Stocks’ Details

Downer EDI Limited

Growth Across Divisions Supported DOW in FY 2018: Downer EDI Limited (ASX: DOW) ended FY 2018 by generating the revenues amounting to $12.6 billion, and the company saw growth throughout the divisions. The company’s net interest expense witnessed the rise in FY 2018 to $76.3 million which implies the rise as compared to pro forma FY 2017 because of the interest expenses related to the transaction.
   
DOW’s Performance (Source: Company Reports)

The company incurred net capital expenditure amounting to $360.7 million in FY 2018 while in pro forma FY 2017 the figure was $261 million. This rise was witnessed due to new equipment related to the mining as well as rail projects. As per investor presentation depicting full year results, the company happens to possess a robust liquidity position which could finance the growth prospects moving forward.

Subdued performance considering ratios: Downer EDI Limited posted gross margins of 44.6% in FY 2018 which implies a fall from 50.5% in FY 2017. It would be important to note that the company had managed to maintain the gross margin which is higher than the industry median of 41.3%. However, the company witnessed a decline in the return on equity or ROE from 6.9% in FY 2017 to 2.3% in FY 2018.

Deployments to Support DOW Moving Forward: In the investor presentation showcasing the full year results for FY 2018, Downer EDI Limited has provided the outlook. As per the market outlook, with respect to Australia, the company stated that the deployment towards public transport, primarily towards heavy as well as light rail, by the state government would act as tailwind for the company.

The company also believes that, with respect to Australia, its business related to the minerals processing would be encountering robust growth.

Stock Recommendation: On the daily chart of Downer EDI Limited, Moving Average Convergence Divergence or MACD has been applied and default values have been considered. As per the observation, the MACD line has crossed the signal line and is moving upward which signifies the bullish momentum. Therefore, there are expectations that the stock might witness upward trend moving forward.

As a result, we maintain our “Buy” rating on the stock at the current market price of A$6.590 per share.   
 

Reliance Worldwide Corporation Limited

Acquisition of John Guest to Support RWC Moving Forward: The management of Reliance Worldwide Corporation Limited (ASX: RWC) had reflected favourable views with respect to the John Guest group acquisition. According to them, John Guest’s acquisition happens to be in line with the strategies for growth of Reliance Worldwide Corporation Limited. They stated that robust positions of Reliance Worldwide Corporation in the Asia Pacific as well as North America is expected to be combined with the strong position of John Guest in continental Europe as well as the United Kingdom. The company posted net sales amounting to $769.4 million in FY 2018 which implies the substantial YoY growth of 28%.

FY18 Consolidated Results (Source: Company Reports)

Growth in New Products, John Guest to Support RWC Moving Forward: As demonstrated in FY 2018 results presentation of Reliance Worldwide Corporation Limited, the company is expected to post EBITDA between $280 million-$290 million in FY 2019. The company believes there would be robust growth with respect to the top line numbers across the regions which includes expansion activities going with regards to the core business, John Guest’s full-year inclusion as well as robust momentum in the new products.

Also, the company’s FY 2018 results presentation reflected that its capital expenditure or CAPEX is expected to be in the range of $65 million- $75 million.

Stock Recommendation: The gross margin of Reliance Worldwide Corporation has witnessed a marginal decline in FY 2018 on the YoY basis. In FY 2018, gross margin stood at 41.2% while in FY 2017, the gross margin was 41.9%. On the daily chart of RWC, relative strength index or RSI has been applied and default values have been considered. As per the observation, the 14-day RSI is trending towards the oversold region and once it reaches the oversold region, a rebound is expected to be witnessed.

Moreover, the company is expected to be supported by the acquisition of John Guest moving forward. Therefore, we maintain our “Buy” rating on the stock at the current market price of A$4.460 per share.   
 

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