Stocks’ Details

Woolworths Group Limited

Potential to Grow Further: Woolworths Group Limited’s (ASX: WOW) stock edged down by 0.356 per cent on July 23, 2018 with intra-day traded volume of 1,490,855 after the announcement of Coles Supermarket demerger from rival group Wesfarmers. Recently, the company disclosed a decent set of quarterly result wherein sale grew by 4.3 per cent and amounted to $14,244 Mn in Q3FY18 as compared to the prior corresponding period (pcp). The sales were mainly driven by the improvement of product mix growth during the quarter. With this decent performance, the group eyes on the remainder of the FY18 to deliver consistently good shopping experiences across all its stores by embedding current strategic initiatives including ‘Simpler for Stores’ and continues to improve its digital experience. On the financial front, RoE and RoIC substantially rose from 6.6% and 4.9% to 9.2% and 6.8%, respectively in 1HFY18 as against of the previous half. Besides this, Current ratio and Quick ratio stood at 0.84x and 0.35x in 1HFY18 which is broadly in-line with the Industry Median. The group declared fully franked interim dividend of 43.0 cents per share which was paid on April 06, 2018, representing a dividend rise of 26.5% as compared to the previous corresponding period. Based on historical dividend performance, we expect that the company will continue to pay the dividend to its shareholder despite the adverse conditions. As of now, it is trading at an annual dividend yield of 3.01 per cent per annum. Meanwhile, the share price was up by 15.81 per cent in the past three months (as at July 20, 2018) and the stock currently is trading at a higher level. Hence, we maintain our “Hold” recommendation at the current market price of $ 30.800, considering improving financials and market-leading position.


Business Strategy - From Turnaround to Transformation (Source: Company Reports)
 

Transurban Group

Submitted Bid for 51% Interest in the WestConnex Assets: Transurban Group’s (ASX: TCL) stock tumbled 1.086 per cent on July 23, 2018 after the announcement of a bid submitted for a 51% interest in the WestConnex assets that are available for sale by the NSW Government. Once the final bids are received, the Government will take the time needed to carefully evaluate them before making any decision. Additionally, all bids must be received regulatory approval from the ACCC and the Foreign Investment Review Board. Among the bidders, Transurban’s bid is conditional on approvals from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board. On this, the management stated that the group will continue to work constructively and collaboratively with both agencies to enable the NSW Government to conclude its process as expeditiously as possible and achieve the best outcome for NSW taxpayers and road users.

A week ago, the Government of New South Wales accepted a proposal from the WestConnex Equity Sale Steering Committee to proceed with the sale of 51% of the Sydney Motorway Corporation (SMC). The return of the SMC deal will be utilized to build the basic M4-M5 Link which has a vital connection between the New M4 at Haberfield and New M5 at St. Peters.


Value creation (Source: Company Reports)

On the valuation front, the company has a price-to-earnings ratio of 52.73x as of July 23, 2018. It has posted Return of Equity (RoE) of 7.8%, Return on Capital Employed (RoCE) of 1.7% and has a debt-to-equity ratio of 2.57x in 1HFY18. Besides this, Current ratio stood at 1.48x in 1HFY18 which is above the Industry Median (0.75x). Over the last five years, the company’s revenue and PAT have grown at a CAGR of 51.2 per cent and 17.9 per cent, respectively. Hence, we uphold our “Buy” recommendation on the stock at the current market price of $ 11.840 given the long-term potential.

 
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