Carsales.com Limited

Strong bottom-line growth Y-O-Y: Carsales.com Limited (ASX: CAR) is engaged into online automotive advertising. The company has a vision to empower its customers and making transaction of vehicles easy and frictionless.

Financial Performance (Source: Company Report)

The revenue from ordinary activities was up by 19.32% to A$444.0 million in FY18 as compared to A$372.1 million in FY17. The core classified business of the company continues to perform well supported by double digit revenue growth. The reported net profit after tax increased significantly by approximately 69% to A$184.8 million in FY18 as compared to A$109.5 million in FY17 primarily on the back of higher sales. Among the key ratios, the company’s ROE stood at 61.5% in FY18 compared to 41.5% in FY17, up by 20%. However, the company’s pre-tax ROA grew by 4.0% to stand at 33.7% in FY18.

What to Expect From CAR: Going forward, CAR expects that its domestic adjacent business would continue to build scale as well as it would complement the growth similar in FY18.Moreover, the company expects its revenue, EBITDA, and NPAT will remain strong in the domestic core business going forward.   

The stock is currently trading at $12.550 per share with a PE multiple of 16.340x. It has a YTD return of 15.68%. Based on decent fundamentals and current trading level, we maintain our “Buy” rating on the stock at the current market price of $12.550 per share.
 

Fortescue Metals Group Ltd

Strong quarterly production: Fortescue Metals Group Ltd (ASX: FMG) is one of the leading companies in the iron ore industry. It is known for its significant contribution to the development of world-class infrastructure and the portfolio of its mining assets in the Pilbara, Western Australia.

The company recently came up with its quarterly production results and reported total shipments of 42.5 million tonnes and cash production costs of US$13.02 per wet metric tonne. The company made a buyback of shares worth of A$139.2 million (US$101 million) at an average price of A$3.997 per share. The Eliwana mine and rail development project happens to progress as per the schedule.

 

Key Metrics (Source: Company Report)

On the analytical front, the revenue stood at US$6,887 million in FY18, decreased by 18.0% Y-0-Y as a result of lower realised prices received in FY18. The operating margin came in at 23.0% in FY18 which is better than the industry median of 19.8%. The current ratio stood at 1.33x, improved significantly by 12.6% on a YoY basis primarily because of lower current liabilities Y-O-Y.

In FY18, Fortescue delivered a net profit after tax of US$878 million compared to FY17 US$2,093 million, a decrease by ~58.0% primarily on the back of higher operating expenses and cost of revenues.However, there was a decrease in C1 costs to US$12.36/wmt, a 4.0% reduction from the prior year.

What to Expect From FMG: Going forward, the company is committed to maintaining its balance sheet strength and flexibility and will continue to invest in the long-term sustainability of the core iron ore business.It is prioritizing growth primarily through exploration activities.Moreover, the company provided guidance of higher volumes in the second half of FY19, which will contribute to lower C1 costs with full year costs expected to be higher at a range of US$12-$13/wmt range.
 
Meanwhile, the share price has risen 36.10% in the past three months as at 4 February 2019 and is trading at reasonable PE multiple of 15.02x. It has a YTD return of 38.07% with the market capitalization of circa $17.64 Bn as of 5 February 2019. Given the backdrop of better EBITDA and Operating margins as compared to the industry median and strong quarterly production report, we, therefore, reiterate our “Buy” rating on the stock at the current market price of A$6.00 per share (up 4.712% on 5 February 2019).  
 

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