Sims Metal Management Limited

 
Unveiled Strategic Growth Plan:Sims Metal Management Limited (ASX: SGM) is one of the world’s leading metal and electronics recyclers with more than 250 facilities, including joint ventures operations, in 18 countries, and more than 5,000 employees globally.  The company recently notified that Allan Gray Australia Pty Ltd (Allan Gray Australia) and its related bodies corporate has increased its holding to 17.54% from the earlier 16.58%.
 
5-year Strategic Growth Plan:  The company recently hosted an investor strategy day to unveil its multi-year strategic growth plan and shared plans to drive growth through 2025 to focus on driving the growth of existing businesses and introducing new business sectors.
 
Explaining the new business goal, the Management intends to expand into waste-to-energy by capturing the energy available in the non-metallic residue produced from the shredding process (ASR) to generate electricity. SGM has planned to install and operate 7 plants within ten years with the aim of zero waste disposal and energy costs over the long-term.
 
The Management intends to expand the penetration level in Energy into other parts of the worldwith leveraging the expertise and best practices from joint venture partner LMS Energy, (the leading landfill energy company in Australia). For the purpose, the Management will acquire or build a minimum of 50 Megawatts of sites within the next six years.
 
1H FY19 Result Highlights:The company posted solid result despite a more challenging market with resilient underlying earnings, good volume, and sales growth. Underlying EBIT stood at $109.6 million, down 12.3% over the prior corresponding period. Underlying NPAT (Net Profit After Tax) came in at $76.7 million, a decrease of 7.1% on pcp. Sales revenue and sales volume were up 12% and 4%, respectively on pcp. The company maintained a dividend of 23 cents per share fully franked, during the period.
 

1H19 Financial Performance (Source: Company Reports)
 
Stock Recommendation: At the current market price of$10.910, the stock is trading at a price to earnings of 11.730x. The stock has gained ~11.33% on YTD and currently trading towards the lower end of its 52-week range of $8.910 - $17.430. EBITDA margin and net margins for 1H19 stood at 2.3% and 3.5%, which are lower than the industry median of 34.6% and 13%, respectively. ROE for 1H19 at 3.4% was also lower than the industry median of 6.5%. Hence, considering the aforesaid facts, we give an “Expensive” recommendation on the stock at the current market price of $10.910 as on 30 July 2019, and suggesting that investors should wait for few more catalysts that may drive the stock higher.
 
 

Bendigo and Adelaide Bank

CET1 at 8.76% at the end of 1H19:Bendigo and Adelaide Bank (ASX: BEN), established in 1985, is one of Australia’s largest national financial planning and stockbroking organisations. With more than 190 financial planners in Australia, the bank provides financial advice and help the customers to achieve their financial goals.
Recent Updates:

1. The bank recently issued 7,487 fully paid ordinary shares for the purpose of conversion of fully paid unquoted to fully paid quoted ordinary shares with issue date as on 01 July 2019.
2. The bank announced fully franked ordinary dividend of AUD 1.8460 on BENPF - CNV PREF 6-BBSW+4.00% PERP NON-CUM RED T-06-21 with ex-date of December 3, 2019 and payment date of December 16, 2019.
3. IOOF Holdings Ltd (ASX: IFL),as on 10 April 2019, notified that its subsidiary, Bridges Financial Services Group Pty Ltd (Bridges), has entered into a strategic partnership with Bendigo and Adelaide Bank Ltd, with respect to advice servicing rights of Bendigo Financial Planning Ltd’s (Bendigo FP) clients.

1H19 Performance Highlights:On a statutory basis, net profit during the period, came in at $203.2 million as compared to $231.7 million on pcp. Cash earnings, during the period, stood at $219.8 million against $225.3 million on pcp. On a cash earnings basis, net interest income declined by $11.5 million to $656.5 million. NIM (Net Interest Margin), before revenue share arrangements for the year, saw a downtick of 1 basis point to 2.35% on pcp. The decline in NIM was mainly on account of higher funding costs in both term deposits and wholesale markets. Expenses witnessed a rise of $18.7 million or 4.2%, predominantly owed to a rise in staff costs as a result of salary increases, and a rise in legal costs and software licence fees.

CET1 (Common Equity Tier 1) ratio was up, 15 basis points to 8.76% as compared to December 2017 with a total capital of 13.84% against 12.98% in December 2017.

1H19 Result Summary (Source: Company Reports)

Financial Reporting:The company updated that it will release full year financial results for FY19 on 12 August 2019.
Stock Recommendation: At the current market price of $11.660, the stock is trading at a price to earnings multiple of 13.20x as compared to 11.8x of industry median. On Price to book front, the stock is available at a price to book value of 1.0x as compared to 1.5x of the industry median. The stock has gained ~11% in last 3-months and is trading towards the higher end of a 52-week range of $9.370 - $11.870, which increases the probability for a correction in the near term.Hence, considering the short-term movement in stock price, first-half FY19 performance and a mixed set of valuations, we have a watch view on the stock at the current market price of $11.660, up 1.391% as on 30 July 2019, and suggesting that investor should wait for better entry levels. 

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