Chorus Limited

Reduction in the Operating Revenue: Chorus Company (ASX: CNU) is in the business of owning and operating nationwide fixed lines access network infrastructure in New Zealand.It is listed under the ticker CNU on the NZX Main Board in New Zealand and the ASX in Australia. The Q1 FY20 saw line loss slow significantly as broadband uptake soars and saw a growth on total broadband connections by 10K to 1,206,000. During Q1 FY20, total fixed-line connections declined by 6k to 1,4l44,000, and monthly average data usage grew to 279GB.

Notice of Annual General Meeting and Nomination Of Director:The company announced that JB Rousselot would take over as CEO with effect from 20 November 2019 and the companyhas issued 4,421,069 new shares ranking equally with existing ordinary shares under its Dividend Reinvestment Plan for an issue price of NZD 4.96853 per share.

Chorus 2019 annual shareholders meeting will be held on October 31, 2019 to discuss election and re-election of directors, remuneration of directors, auditor fees and expenses, changes to Chorus’ constitution.The Board supported the nomination of Sue Bailey to stand for election as an independent non-executive director and announced that Anne Urlwin would step down from the Board at its 2019 annual shareholders’ meeting. Recently, the company announced that Commonwealth Bank of Australia became a substantial holder of the company with the voting power of 5.037%, effective from October 16, 2019.

FY19 Financial Performance: During the year ended June 30, 2019, the company reported EBITDA of $636m, which was in line with the guidance of $625m to $645m. During the year, operating revenue was decreased to $970 million from $990 million in FY18. This was because of the decline in copper revenues as customers migrated to Chorus fibre or competing fibre/wireless networks offset by increased subdivision demand, fibre uptake and ARPU increases.


Financial Highlights (Source: Company Reports)

Outlook:In FY20, the company is expecting it’s gross capital expenditure to be in the range of $660m - $700m, reflecting the range of $550m-$580m towards fibre, $50m-$70m towards copper, and $50m-$65m towards IT platforms/technology. The company is also expecting its EBITDA to be in between $625m to $645m subject to no material changes in the expected regulatory environment or competitive outlook. It is also looking forward to a reduction in FY20 total expenses due to the greater use of digital functionality, optimising maintenance spend, tight control of general costs, and transformation.


Capital Expenditure Highlights (Source: Company Reports)

Stock Recommendation: The performance of the stock went down by 10.46% in the past 6 months. The company’s net margin stood at 5.5% in FY19 as compared to industry median of 9.3%. The company is expected to conduct its annual shareholders meeting soon and we advise investors to track the same. Hence, considering the above points and current trading levels, we put our wait and watch stance on the stock at the current market price of $5.07 (up 0.396% on 17 October 2019), ahead of the company’s AGM, to be held on 31 October 2019.
 

Domino’s Pizza Enterprises Limited

Significant increase in EBIT:Domino’s Pizza Enterprises Limited (ASX: DMP) operates retail food outlets and franchise services. Domino’s 2019 Annual Shareholders Meeting will be held on 28 October 2019 to discuss various agendas including financial statements and reports, adoption of remuneration report and other important agendas. Mr Don Meij holds a total of 1,800,001 shares after selling a total of 43,343 shares in Domino’s Pizza Enterprises Limited to meet financial obligations relating to taxation.
FY19 Financial Performance: During the year ended 30 June 2019, DMP’s has demonstrated record underlying EBIT of $220.8 million, an increase of 7.2% from the prior year.Online sales increased by 18.2% to $1.9 billion, delivering total global food sales of $2.9 billion, up by 11.9%. The company’s earnings per share also went up by 8% from 152.8 cents per share to 165.0 cents per share.
                           
Financial Highlights (Source: Company Reports)

Business Highlights and achievements: The company developed a new size (i.e. extra-large) delivering customers more value and franchisees additional sales and incremental margin. The company also provided more data and support for franchisees and launched quarterly business reviews through an expanded operations 360 program.

Investor Presentation: The company recently released its investor presentation and stated that it is planning to continue its expansion across ANZ and anticipates that Domino’s Pizza and its Franchisees would continue to benefit from economies of scale generated by operating the largest pizza network in Australia. The growth in the home pizza market would continue due to longer working days as well as increase in dual career households helping the demand for freshly cooked, delivered food.
 
Outlook: As part of long-term view, the company provides an outlook for the next three to five years and stated that each year it would lift sales by between 3% and 6% on a Same Store basis. It plans to open between 7% and 9% of the network in new stores, with net capex of $60m - $70m.

Stock Recommendation: The 52-week trading range of the stock stood at $35.295 and $56.830 and currently, the stock is trading above the average of its 52-week high and low. EBITDA margin and net margin of the company stood at 18.4% and 8% in FY19 as compared to the industry median of 25.2% and 8.9%, respectively. The stock has generated positive returns of 31.08% and 17.58% in the past three months and six months, respectively. Hence, considering the aforesaid facts, recent price movements, and business prospect, we have a wait and watch stance on the stock at the current market price of $49.840, down 1.444% on 17 October 2019. 

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