Transurban Group (ASX: TCL)

The company is based out of Collins Street, Docklands, Australia, and is an industrial sector group. Its VIC segment and NSW segment include Citylink operations and development of Citylink and GLIDe tolling system and the development of NorthConnex, respectively.

Capital Investments: The company has achieved significant growth since FY08 while consistently growing distributions. The company’s investment proposition is supported by its capital strategy with balancing distribution growth. Conditional on ACCC approval Transurban has lately submitted final bid for WestConnex. On the other hand, the FY19 distribution guidance will be maintained in the event of a successful WestConnex bid of 59.0 cents per share. A strong distribution growth is expected to support the West Gate Tunnel Project, by raising $1.9 billion of equity, which remains on schedule. Despite the inclusive disruption from upgrade projects like Logan Enhancement Project (LEP), Gateway Upgrade North, CityLink Tulla Widening (CTW), Monash Freeway Upgrade (MFU), (GUN) and Inner-City Bypass (ICB), the company has an average traffic growth of 2.2%. As compared to the prior year lately, the company delivered toll revenue growth of 8.7 per cent to $2,340 million in FY18, mainly driven by the contribution of $182 million from the existing assets on the back of traffic growth and an increase in toll price. The company also reported an EBITDA growth of 10.2% which is an increase of $140 million largely driven by toll revenue growth. Net profit is $410 million after excluding non-recurring income tax benefits and significant items. Significant capital investment made by the business with depreciation, amortization and net finance costs paid of more than $1.4 billion in FY18, which reflected FY 18 group earnings before tax margin of 17.0%.

Recommendation: The stock has seen a performance change of 2.63% over the past 6 months and has a decent dividend yield of 4.78%. The group’s ROE has been rising from 2% in 2016 to 10% in 2018. Maintaining a balanced mix of equity and debt funding, to support its strong investment grade credit metrics, and development opportunity across Australia and North America, the stock looks to be an interesting play. We give the stock a ‘buy’ recommendation at a current market price of $11.69.
 

QBE Insurance Group Limited (ASX: QBE)

The company was incorporated in 1970 and officially got listed on ASX in 1973. It is engaged into reinsurance risks and underwriting general insurance. It’s segments span through operations including the North American operations, the United States of America, European operations and Australia and New Zealand operations.

Turnaround Strategy: QBE’s statutory net profit after tax for 1H18 has been up 4% with statutory ROE rising up to 8.2% from 6.6% of 1H17. The group has also reduced the . The group expects property earnings to be at the high end of its guidance range of $55-$65 million of EBITDA for FY18. Meanwhile, the stock has risen 8.9 percent in the past one month as at August 23, 2018 and is inching towards 52-week high level. The company has recently announced that nib Holdings Limited will acquire QBE’s travel insurance business as part of World Nomads Group expansion for the total consideration of up to $25 Mn. The company has a rising yield and widening credit spreads and has achieved growth asset return of approximately 9%. The company slated for an additional Australian dollar 100 million shares repurchase. The debt to equity ratio is down to 36.9% from 40.8% of previous period, which implies that the company is gaining a stronger equity position compared to its previous year standings.
The group has thus demonstrated clear signs of a turnaround. Capital adequacy is expected to  improve based on productivity and efficiency gains and remediation of non-core  operations.

Recommendations: In the past 6 months, the stock has seen a performance change of 0.84% with a 8.9% rise in one month; and with stronger equity position and recent expansion mode, we maintain a ‘buy’ recommendation for the stock at current market price of $10.77.
 

Stock Price Movements for TCL and QBE (Source: Thomson Reuters)
 
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