 2015), as the group’s FY15 performance was impacted by lower milk prices and thus hurt its top line by 15% year on year (yoy) to $18.8 billion. On the other hand, FSF focused on operating efficiency and volumes to offset this pressure, and accordingly delivered an EBIT and NPAT rise of 94% yoy and 183% yoy, respectively. On the other hand, the recent free trade agreements with China, Japan, and Korea would drive demand for the group’s products in the long term. As a result, FSF Australia is investing over NZ$141 million for developing a state-of-the-art cheese plant at its Stanhope factory, which would replace its hard cheese plant as the group is positioning itself to leverage the demand. The group is offloading its non-core business and recently agreed to sell its 50% stake at DairiConcepts for NZD 196 million. FSF is also expanding its Anmum infant formula brand to further penetrate into China via Beingmate distribution and sales network as well as partnered with Trans Pacific. As per the recent updates, FSF plans to enter into a five year agreement with Bellamy’s Australia Ltd to manufacture a new range of baby nutritional powders. FSF also stated that dairy exports have remained strong for Australia. The company intends to sell Australian yoghurt dairy desserts business to Parmalat Australia Pty Ltd. The transaction is subject to approvals including regulatory approvals.
 

FY15 Performance (Source: Company Reports)
 
Fonterra maintained a forecast Farmgate Milk Price of $4.60 per kgMS as per the December market announcement. Coupled with the Earnings per Share range of 45-55 cents (as announced in November), the above leads to a total payout of $5.05-$5.15 kgMS and an estimated cash Payout of $4.95-$5 for fiscal year of 2016. The shares of FSF rallied over 22.84% in the last three months (as of December 18, 2015) and we believe this positive stock momentum would continue in the coming months and accordingly reiterate our “BUY” recommendation on this stock at the current price of  $5.54
 
 
FSF Daily Chart (Source: Thomson Reuters)
 

Webster Ltd

 

                WBA Dividend Details
 
Acquisitions to enhance land bank: Webster Ltd (ASX: WBA) has enhanced its assets position during fiscal year of 2015 by acquiring Bengerang Limited, Tandou Limited and the Kooba aggregation, which led to an increase of >40,000 hectares of irrigated land, 2,000 hectares of dryland farming and extensive grazing. But, the consolidated pre-tax profit fell to $8.6 million for FY15 against $11.9 million for the prior year due to one-off acquisition costs of $3.9 million as well as loss reported by Field Fresh Tasmania. Moreover, the WBA stock corrected over 35.99% in the last six months (as at December 18, 2015) partly due to weak walnut operating business outlook as management estimates its walnut yields to decline by over 20% during 2016 as compared to FY15. On the other hand, the group is making efforts to enhance the revamp growth of its walnut business via extensive marketing for both in-shell and kernel product produced at its recently developed Leeton processing plant. WBA is undertaking yield improvement projects to further enhance its orchard production. Kooba is also delivering strong yields which would add support to the WBA’s FY16 performance. We believe that the recent correction offers attractive investment opportunity for long term investors and based on the foregoing, we give a “BUY” recommendation at the current stock price of  $1.245
 
 
WBA Daily Chart (Source: Thomson Reuters)
 

Super Retail Group Ltd

          SUL Dividend Details
 
Solid start to FY16 with refurbishing existing stores and opening new stores to offset the pressure: Super Retail Group Ltd (ASX: SUL) expects an additional $40 million impact on sales for the year 2015/16 while the full year expectations of new stores entail 10-15 for Auto segment, 5 to 7 for Leisure segment and 6 to 8 for Sports segment. The company reported sales increase by 7.1% year on year (yoy) to $2.24 billion in fiscal year of 2015, driven by like for like sales improvement across its Auto and Sports division. The group’s auto retailing witnessed a like for like revenues increased by 2.5% during the first seven weeks of the fiscal year of 2016, while Leisure Retailing like for like revenues rose by 10% during period, driven by BCF and the clearance program in Ray’s Outdoors. SCA segment intends to open 15 new stores, and make 65 refurbishments, extensions and relocations, while leisure Retailing intends to open 5 new BCF stores and complete 20 BCF refurbishments. Ray’s shift is also on track having 5 initial pilot stores (with 3 in hand and 2 new stores scheduled for September and October).
 

Trading Update (Source: Company Reports)
 
Meanwhile, Super Retail Group generated a year to date returns of 44.41% (as of December 18, 2015). The group has a decent dividend yield. We maintain our positive stance on the stock, and reiterate our “BUY” recommendation on SUL at the current price of  $10.60
 
 
SUL Daily Chart (Source: Thomson Reuters)
 

JB Hi-Fi Ltd

        JBH Dividend Details
 
Positive outlook but competitive headwinds: JB Hi-Fi Ltd (ASX: JBH) stock delivered a year to date returns of over 16.94% (as of December 18, 2015) and  reported a net profit of over $131 million in fiscal year of 2015, which is above the estimated guidance range of $127 million to $131 million. Moreover, the JB Hi-Fi HOME performance improved the overall online sales by over 17% yoy. Meanwhile, management issued a better sales growth outlook of 5.4% to $3.85 billion in fiscal year of 2016, as improving housing market might lead to a better home appliances demand and in turn benefit JBH. Accordingly, the firm intends to open 6 new stores in FY16, with 5 in Australia and 1 in New Zealand. Moreover, management targets to convert over 16 present JBC Hi fi stores to JB HI FI home stores with 13 in Australia and 3 in New Zealand.
 

