Adelaide Brighton Limited

 
FY19 NPAT to Decline on Weak Demand: Adelaide Brighton Limited (ASX: ABC) is engaged in the business of manufacturing and distribution of cement, and cementitious products, lime, premixed concrete, aggregates, sand and concrete products. Recently, the company disclosed to ASX that one of its director Vanessa Ann Guthrie who had an indirect interest in the Company acquired 3,760 shares and 1,240 shares on 14th May 2019 and 16th May 2019 via on-market purchase at a consideration of $3.50 and $3.62 per share, respectively. Moreover, Zlatko Todorcevski and Kenneth Bruce Scott- Mackenzie who had an indirect interest in the company acquired 30,000 shares and 15,000 shares at issue price of $3.50 and $3.46 per share, respectively via on market purchase as on 14 May 2019. Hence, the number of securities held by Zlatko Todorcevski and Kenneth Bruce Scott- Mackenzie after the change are 50,000 and 20,000 indirect securities, respectively.
 
The company on 9 May 2019 announced that it expects underlying net profit after tax (NPAT), excluding property, for the year ending 31 December 2019 will be 10% to 15% lower as compared to the prior year of $190.1 million. The lower NPAT is expected due to softening of demand for construction materials in the residential market, higher competition from cement imports, elevated competitive pressures in Queensland and a rise in costs of key raw materials as compared to the prior year. However, the management is of the view that the balance sheet is strong and provides sufficient flexibility to chase new opportunities despite the current year earnings to be impacted by market conditions.
 
Considering the interest of shareholders, the Board introduced a non-executive Director Minimum Shareholding Policy during 2018 with a view to encourages the non-executive Directors to accumulate and maintain a meaningful level of ownership in the company. During their tenure on the Board, non-executive Directors are expected to acquire, within five years of their appointments, a shareholding equivalent in value to one year’s base fees and thereafter to maintain at least that level of shareholding throughout their tenure. The non-executive Directors will have five years from July 2018 to achieve the minimum shareholding, who are holding the office since the adoption of the policy. From the shareholding pattern standpoint, the following table provides a broad overview of the top 10 shareholders in Adelaide Brighton Limitedwhich together form around 53.80% of the total shareholding. Barro Properties Pty. Ltd. and Barro Group Pty. Ltd. hold maximum interest in the company at 33.03% and 9.06%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)

On the financial front, the revenue stood at $1,630.6 million in FY18, an increase of 4.6% from the previous year, underpinned by growth from east coast markets, improved pricing and the contribution of acquisitions completed in FY17. The reported net profit after tax for FY18 stood at $185.3 million in FY18 from the prior period of FY17, an increase of 1.4%, whereas the underlying net profit after tax declined by 3.7% from $198.4 million in 2017 to $191.0 million. This was primarily impacted by lower earnings before interest and tax on the back of lower cement earnings, due to market mix changes and increase in the energy costs.

The net margin and operating margin for the company decreased by 40 bps and 100 bps to 11.30% and 15.4%, respectively in FY18. However, EBITDA margin marginally improved by 50 bps to 19.6% in FY18.

Outlook: The company is keen on deriving further benefits from the unchanged corporate strategy which includes cost reduction and operational improvement, growth of the lime business and its focussed approach along with relevant vertical integration.

Stock Recommendation: The stock has given a negative return of 39.20% and 9.01% in the last one-year and one-month, respectively. The stock is currently trading near to its 52-week low price of $3.43 with PE multiple of 13.82x. Hence, considering the aforesaid parameters and current trading level, we have a wait & watch stance on the stock at the current market price of $4.120 per share (up 4.569% on 22 May 2019).
 

Pendal Group Limited

 
Uncertain Market Scenario: Pendal Group Limited (ASX: PDL) is into the financial sector with its operations in global asset management. The company has recently announced to pay a dividend of AUD 0.200 on ordinary fully paid shares with an ex-date of Thursday, May 23, 2019 and a record date of Friday, May 24, 2019. The payment date for the dividend is Wednesday, June 26, 2019.

On the other hand, PDL recently disclosed that one of its directors Mr. Deborah Page who held 18,133 ordinary shares in his indirect capacity and 18,768 ordinary shares in a direct capacity, acquired 1,560 shares from his direct interests and simultaneously acquired 1,532 shares in indirect interests for a consideration of $7.69 per share (each) as on 6 May 2019 via on-market trade. Hence, after this development, Deborah Page holds 20,328 ordinary shares in his direct capacity and 19,665 ordinary shares in his indirect capacity. Moreover, Kathryn Matthews who has a direct interest in the group has acquired 15,000 shares at a consideration of $7.51 per share on 8 May 2019 via on-market trade.

On the shareholding pattern front, the following table provides a broad overview of the top 10 shareholders in Pendal Group Limited which together form around 35.83% of the total shareholding. Westpac Financial Services Group Ltd. and Pinnacle Investment Management Group Ltd hold maximum interest in the company at 9.91% and 7.40%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)

1H FY19 Financial Performance: The cash net profit after tax was down by 26% to $84.5 million in 1HFY19 as compared to the previous corresponding period. However, the statutory net profit after tax stood at $69.6 million in 1H FY19,down by 37%, primarily driven by significant lower performance fees, which went down by 91% to $4.4 million as compared to $47.6 million in 1H18.

Funds Under Management (FUM) as at 31 March 2019 was closed at $100.9 billion, which exhibits 1% decrease on $101.6 billion as at 30 September 2018, primarily affected by significant negative market movements in the December quarter.


Key Metrics 1HFY19 (Source: Company Reports)

Company Prospects: Pendal will expand its investment and distribution capabilities and maintain a disciplined approach in capacity management. It will provide ongoing support to the investment talent through its investment-led culture and business model.

The March quarter experienced a market recovery as expectations grew that the US Fed would not be raising rates, and some progress was made on the trade front between the US and China. Still, there was significant market volatility particularly in the December quarter, where US rate policy, tightening financial conditions and a deepening concern regarding economic growth placed significant pressure on equity markets. Additionally, Brexit uncertainty resulted in cautious investor sentiment.

Stock Recommendation: The stock remained volatile with its negative returns of 5.96% and 9.56% over the past three months and one-month period, respectively. Driven by the market uncertainty along with subdued financial performance in 1HFY19, we have a wait and watch view on the stock at the current market price of $8.060 (up 0.249% on 22 May 2019).  

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