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Kalkine Daily 24/02/2015 + DULUX

Feb 23, 2015

| Read Time :10 Mins

In today’s daily we have covered stock research on DULUX (Expensive).

The S&P 500 was down by 3.61 points or 0.17% on Monday. U.S. stocks were down slightly in midday trading Monday as lower oil prices dragged down energy shares, pulling the Dow and S&P 500 off recent record levels. Housing stocks lost ground, with the PHLX housing sector index off 0.7 percent after existing home sales fell sharply to their lowest in nine months in January. A conditional agreement by euro zone finance ministers to extend Greece's bailout sent the Dow and S&P to record levels late last week, while the Nasdaq moved closer to its all-time high from March 2000.

Canada's Valeant Pharmaceuticals International Inc agreed to acquire gastrointestinal drugmaker Salix Pharmaceuticals Ltd in an all-cash deal valued at about $10.1 billion, the companies said on Sunday. U.S. listed shares of Valeant gained 13.2 percent to $196.14 while Salix slipped 1.1 percent to $156.06. The FTSE Eurofirst 300 equity index rose 0.6 per cent to a fresh seven-year high and the Xetra Dax in Frankfurt climbing 0.7 per cent to an all-time closing peak.

Valeant Daily Chart (Source – Thomson Reuters)

S&P ASX 200 was up by 26.5 points or 0.45% on Monday and closed at 5908.0 points. ANZ Banking Group led the bourse on Monday, up 0.7 per cent to $35.04, while National Australia Bank gained 0.5 per cent to $37.67. Commonwealth Bank of Australia rose 0.2 per cent to $90.41, and Westpac Banking Corporation added 0.2 per cent to $37.72. AMPlifted 2.1 per cent to $6.77 as investors piled in to take advantage of a higher dividend announced last week and ahead of the stock trading ex-dividend next week.

In retail Woolworths added 0.2 per cent to $33.32, while Wesfarmers, owner of Coles, rose 0.7 per cent to $46.71. Bluescope Steel was the worst-performing stock in the ASX 200, down 8.1 per cent to $5.10, despite showing a 62 per cent jump in underlying interim profit and announcing its first dividend in four years. Metals and mining was the only sector to go backwards on Monday, down 0.3 per cent. Among the biggest producers BHP Billiton fell 0.6 per cent to $32.12, while main rival Rio Tinto added 0.3 per cent to $63.92. Rare earths producer Lynas Corp was the best-performing stock in the ASX 200, climbing 22 per cent to 6.1¢.

Bluescope Steel Daily Chart (Source – Thomson Reuters)

Top Performers on the ASX 200 were :-

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Dulux Video

Stock Of the Day - Dulux (Expensive)

During the AGM, DuluxGroup (DLX) reported that there was a 21.4% surge in net profit after tax ($111.9 million), before non-recurring items in 2014, which emanated from earnings growth across all operating segments. This also included contribution of a full 12 months’ earnings from the former Alesco businesses. DLX conveyed that the results entailed robust cash generation which reduced the net debt to EBITDA ratio from 1.98x to 1.53x. EBIT rose 19.4% on sales that propagated 8.5% to just over $1.6 billion. Outstanding operating result based on profitable sales growth in strengthening Australian and New Zealand markets helped in margin improvement.

2014 Highlights (Source – Company Reports)

Operating cash flow also increased by 7%. The maturity profile of debt funding stands diversified and lengthened without any jump in overall funding costs. The Company declared a final dividend of 10.5 cps making the total dividend for the year to 20.5 cps, fully franked, which is up from 17.5 cps in 2013 and indicates a 70% payout ratio of NPAT before non-recurring items. DRP for final dividend with a 2.5% discount was also offered.

With regards to operating segments, EBIT growth of 12.1% in Paints and Coatings Australia and New Zealand; pro forma EBIT growth of 3.1% in Consumer & Construction Products Division; pro forma EBIT growth of 4.6% for B&D Garage Doors and ATA Openers division; pro forma EBIT growth of 25.4% for Lincoln Sentry Cabinet and Architectural Hardware business; and EBIT growth of 34.1% for the Other Businesses Segment (including Yates, China, Papua New Guinea and South East Asia) have been witnessed.

Strategies such as combination of the Selleys and Parchem businesses to form Consumer and Construction Products division, addition of the B&D Garage Doors and Openers and the Lincoln Sentry Cabinet and Architectural Hardware businesses, and exploration of growth opportunities in Asia, have so far helped the Company.

Products, Channels and End-markets (Source – Company Reports)

As per DLX, markets in Australia and New Zealand are expected to have positive sentiments. The home segment may stay resilient given high levels of home ownership, low interest rates and other factors. The new housing construction market is expected to remain strong.

Sales (Source – Company Reports)

The outlook for commercial and infrastructure is moderate. Outlook for major engineering and infrastructure projects is weak in Australia as major capital expenditure projects are witnessing a slump. Softness in markets is expected in China and Papua New Guinea. Input cost is expected to increase in view of economic conditions driven by fluctuations in commodity prices and impact of Australian dollar. DLX expects 2015 net profit after tax to be higher than the 2014 equivalent of $111.9M.

The new non-cash impairment charge of $9.3m relating to DGL Camel business in China and Hong Kong along with marginally lower than expected sales growth for some segments (homes and new housing for example) were few setbacks. Depreciation of the AUD may also serve as a hiccup in case DLX is not be able to pass through the surge in USD denominated raw material costs. DLX thinks that raw materials costs will increase with inflation which can be recovered through price increases. Titanium dioxide costs continue to be relatively flat in USD, and thus, AUD depreciation may coerce. Other risks include paint market share movements and paint pricing discounting.

Given the entire scenario, we believe that the stock is expensive at the current price of $6.10

Team Kalkine

Level 13 167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147

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