Are defensive stocks again in focus?

Given the rising population and ageing scenario, growing chronic and lifestyle diseases, Healthcare sector appears to have a strong potential in Australia. Accordingly, there have been rapid advancements in medical technology and treatments. Defensive companies like Healthscope Ltd (ASX: HSO) have come into focus as public hospital system is expected to be under some pressure. Like healthcare sector scenario, energy sector is another space to look at as rising Australia long-term energy usage is expected to lead to a rise in overall demand for energy. In fact, the demand for renewable energy and greater network interconnection has been on the uptrend. Given these dynamics, stocks that remain stable in terms of earnings and dividends regardless of the overall market situation and economic cycle, tend to gain traction. Certain key sectors to benefit from said situation include healthcare, infrastructure/ utility and energy. At the same time, rising interest rates and bond yields are said to now lead to correction in some stocks that have been generally trading above price-earnings (PE) averages. A balanced stock kitty thus becomes a priority looking at the overall situation and risks ahead.
 

Spark Infrastructure Group

Strong shareholder returns: Spark Infrastructure Group (ASX: SKI) recently reported that Victoria Power Networks, in which the group has 49% interest raised A$106 million. Through the Victoria Power Networks (Finance) Pty Ltd, US$80 million of bonds has been placed (maturing in June 2027). SKI has reported for a strong shareholder return of 31% in 2016. The forward distribution guidance for FY17 is 5.2% above that of FY16. FY16 operating cash flows were up 47.4% over 2015. SKI stock generated over 2.6% in the last five days (as of March 29, 2017) and we believe this momentum would continue in the coming months.We give a “Buy” recommendation on the stock at the current price of – $ 2.39

Coca-Cola Amatil Ltd

Support from Buyback program: Coca-Cola Amatil Ltd (ASX: CCL) declared a final distribution amount of $0.25 which is payable in April 2017. The group also declared a buyback program of up to $350 million expected to start by the end of this month. Meanwhile, the group’s Managing Director Australian Beverages, Mr. Barry O’Connell, is stepping down to go back to Europe. While the stock has been removed from S&P/ ASX 50 index effective March 20, 2017, CCL stock rose 4.1% this month (as of March 29, 2017) and is now trading close to its 52-week high price. We maintain a “Hold” recommendation on this dividend yield stock at the current price of - $ 10.81

Sydney Airport Holdings Ltd

Weak domestic traffic performance: Sydney Airport Holdings Ltd (ASX: SYD) reported that their domestic traffic performance continued to be weak impacted by the leap year effect. The group’s domestic traffic performance in February 2017 fell 2.5% on a yoy basis while the year to date performance declined by 0.4% on a yoy basis. The international capacity growth was robust on the other hand.


Traffic Performance (Source: Company Reports)
 
The group’s Managing Director and CEO, Kerrie Mather is also retiring.Moreover, the stock is currently trading at a relatively higher level, and we believe that the stock is “Expensive” at the current price of – $ 6.71

Healthscope Ltd

Invested heavily on growth projects:Healthscope Ltd (ASX: HSO) stock rallied over 3.2% in the last five days (as of March 29, 2017) with improving sentiments. In 1H FY17, HSO’s hospital operating EBITDA has been up 2.2% with group operating EBITDA up 5.1% over 1H FY16. The group made a heavy Investment of $247 million on their growth projects during the period, including Northern Beaches Hospital development. HSO even renegotiated multi-year contracts with NIB and the Australian Health Service Alliance as well as renewed three DHB contracts in New Zealand in advance of maturity. We give a “Buy” recommendation on the stock at the current price of - $ 2.28

AGL Energy Ltd

Gas margins pressure:AGL Energy Ltd (ASX: AGL) in 1H 17 has reported Statutory Profit after tax of $325 million, which is $774 million more than the prior corresponding period, due to the impact of impairments and movements in the fair value of financial instruments in the prior corresponding period. The underlying profit after tax grew 4% to $389 million as a result of strength in the wholesale electricity market and the ongoing delivery of AGL’s cost reduction programs, offsetting a decline in gas margins. Moreover, AGL expects the underlying profit after tax for the FY 17 to be within the upper half of its guidance range of $720 million to $800 million, subject to normal trading conditions for the remainder of the financial year. The stock has risen 36.33% in six months as on March 29, 2017, and now trades close to a full value. We give an “Expensive” recommendation on the stock at the current price of – $ 26.05

Crown Resorts Ltd

Entered into a cash-settled equity swap:Crown Resorts Ltd (ASX: CWN) has entered into a cash-settled equity swap in respect of its shareholding in Melco Crown Entertainment Limited (MCE) referencing 12.0 million MCE ADSs, which is equivalent to 36.0 million MCE shares and 2.4% of MCE shares outstanding. Moreover, the Swap Transaction will provide the company with a price hedge in respect of any future sale of MCE shares equivalent to the number of MCE ADSs referenced in the Swap Transaction. The price hedge under the Swap Transaction has been set at US$18.05 per MCE ADS (equivalent to US$6.02 per MCE share). The group has bought back around 112,685 subordinated notes in the week ending March 24, 2017 with a cumulative total of 1.2 million notes bought back as at said date.We give a “Hold” recommendation on the stock at the current price of – $ 11.86

Origin Energy Ltd

Signed two transactions with ENGIE: Origin Energy Ltd (ASX: ORG) has signed two transactions with ENGIE in Australia. These include an agreement to underpin the operation of Pelican Point power station’s second generation unit (Pelican Point agreement), and an agreement to make more natural gas available for customers in South Australia and Victoria (Gas Sale Agreement). Meanwhile, ORG stock has risen 32.09% in the last six months as on March 29, 2017. Given the prospects, we maintain a “Buy” recommendation on the stock at the current price of – $ 7.14

Transurban Group

Agreement with Brisbane City Council: Transurban Group (ASX: TCL) lately announced that an in-principle agreement has been reached with Brisbane City Council to deliver the $60 million Inner City Bypass (ICB) Upgrade project. TCL also updated that Westlink M7 (M7, part of NorthWestern Roads Group) would issue $435 million of secured fixed rate 10-year, and $100 million of secured fixed rate 10.5-year medium term notes. The proceeds will be used to fully repay existing term bank debt which is due to mature in August 2017 and partly prepay existing term debt due to mature in August 2019. Transurban has a 50% interest in the NorthWestern Roads Group. TCL stock has surged 12.91% in the last three months as on March 29, 2017 and is trading at high levels. We give an “Expensive” recommendation on the stock at the current price of – $ 11.72

Infigen Energy Ltd

Secured a power purchase agreement: Infigen Energy Ltd (ASX: IFN) had witnessed a 45% growth in EBITDA for 1H FY17 and the net profit after tax improved by $23.6 million. IFN along with a development partner secured a power purchase agreement (PPA) with EnergyAustralia for 60% of the output (electricity and LGCs) from the proposed 113.2 MW Bodangora wind farm project being developed near Wellington in New South Wales. IFN stock has risen 23.31% in last six months as on March 29, 2017 while we give a “Speculative Buy” recommendation on the stock at the current price of – $ 1.00

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