2 Industrial Stocks - TCL, DOW

Transurban Group

Wrap up of Inner-City Bypass Upgrade Project in Brisbane: Transurban Group (ASX: TCL) had recently posted 1H FY 2019 results. With respect to Brisbane, the company’s management stated that the completion of Inner-City Bypass Upgrade project has resulted in a reduction of travel-times for the customers as well as improved incident-response. The customers in Brisbane are seeing benefits of work TCL has undertaken to improve the fee arrangements as well as processes with the substantial reduction in fees charged for the half. In 1H FY 2019, with regards to Brisbane, the ADT growth of 0.3% weighed by the disruption from GUN and LEP projects and the toll revenue got impacted by fee changes, with a positive outcome for the customers.  


Brisbane (Source: Company Reports)

The company’s total revenues have demonstrated significant improvement in the past five years to FY 2018 (i.e. from FY 2014-FY 2018).In FY 2014, the company’s total revenues stood at $1,150 million while in FY 2018, it was $3,298 million implying the CAGR growth of 30.13%.

What to Expect From TCL: The management of Transurban Group had reaffirmed the FY 2019 distribution guidance at 59 cents per share. The company had also reaffirmed the mid-single digit distribution percentage growth for FY 2020. There are expectations that, by FY 2021, five projects would be wrapped up and further four would be completed by FY 2024 which will be supporting the ongoing distribution growth.

Priorities (Source: Company Reports)

Stock Recommendation: On the daily chart of Transurban Group, Exponential Moving Average or EMA has been applied and default values were used for purposes. After careful observation, it was noticed that the stock price has crossed the EMA and had moved upwards after the crossover which reflects bullishness.

Also, the company’s annual dividend yield stood at 4.57% which is higher than the industry median (transport infrastructure) of 3.6% which reflects the company’s focus on delivering returns to the shareholders. Besides this, the share price of the company has risen 9.38% in the past three months as at March 01, 2019 and trading slightly towards 52-week higher level. Hence, we maintain our “Hold” recommendation on the stock at the current market price of A$12.480 per share.
 

Downer EDI Limited

Transport Revenues Rose 0.8%: Downer EDI Limited (ASX: DOW) had recently released the results for half-year ended December 31, 2018. During the same period, the company’s total revenues encountered a rise of $522.5 million or 8.6% and stood at $6.6 billion. The company’s transport revenue stood at $2.1 billion which implies the rise of 0.8% or $16.2 million even though the revenue got lost following the divestment of freight rail business in the prior period. The company’s utilities revenue witnessed a rise of 27.5% and stood at $1.2 billion on the back of continuing strong contributions from nbn contracts in Australia and new renewable energy projects.

Income Statement’s Snapshot (Source: Company Reports)

What to Expect From DOW: Downer EDI Limited had increased the target guidance for FY 2019 to $352 million for consolidated net profit after tax and before amortisation of acquired intangible assets (or NPATA) before minority interests. Also, the company is expected to deliver a growth of 19% in EPS in FY 2019. With respect to the balance sheet, the company is expected to maintain conservative gearing position which would provide balance sheet flexibility to support growth.   

Stock Analysis: On the daily chart of DOW, Exponential Moving Average or EMA has been used and default values were used for the purposes. After careful observation, it was noticed that the stock price has crossed the EMA and had moved in the upward direction after crossover which reflects bullishness. As a result, the stock might witness a rise moving forward.  

On the valuations perspective, the company’s price-to-book ratio (or P/B ratio), on TTM basis, stood at 1.5x which is broadly in line with the industry median (construction & engineering) of 1.4x. Based on aforesaid facts and increased FY19 NPATA guidance, we maintain our “Buy” rating on the stock at the current market price of A$7.450 per share.  
 

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