Commonwealth Bank of Australia
Long term debt shifted the stable outlook to negative: Commonwealth Bank of Australia’s (ASX: CBA) has recently provided an update on advice Fee Refund Program. There is also an offer of ASB Subordinated Notes 2 (up to NZ 250 million). CBA’s long-term senior unsecured rating has been affirmed at Aa2 by Moody’s, who also shifted from stable outlook to negative outlook. This is due to the expectation of a more challenging operating environment for banks in Australia for the remainder of 2016 and beyond. However, the short-term ratings have not changed. Additionally, CBA’s cash return on equity for FY16 is 16.5% which is down 170 basis points in FY 16 as compared to FY 15. Net Interest Margin is down 2 basis points to 2.07% in FY 16. Moreover, CBA’s CET1 capital ratio is 10.6% on an APRA basis as on 30th June 2016, up from 9.1% as at 30th June 2015 and the CET1 capital ratio is 14.4% on an internationally comparable basis up from 12.7% in FY 15. We give an “Expensive” recommendation on the stock at the current price of – $ 72.99
BHP Billiton Ltd
Offloaded Scarborough area assets: BHP Billiton Limited’s (ASX: BHP) half of the Scarborough area assets in the Carnarvoron basin is being acquired by the Woodside for which Woodside will pay BHP US$250 million on completion of the transaction and a contingent payment of US$150 million to develop the field. This transaction in on track with the group’s strategy of divesting non-core assets to enhance their focus on core assets. BHP’s commercial officer, Dean Dalla Valle who was handling the response to the Samarco dam failure in Brazil, has been reported to leave the company. The company has also rejected the outright charges filed by the Ministerio Publico Federal of Brazil with regard to Samarco incident. Meanwhile, BHP stock rose 18.59% in the last three months (as of October 26, 2016) while we maintain “Buy” recommendation on the stock at the current price of – $ 22.51
Westpac Banking Corp
Rise in bad loans: Westpac Banking Corp (ASX: WBC) reported that its capital position and asset quality as of the end of June revealed the rise in bad loans across both of its business and its household lending. The proportion of loans is behind in repayments at least one month which rose to 1.39% from 1% in September 2015. Moreover, WBC is an issuer of Self-Funding Instalments over securities in Bank of Queensland Limited and has recently notified for distribution/ entitlement of the same. WBC has made the offer of NZ$250 million of unsecured, subordinated and fixed rate notes. We maintain our “Expensive” recommendation on the stock at the current price of – $ 30.40
Rio Tinto Ltd
Strong quarterly production: Rio Tinto Ltd (ASX: RIO) has reported that Pilbara iron ore production witnessed a run-rate of 330 million tonnes a year while the shipments reduced by port and rail maintenance. The group has revised annual shipment guidance to 325-330 million tonnes for 2016. Quarterly production at Weipa and Gove were at record levels up 10% from same period of 2015. Kitimat also witnessed 11% rise in year to date aluminium production. On the other hand, the group’s consolidated sales revenues of $15.5 billion in 1H 2016 is $2.5 billion lower than the 1H 2015 due to the decline in commodity prices. RIO has otherwise delivered strong operational performances in iron ore, bauxite and aluminum, with all key commodities on track to meet full year guidance. There has been a mixed outlook from market for the Oyu Tolgoi copper and gold mine while RIO said that improving outlook for copper and gold has helped provide $1.7bn in addition to the earlier value of the mine, and this can further ramp up in seven years towards annual free cash flow. Rio yesterday hosted an investor tour of the giant copper and gold mine, amid a mixed project outlook from analysts. We give a “Buy” recommendation on the stock at the current price of – $ 53.30
Australia and New Zealand Banking Group Ltd
Fund raising to comply with APRA regulations: Australia and New Zealand Banking Group Ltd (ASX: ANZ) has issued about 2.9 billion fully paid Ordinary shares as at October 20, 2016, and is also undergoing some changes at the management. The bank earlier reported for raising funds by the issuance of 10 million ANZ Capital Notes 4 (ANZPG) at an issue price of $100.00 per security to raise $1.0 billion. ANZ stated to use the proceeds to refinance CPS2 and for general corporate purposes. APRA also confirmed that the Notes would constitute an additional Tier 1 Capital for the purposes of ANZ’s regulatory capital requirements. Meanwhile, ANZ stock rose over 16.54% in the last six months (as of October 26, 2016). We give a “Buy” recommendation on the stock at the current price of – $ 28.10
