BWP Trust
BWP Trust (ASX: BWP) had witnessed a decent 2015 fiscal year performance, with the revenues growing by 14% to $144.9 million , as compared to $127.4 million in the 2014 fiscal year, driven by increase in rents increase from its current property portfolio, as well as extra rental income coming from its completed projects during the year. Net profit surged to $210.1 million during the year, against $149.1 million in earlier fiscal year.
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Completed Developments in 2015 fiscal year (Source: Company Reports)
Meanwhile, the weighted average cost of debt for the year (finance costs less finance income, as a percentage of average borrowings) decreased to 5.5%, against 6.1% of the earlier year, due to lower floating and fixed interest rates, and decrease in funding costs and margins from 2014. But, the management expense ratio slightly increased to 0.65% against 0.64 % in 2014 fiscal year. Also, the group was able to improve its gearing ratio to 24.1% from 24.4% in 2014 fiscal year.
The entire Trust portfolio surged by $162.3 million to $1,981.3 million for the fiscal year on the back $70.8 million generated from divestments and net revaluation gain of $108.5 million. However, the group incurred $18.3 million for acquisitions, $106.3 million for developments. The strong net revaluation gain during the year was driven by increasing rents (which contributed for 70% of the gains) as well as lower capitalization rates in 2015 fiscal year. Accordingly, the Trust’s weighted average capitalization rate for the portfolio has been decreasing to 7.33% as at June 30
th, 2015 and 7.41% as at December 2014, as compared to 7.59% as at June 2014.
BWP Trust’s shares have been delivering outstanding performance over the years, generating 72.4% for the last five years and over 33.7% in the last fifty two weeks. The stock posted a year to date returns of 16.5%. The management estimates that the Trust would continue to grow its income from higher rents from current and developing projects, given the lower interest rates. But, investors need to be cautious that Trust performance might get impacted with the rising interest rates as over 65% Trust’s rental income is related to the CPI annual adjustment. Moreover, management reported that the property investment activities has limited opportunities in the current scenario.
We recommend investors to be cautious before making further investments in the stock, as most of the positive triggers have already been factored in the stock. In addition, the group’s solid 2015 fiscal year performance drove the shares of BWP Trust and recently touched an all-time high of $3.44. However, the stock could not sustain these levels and started correcting since then and we believe the stock to correct further in the coming months. Based on the foregoing, we reiterate our “SELL” recommendation at the current price of $3.25, and would like to review the stock later.
Atlas Iron Limited
Atlas Iron Limited (ASX: AGO) recently reported a disappointing June quarter performance, wherein in the ore mine production fell 41% to 1.8 million WMT from over 3 million in the March quarter. The Ore tonnes that were shipped during the quarter reduced by 1.5 million to 1.9 million WMT from 3.4 million WMT in the previous quarter. Management had suspended and then resumed production at its three Pilbara projects, on the back of falling iron ore prices.
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June Quarter Performance (Source: Company Reports)
Atlas Iron’sbenchmark Platts 62% Fe IODEX fell to an average of USD 58 per DMT during the June Quarter against USD 62 per DMT in the earlier quarter. The average realized headline sale price for tonnes also fell to USD 44.07 per DMT CFR versus USD 49.85/DMT CFR in March quarter. This decrease was mainly due to timing of sales and falling iron ore prices. Moreover, mine suspension also affected the May and June volumes.
To achieve cost efficiency, the group made agreements with new contractors along with support from the Western Australian Government. As a result, the company estimates to reach break-even at 62%Fe price of USD $50/DMT CFR (subject to several assumptions). However, C1 cash costs rose 7% to $46 in June quarter from $43 in March quarter on the back of lower volumes. Meanwhile, management estimates a production of 14 to 15 million tonnes per annum for the current year.
Atlas Iron rose $87 million in the month of July to improve its balance sheet and protect from the iron ore price fluctuations. McAleese Limited (ASX: MCS), the company’s client helped Atlas to raise capital, by acquiring 280 million ordinary shares in Atlas, which is a stake of 10.51% of the shares on issue. McAleese Limited also has 280 million listed options over ordinary shares in Atlas with a strike price of 7.5 cents per share with expiry on June 30
th, 2017. However, the shares of McAleese have been under pressure slumping around 42% in the last three months and over 10% in the last four weeks alone. McAleese estimates around $60-70 million impairment from Property, plant and equipment within the Heavy Haulage & Lifting division.
Therefore, we believe that Atlas Iron’s capital raising might not help its shares to drive higher in the coming months. The stock has been under pressure from quite some time slumping 81.2% year to date, as the group was not able to sell its shares to raise money for restructuring its business before McAleese came to its rescue. We believe that the group’s hedging activities also might not give any respite in the coming months. Accordingly, we give a “SELL” recommendation to the stock even at the current prices of $0.032, and would review the stock at a later date.
Cochlear Limited
The shares of Cochlear Limited (ASX: COH) has delivered outstanding returns of over 32.7% to investors in the last fifty two weeks, driven by the solid results performance and the weakening Australian dollar. The group’s first half of 2015 revenues surged 18% on a year over year basis to $438.3 million from $371.1 million in 1H14. The Cochlear implant sales contributed to the overall revenues increase, which rose by 16% to $383 million against $331.1 million in 1H14. Even the bone conduction/Acoustic sales rose 25% yoy to $57.5 million. Meanwhile, the group’s sound processor upgrade sales surged 98% yoy to $82.2 million as around 15,000 recipients have been upgraded from the Nucleus 6 launch.
North America drove the overall revenue growth, with the region reporting a 30% yoy increase to $195.3 million. The FDA regulations have also approved Nucleus 6 Wireless accessories, Smartsound iq for Nucleus 6 and Nucleus profile having Contour advance electrode which are launching in the second half of the fiscal year in the region. EMEA region revenues soared 7% yoy to $181.6 million driven by Western Europe sales, which rose 12% yoy. Asia pacific revenues increased 10% yoy to $63.6 million. The China central government signed tenders to deliver over 1,900 Cochlear implant units for the second half of the 2015 fiscal year.
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Revenues by regional performance (Source: Company Reports)
The group was also able to reduce COGS per sales to 28.9% during the period from 32.8% in the comparable period of previous year and even cut R&D expenses in 1H15. As a result, the company was able to achieve a 240% growth in net profit after tax to $71.4 million, from $21 million in 1H14 (includes $22.5 million of patent dispute provision for 1H14). On April 2015, the US court overturned $131.2 million related to the damages for infringement of patents and ordered new trials related to rest of the patent claims, further supporting the stock’s growth. However, Cochlear reduced its interim dividends to 90 cents per share in 1H15, against 127 cents per share in 1H14.
On the other hand, the valuations of Cochlear also look expensive with P/E trading at 35.7, as compared to its peers in the industry. The dividend yield is also just 2.4%. We believe that despite the stock delivering solid historical returns, the relatively higher valuation is not making it an attractive investment opportunity as there are several other value stocks in ASX with cheaper valuations and relatively higher dividends. Based on the foregoing, we give a “SELL” recommendation at the current price of $90.04, and would like to review the stock later.
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