Downer EDI Limited

DOW Details

FY19 EBITDA increased by 96.2% over previous year: Downer EDI Limited (ASX: DOW) designs, builds and sustains assets, infrastructure and facilities and is a leading provider of integrated services in Australia and New Zealand. It employs more than 53,000 people, mostly in Australia and New Zealand but also in the Asia-Pacific region, South America and Southern Africa. The company recently published its annual report for full year of FY19, wherein it highlighted that its total revenue and other income from ordinary activities in FY19 increased by 6.5% to $12,812.7 Mn as compared to the previous year. This was primarily driven by increased activity in Utilities, EC&M and Mining, partially offset by lower revenue in Transport and Facilities. DOW’s total expenses increased by 4.5% and included a $45.0 million loss due to the provision recognised in relation to Senvion’s scope in the delivery of the Murra Warra wind farm.

Statutory earnings before interest and tax (EBIT) for the full year increased by 125.7% to $462.2 Mn as compared to the previous period. This was driven by higher contributions from Transport, Utilities, Facilities and Mining, partially offset by a lower contribution from EC&M. Earnings before interest and tax and amortisation of acquired intangible assets (EBITA) increased by 96.2% to $532.6 Mn as compared to previous period. EBITA included $17.0 million fair value gain on revaluation of existing interest in the Downer Mouchel joint venture. This gain arose from the revaluation of the proportion of the joint venture already owned by Downer. Profit from ordinary activities after tax attributable to members of the parent entity increased by 266.7% to $261.8 Mn as compared to previous period. The basic earnings per share in FY19 increased by 300.9% to $42.9 Mn as compared to the previous period.

The Board of Directors declared a dividend of 14 cents per share (franked to 50%), with the record date and payment date of September 4, 2019 and October 2, 2019, respectively.

In another recent update, the company announced that Spotless Group Holdings Limited had reached agreement with the South Australian Government and Celsus in relation to the delivery of services by Spotless at the new Royal Adelaide Hospital. This agreement is expected to improve the contract’s monthly cash position and provide a strong foundation for further improvements to the operating model at the hospital.


FY19 Income Statement (Source: Company Reports)

What to expect: As per the release, the company is targeting consolidated net profit after tax and before amortisation of acquired intangible assets (NPATA) of around $365 million (growth of 7.3%) before minority interests for the 2020 financial year.

Stock Recommendation: Dow’ share generated positive YTD return of 13.62% and is currently trading towards the higher end of its 52-week trading range of $5.955 - $8.170. Its gross margin for H1FY19 stood at 47.0%, better than the industry median of 39.0%. Its EBITDA margin and net margin for H1FY19 stood at 6.3% and 2.2%, respectively, better than the result in H1FY18 at 6.3% and -0.3%, respectively, indicating an improvement in the company’s profitability margins. Moreover, its EV/EBITDA multiple for TTM stands at 6.2x, lower than the industry median of 6.7x, indicating an undervalued position at the current juncture. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $7.670, up 1.589% on 22 August 2019.


DOW Daily Technical Chart (Source: Thomson Reuters)
 

Medibank Private Limited

MPL Details

FY19 NPAT increased by 3.1% to $458.7 Mn over previous year: Medibank Private Limited (ASX: MPL) is a private health insurer, engaged with underwriting and distributing private health insurance policies under its two brands, Medibank and ahm. Medibank is also a provider of health-related services through the Medibank health businesses, which capitalise on Medibank’s experience and expertise, and support the Health Insurance business. The company recently released the annual report for the full year of FY19, wherein it highlighted that its revenue from external customers increased by 2.9% to $6,655.8 Mn.This result can be attributed to the strong recovery of the Medibank brand with growth of net residential policyholders by 15,100 since June 30, 2018. MPL’s market share has grown 5 basis points over the year, driven by its dual brand strategy and improved customer acquisition and retention. Additionally, it achieved record levels in its Service NPS across both brands, with an increase of +9.5 for Medibank and +10.4 for ahm compared to full year 2018. MPL’s net profit attributable to shareholders increased by 3.1% $458.7 Mn.

The Board of Directors declared a final ordinary dividend of 7.40 cents per share and also a special dividend of 2.50 cents per share, both fully franked. The record date and payment date are on September 5, 2019 and September 26, 2019, respectively.

 

FY19 Income Statement (Source: Company Reports)

What to expect: As per the release, MPL expects flat overall PHI market volumes. On the current policyholder trajectory, the company expects Medibank brand volumes to stabilise by the end of FY20 and grow during FY21. The hospital and extras utilisation growth are expected to remain around current levels for FY20 with prostheses expenditure expected to add modestly to claims growth compared to FY19. The management expenses for FY20 are expected to be below than FY19 with modestly lower cash costs and reduction in depreciation expense by around $5 million. The dividend payout ratio is expected to be at the top end of the revised target range of 75%-85%.

Stock Recommendation: MPL’s share generated a positive YTD return of 35.20%. On the valuation front, its EV/Sales and EV/EBITDA for TTM stand at 1.3x and 8.2x, lower than the industry median of 2.7x and 9.7x, respectively. Currently, the stock is priced close to its 52-week high level of $3.680 with PE multiple of 22.84x and an annual dividend yield of 3.82%.Moreover, on valuation front, its EV/Sales and EV/EBITDA for TTM stand at 1.3x and 8.2x, lower than the industry median of 2.7x and 9.7x, respectively, indicating under-valued position at the current juncture. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $3.480, up 2.959% on 22 August 2019.


MPL Daily Technical Chart (Source: Thomson Reuters)

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