Sales performance over the years (Source: Company Reports)
 
JBH stock has been consolidating from last four weeks, generating 2.80% returns (as of December 18, 2015), and we believe the positive momentum of the stock would continue given its positive outlook.The group’s buyback program of over $15.2 million would also boost its shares further. Given the recent discounting strategy rolled-out by Dick Smith Holdings and the Christmas trading period, there is a chance that JBH may also follow the suit which may impact the gross margin. Nonetheless, JBH is trading at a relatively cheaper P/E compared to its peers. We recommend investors to “HOLD” JBH at the current price of  $18.36
 
 
JBH Daily Chart (Source: Thomson Reuters)
 

Metcash Ltd

   MTS Details
 
FY16 half year results and transformation strategy: Metcash Ltd (ASX: MTS) announced its results for the FY16 half year ending 30 November 2015 with group revenue up 1.4% to $ 6.6 billion. MF & G sales revenue was up by 0.7% with the continued trend improvement while ALM revenue was up 3.5% and Hardware revenue by 1.2%. Group underlying EBIT of $ 133.7 million was in line with expectations and ALM and Hardware continued positive momentum while MF & G showed the result of incremental price investment and a softer Convenience result. Underlying profit after tax is $ 86.9 million and reported profit after tax is $ 122 million. The DSA rollout is on track and 78 DSA stores have been completed. The next stage of transformation is called “Working Smarter” with a savings run rate of approximately $ 100 million by year three (FY 2019). Among new channels, the Tmall initiative has been launched in China. The company reported that its Huntingwood distribution centre was damaged by hail on 25 April 2015 and the group contingency plans were activated to ensure supply to retailers. Supply was restored to NSW retailers through Victoria, Queensland and ACT distribution centres. However, full reoccupation in Huntingwood is not expected until the middle of 2016. Difficult conditions in the retail market and the intensifying competition from the giant retailers do prevail. Accordingly, we would rate the stock as a “Hold” at the current price of  $1.48
 
 
MTS Daily Chart (Source: Thomson Reuters)
 

Downer EDI Ltd

             DOW Dividend Details
 
Growth efforts to offset the ongoing pressure: Downer EDI Limited (ASX: DOW) reported a revenue decline of 3.9% yoy to $7,430.1 million during fiscal year of 2015 on the back of volatile conditions in Queensland road services as well as poor performance by the group’s rail infrastructure business which had offset the better performance at NSW and Victorian road services. The Group’s industrial and commercial construction and maintenance revenues fell by $1,889.3 million in FY15, from $2,040.6 million in FY14 impacted by $11.4 million of losses incurred for QCC and MT and project underperformance in WA. Therefore, DOW is restructuring this segment by decreasing management layers overheads. On the other hand, Downer’s New Zealand transport services business performance has improved during FY15 despite the tough conditions. The group acquired VEC Civil Engineering, during the period which is a specialist in bridges and structures, to further boost its infrastructure projects capabilities. With regards to the Mining sector, although the sector’s Revenue and EBIT were impacted during the fiscal year, DOW won many contracts during the period, which includes Blackwater coal mine extension (BMA) worth over $100 million over two years, Cobar copper mine (Cobar Management) worth of $70 million for two years as well as won Christmas Creek iron ore mine (Fortescue) expanded contract ($500 million per annum). Rail revenues also declined during the period impacted by the passenger manufacture contracts. But DOW won a 10 year $1.0 billion contract with Pacific National for offering asset management services to over 300 locomotives.
 

Work in progress projects pipeline (Source: Company Reports)
 
DOW shares fell over 29.57% in the last six months (as at December 18, 2015) impacted by the poor FY15 performance and subdued outlook by the group for 2016 financial year (estimates an NPAT of over $190 million). Nonetheless, DOW continues to build its contracts base and recently Hughes drilling entered into a long term contract with Downer, while the group even won two contracts from BHP Billiton Mitsubishi Alliance (BMA) at the Blackwater coal mine in Bowen Basin at Central Queensland. The company’s JV with Broadspectrum and Utilita Water Solutions has won a five year contract worth $170 million with Queensland Urban Utilities for electrical, civil and mechanical maintenance services. We believe that the recent correction has placed the stock to trade at a low P/E. DOW also has a decent annual dividend yield. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of  $3.43
 
 
DOW Daily Chart (Source: Thomson Reuters)
 

Woolworths Ltd

       WOW Dividend Details
 
Price promotions would offer support despite weak consumer sentiment: Woolworths Limited (ASX: WOW) was able to generate a modest sales increase (excluding Petrol) of 0.8% yoy to $15.7 billion during first quarter of FY16, as the group’s extra price Investments of over $100 million during the first quarter of 2016, led to decrease in average prices of 1.82% (across categories like groceries, produce, bakery and general merchandise). Consequently, WOW’s key customer metrics like Net Promoter Score were also improving from the starting of the year. On the other hand, Woolworths management cautioned investors on the short-term pressure as the group’s growth efforts across all of its businesses might impact its first half of 2016 performance. Management estimates that its net profit after tax would be in the range of $900 million to $1.0 billion for first half of 2016 which is 28% to 35% lower than first half of 2015 net profit after tax before significant items.
 

New Stores and refurbishments in 1Q16 (Source: Company Reports)
 
Therefore, WOW stock plunged over 5.04% (as of December 18, 2015) in last three months. On the other hand, WOW’s growth efforts would deliver long term gains while the stock is also trading at a relatively cheaper valuations as compared to its competitors and has a decent dividend yield. Long term investors can leverage the recent correction to enter the stock and based on the foregoing, we give a “BUY” recommendation on the stock at the current price of  $23.57
 
 
WOW 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.