National Australia Bank Ltd
Major divestments done: National Australia Bank Ltd (ASX: NAB) reported a 4% growth in the cash earnings to $6.48 billion in FY 16 while cash ROE reached 14.3%. There is a fall of 94.4% in the statutory net profit of $352 million due to the loss on sale for both CYBG PLC and 80% of NAB’s Wealth’s life insurance business. In addition, the sale of 80% of the life insurance business to Nippon Life will be completed during the second half of calendar year 2016 after the merger of five super funds to create Australia’s largest retail super fund with around $70 billion in funds under management on 1st July 2016. NAB has maintained its dividend while we put a “Buy” recommendation on the stock at the current price of – $ 27.59
Telstra Corporation Ltd
Despite the buyback program core performance pressure continues: Telstra Corporation Ltd (ASX: TLS) witnessed a 35.9% rise in net profit after tax from continuing and discontinued operations in FY16. However, network interruptions had created a lot of disappointment for the customers. The group had also resorted to the total of $1.5bn of the share buyback in which $1.25 billion was off-market buyback and $250 million was on-market buyback. Despite their confidence on their business, the group issued a ‘mid to high’ single digit revenue growth, and a ‘low to mid’ single digit EBITDA growth for 2017. Accordingly, TLS stock fell 13.23% in the last three months (as of October 25, 2016), and competition concern is also among the major factors which could drive the stock low. We give an “Expensive” recommendation on the stock at the current price of – $ 4.98
CSL Ltd
Reaffirmed FY 17 guidance: CSL Ltd (ASX: CSL) has reaffirmed the FY 17 guidance and forecasts an NPAT growth of 11% at CC (constant currency), EBITDA growth to be 14% at CC, while EPS growth is expected to exceed NPAT growth and the revenue is expected to grow at about 9% at CC. Additionally, CSL is taking Enterprise Process Management initiative and planning for CSL112 (apoA-I) Phase III. CSL would be raising fund through new offer of A$500m share buyback. The group has also closed a new USD550 million private placement in the US. On the other hand, CSL in FY 16 has reported 10% fall in the net profit after tax (NPAT) to US$1,242 million and the earnings per share fall of 8% to US$2.69. We give an “Expensive” recommendation on the stock at the current price of – $ 100
Wesfarmers Ltd
Fall in coal production in September quarter due to adverse weather conditions: Wesfarmers Ltd (ASX: WES) shares slipped 5 percent after the company's first quarter sales was found to be less than the market expectations. Same-store food and liquor sales at its Coles supermarket chain rose 1.8 per cent in the three months ending September, which is down on growth of 3.3 per cent in the June quarter. Additionally, the coal production in the September quarter was down 11.8% to 2,615,000 tonnes from the previous quarter due to the wet weather conditions. The rainfall in the September quarter was 57% higher than the previous quarter. In addition, there was a seven-day shutdown for routine maintenance in the Curragh’s coal handling and preparation plant. We give an “Expensive” recommendation on the stock at the current price of – $ 40.32
Woolworths Ltd
Caltex’s move to acquire WOW’s fuel business: Woolworths Ltd’s (ASX: WOW) fuel business has received conditional and confidential proposal from the Caltex Australia. Caltex Australia is currently the exclusive supplier of petrol and diesel to WOW with annual sales volumes of approximately 3.5 billion litres per annum. Moreover, Hills Limited and WOW has agreed to end the contract entered in December 2014, which licensed certain Hills Home Living brands to WOW for a period of 7 years. WOW stock rose 16.84% in the last six months (as of October 25, 2016) while we maintain a “Buy” recommendation on the stock at the current price of – $ 24.80
Macquarie Group Ltd
