2 Industrial and Material Sector Stocks to buy - TCL, DOW

Transurban Group

TCL Details

Strong Order Pipeline:Transurban Group (ASX: TCL) owns and operates urban toll road networks.

The company has announced via an ASX press release that the Transurban Cardinal Holdings Ltd has priced its 4-year fixed rate senior secured bonds at CA$ 200 Mn. The notes are priced on 8 November 2018, and the settlement of the same is expected to occur as on 29^th November 2018. These notes will be denominated in the CAD, hence would also provide an effective balance sheet hedge towards the company’s investments in A25, Montreal, Canada.
 
For the quarter ended September 2018, the total increase in the average daily traffic (ADT) was 3.3%. The Sydney’s average daily traffic (ADT) increased by 2.5% to 681,000 trips, this was on the back of increased large vehicle trips, with total trips on M4 West being 140,000 trips.
 
The company achieved an EBITDA growth of 10.2% during FY 2018 on pcp. This was on the back of growth in strong large vehicle traffic & due to the full year impact of CTW large vehicle toll multiplier increase, enhancing important freight route.The average daily traffic growth for the FY 2018 was 2.2%. This performance has backed by the company’s global expansion strategy.
 
The company has projects amounting to ~ $10 Bn in the pipeline across Australia and North America, which will be funded through raising the equity & cheap debt via issuance of corporate notes, hence remodelling its debt profile & diversifying the sources of funds.Further the growth for the company shall be fuelled on account of the heavy spending by the government on the Infrastructure sector and the inorganic growth strategy adopted by the firm.
 

 
 
TCL’s Debt Maturity Profile (Source: Company Reports)
 
Stock Analysis from Technical Perspective:  Exponential Moving Average or EMA has applied on the daily chart of Transurban Group and the default values have been considered. As per the observation, the stock price has crossed the EMA and is moving upwards creating a bullish momentum. Therefore, we maintain our “Buy” rating on the stock at the current market price of A$11.500 per share.


 
TCL Daily Chart (Source: Thomson Reuters)
 

Downer EDI Limited

DOW Details
Revenue Aided by Growth Across Divisions: Downer EDI Limited (ASX: DOW) ended FY 2018 by generating total revenues amounting to $12.6 billion and the positive momentum in this metric was supported by the favourable momentum in the divisions. The company’s net interest expense witnessed the rise because of the transaction related interest costs. The management of the company had reflected the positive views for the FY 2018 results and they are confident about the growth momentum moving forward.

As per the management of Downer Edi Limited, they have managed to keep the balance sheet robust. According to them, the work-in-hand witnessed the rise and amounted to $42 billion reflecting the robust pipeline of work and thus, placing the company in a strong position for the years to come.The company’s management stated that they have a strong position in New Zealand as well as Australia and they believe that they would be witnessing robust demand with respect to the network management as well as maintenance services.

What Could Support Downer EDI Limited: As previously stated, Downer would continue to witness strong growth momentum moving forward. In Australia, as per the management, the construction of the roads would help in the higher project work. The company would also be benefited by the substantial deployment activities by the State Government which would be done in the public transport.

Source: Company Reports

The management of the company also stated that the government outsourcing as well as growth in the population would help in witnessing robust growth with respect to the social infrastructure opportunities. In addition to these factors, the company believes that it would be encountering significant growth in the minerals processing business. 

Stock Analysis from Technical Perspective: Relative Strength Index or RSI has been applied on the daily chart of Downer EDI Limited and the default values have been considered. As per the observation, the 14-day RSI has crossed the oversold region and a rebound is expected moving forward. Therefore, bullish momentum might take place. As a result, we maintain our “Buy” rating on the stock at the current market price of A$6.290 per share.


 
DOW Daily Chart (Source: Thomson Reuters)
 

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