WCM Global Growth Limited

WCM Issues New Shares Against Options: An independent California based asset management firm, WCM Global Growth Limited (ASX: WQG) invests into a diversified portfolio of globally listed quality high-growth companies sourced from developed and emerging markets outside of Australia, with the primary objective of providing long-term capital growth.

The company recently announced new issuance of 96,312 securities at an issue price of $1.10, which would be undertaken against the exercise of 96,312 Options expiring on 24 June 2019 @ $1.10 (ASX: WQGO), effective from May 9, 2019. The Board has resolved to declare a final dividend of 2 cps unfranked for the financial year ending 30 June 2019. The final dividend is payable to ordinary shareholders in the Company with a Record Date of 6 August 2019.

It also means that shares issued pursuant to the exercise of WCM options will be entitled to this dividend. For the FY2020, the Board’s intention is to pay an interim dividend of 2 cps and a final dividend of 2 cps, subject to sufficient profit reserves and corporate, legal and regulatory considerations. Since inception in June 2017, WCM’s investment portfolio has achieved an annualised return of 18.26% and it had distributable reserves of $22,643,753 as on 30 April 2019.


Performance Metrics (Source: Company Reports)

As seen from the table above, WQG’s portfolio had another very strong month of performance, with a return of 3.8%. This was slightly below the 4.2% return of its benchmark MSCI All Country World (ex-Australia) Index. However, the portfolio has delivered returns well in excess of the benchmark over the previous three, six and 12 months.

What To Expect: As per the management, the company expects that the global equity market will continue to move higher in April month which might be favourable for the portfolio performance in the upcoming period. The primary macroeconomic drivers of this strong performance have been the more accommodative position adopted by the US Federal Reserve and signs of stabilisation in Chinese economic growth. The first quarter corporate earnings season has, thus far, proved to be a positive for markets, with early indications being that aggregate earnings will exceed analyst forecasts. These developments are expected to ignite positive sentiment across investors, and therefore further capital-inflow can be expected in the forthcoming year.

Stock Recommendation: The company showed a decent return on its portfolio. It has good exposure in sectors such as Health Care (23.88%), Information Technology (19.84%), and Financials (13.44%). These sectors have a good outlook for the forthcoming year, and therefore an enhanced return from the company’s portfolio can be anticipated.

Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $1.140 per share (up 1.333% on May 9, 2019).
 

Washington H Soul Pattinson & Company Limited

SOL publishes H1FY19 result report: Washington H Soul Pattinson & Company Limited (ASX: SOL) is mainly engaged in coal mining; gold and copper mining and refining; property investment; and consulting. The company recently published its H1FY19 result booklet. It included a discussion of the planned merger of TPG Telecom with Vodafone Hutchison Australia (VHA) and states that the merger is subject to regulatory approvals, including the Australian Competition and Consumer Commission (ACCC). The revenue from continuing operations increased by 31.6% pcp to $723.29 Mn.

The regular profit after tax for the half year ended 31 January 2019 of $186.7 Mn was the Group’s highest ever for a first half and an increase of 12.2% as compared to $166.4 Mn for the previous corresponding period. This can be mainly attributed to higher contributions by New Hope Corporation Limited up 27.3%, due to higher coal prices, increased production at its Bengalla joint venture and increasing its interest in Bengalla; and Brickworks Limited up 73.7%, driven by very strong property earnings, which were partly offset by Round Oak Minerals Pty. Limited, due to significant start-up costs and expenses associated with the development of various projects.

SOL’s portfolio increase of 10.2% was a very good result in a period where equity markets corrected and the All Ordinaries Index was negative 6.7%. The increase in the value of the portfolio was mainly attributed to strong share price performances by New Hope, TPG and Brickworks. The increases in value of the largest three investments were partly offset by a reduction in the value of the Financial Services, Pharmaceutical and Listed Equity portfolios which were all impacted by equity market conditions during the period. The Board of Directors declared fully franked interim dividend of 24 cps (4.3% up pcp) with payment date on May 9, 2019, and record date on April 18, 2019.
 

H1FY19 Key Metrics (Source: Company Reports)

What To Expect: The company believes that New Hope Corporation (SOL’s 50% interest) will continue to progress the regulatory approvals for the continuation of mining at New Acland. If successful, this will provide continuity of employment for its workforce. High calorific thermal coal will play a critical role in improving the environmental credentials of South East Asia’s energy portfolio without jeopardising reliability of supply or significantly increasing electricity generation costs. New Hope’s Asian customers are continuing to invest heavily in new High Efficiency Low Emission (HELE) coal fired power stations. These large and long-term investment decisions provide a foundation of demand for New Hope’s products into the future.

Stock Recommendation: The company’s Gross margin, EBITDA margin, and net margin for H1FY19 stand at 50.4%, 30.4%, and 33.5%, better than the industry median of 28.7%, 13.3%, and 4.9% respectively. However, on valuation front, its P/B multiple for TTM stands at 1.6x which is higher than the industry (Energy) median of 1.4x, indicating an overvalued position at the current juncture.

Hence, considering the aforesaid facts and current trading level, we recommend an “Expensive” rating on the stock at the current market price of $22.680 per share (up 2.578% on May 9, 2019), suggesting that the investor should wait for a few more trading sessions to get the better entry point in this stock.
 

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