Short term outlook looks subdued: Macquarie Group Ltd (ASX: MQG) had lately confirmed that it did not issue any fully paid ordinary shares in September 2016. On the other side, the group expects 1H17 result to be broadly in line with the 2H16 result, subject to the conduct of period end reviews and the completion rate of transactions. MQG had roughly $A499b assets under management as at 30th June 2016. However, the 1Q 2017 operating group contribution, which includes performance fees and asset disposals are down on a strong prior corresponding period (pcp). The capital markets are facing businesses less than 30% as the subdued market conditions in MacCap and MSG as previously predicted when compared to a strong pcp. The stronger activity in CFM is also reflecting resilient trading across most of its businesses. In addition, the group’s short-term outlook is subject to the market conditions, the impact of foreign exchange and the potential regulatory changes and tax uncertainties. Accordingly, we give an “Expensive” recommendation on the stock at the current price of – $ 80.40
Woodside Petroleum Ltd
Strong operational performance in the third quarter 2016: Woodside Petroleum Ltd (ASX: WPL) reported about 20% quarter-on-quarter revenue growth for the third quarter ending 30th September 2016. In the third quarter 2016, there is a record quarterly LNG production at Karratha Gas Plant (KGP), which is 4% higher than the previous record of the third quarter 2014. There is a record quarterly LNG production at Pluto LNG, which is 1% higher than the previous record of the third quarter 2015. Overall, the production in the third quarter 2016 was 13.5% higher than the previous quarter primarily due to the excellent production performance across operating asset and the resumption of full production at the NWS facilities after the planned turnaround in the second quarter 2016. Additionally, WPL has narrowed the 2016 production guidance to 92–95 MMboe. This is due to the strong operational performance and after the increase in production guidance from 86–93 MMboe to 90–95 MMboe in August 2016. We give a “Buy” recommendation on the stock at the current price of – $ 27.94
Scentre Group
SCG is on track to deliver its FY 16 forecast: Scentre Group (ASX: SCG) reported the Funds from Operations (FFO) of $617 million in the first half 2016, which represents 11.61 cents per security and the distribution of 10.65 cents per security. SCG is on track to deliver its FY 16 forecast of FFO growth of about 3% with forecast FFO of 23.25 cents per security and forecast distribution of 21.3 cents per security. Over the year, the group has more than 95% portfolio invested in CBD, Super regional and regional shopping centres while annual retail sales have been above $22 billion. SCG stock fell 6.94% in six months (as of October 26, 2016), while the company is having a good dividend yield. We give a “Hold” recommendation on the stock at the current price of – $ 4.20
Transurban Group
US Private Placement: Transurban Group (ASX: TCL) has announced that Transurban Queensland, in which Transurban has a 62.5% interest, has priced approximately A$774 million of senior secured notes. The pricing was complete on October 20, 2016 and the notes have been said to be issued in four tranches of approximately A$204 million, A$293 million, A$177 million and A$100 million, with tenors of 10, 12, 15 and 18 years respectively. In addition, TCL’s financing vehicle Transurban Finance Company Pty Ltd has priced US$550 million of senior secured 10.5 year notes in the US 144A bond market. The US private placement and other recent debt raisings have increased the average length of Transurban Queensland's debt book to approximately 9 years. TCL in FY 16 reported proportional toll revenue growth of 17.5 per cent to $1,946 million and the average daily traffic (ADT) grew by 8.0 per cent. On the other hand, concerns over the possible decline in customers’ trips persist given the volatile conditions in the major cities. TCL stock fell 15.02% in the last three months (as of October 26, 2016) while we give an “Expensive” recommendation on the stock at the current price of – $ 10.39
Westfield Corp
Revenue subdued in 1H 2016: Westfield Corp (ASX: WFD) in the first half 2016 reported a 3.8% fall in the revenue to US$834.7 million while AIFRS profit after tax attributable to members rose 5.4% to US$491 million. Accordingly, WFD stock fell 9.71% in the last six months (as of October 26, 2016). On the other hand, the group expects to have portfolio of assets under management of between $45-50 billion by 2020. We believe that the stock is “Expensive” at the current price of – $ 8.88
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