Brickworks Ltd

BKW Details
·         Improved margins but challenging environment prevails in patches: Brickworks Ltd.’s (ASX: BKW) stock slipped by 3.2% on May 23, 2017 owing to softness in sentiments. For H1FY17, the group posted a 35.4% year on year (yoy) growth in statutory Net Profit After Tax at $104.1 million, while underlying NPAT was up 48.3% yoy to $111.2 million, on record sales revenue. Building Products’ segment Earnings Before Interest and Tax (EBIT) was up 2.1% yoy to $33.3 million. Further, improved margins and sales volume are driven by increased earnings on the east coast, while it was partially offset by lower earnings in Western Australia due to the difficult market conditions. Total cash flow from operating activities was $49.8 million, down significantly from $92.0 million in the previous corresponding period. However, excluding the net proceeds from the sale of the Coles CDC facility in the prior period ($46.1 million), operating cash flow was up by 8.5% (underpinned by the increased earnings from Building Products partially offset by the higher working capital).

·         Recommendation: The stock has moved up 15% over the past three months (as at May 22, 2017) with a boost in the materials sector, but now seems to be trading at relatively high levels given the mixed view on earnings. Further, the group intends to move offshore at the back of rising energy costs (driven by tight supply of natural gas) in the domestic market and has also witnessed a three-quarter surge in its power bill as per March 2017 updates. We give an “Expensive” recommendation on the stock at the current price of $ 14.11

Surfstitch Group Ltd

SRF Details
·         Losses continue on earnings downgrade: Surfstitch Group Ltd.’s (ASX: SRF) stock plunged 6.7% on May 23, 2017 following the 23.5% crash in the previous trading day session, after downgrading the guidance for FY17. The group has also clarified that it has not received any claim or communication on any potential class action filed with the Supreme Court of Queensland as of now (as otherwise highlighted in some recent press articles). As per the group’s latest market update, the general business environment for apparel and footwear is said to be bleak in each of the group’s key markets, particularly in the UK, which led to increase in underlying EBITDA loss guidance for FY2017 to $10.5m - $11.5m against previously stated $5m to $6.5m guidance.

·         Recommendation: The stock has slipped by 83.3% over the past twelve months (as on May 22, 2017) on account of waning financials and submissive market environment. We give a “Hold” recommendation on the stock at the current price of $ 0.068
 

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