3 ASX Stocks in Red - Qantas Airways, Japara Healthcare and Commonwealth Bank

Qantas Airways Ltd (ASX: QAN)

QAN Details

Reorganisation of executive leadership team: While Qantas Group has announced a reorganisation of its executive leadership team, the stock seems to have an effect from the reshuffle, negative sentiments starting to creep up in the market with brokers’ downgrade and volatile fuel prices. Over the past three years, senior executive team has led the Group through a major turnaround which is now entering a phase of ongoing improvement and innovation to drive that turnaround.  The major change is promotion of Alison Webster, who is currently Executive Manager of Freight, Catering & Airports, and will now become CEO of Qantas International. Alison Webster has significant experience in the aviation sector in Australia and the UK, working across commercial, operations and customer segments. Alison has held many senior executive roles at Qantas, most recently as the Executive Manager Qantas Freight, Catering and Australian Airports, a position she has held since 2014. She has also held positions at Qantas responsible for international customer experience and cabin crew. Prior to this, she worked in operations and commercial roles at British Airways. Jon Scriven (Group Executive of People and Culture) will retire after eight-and-a-half years at Qantas. He has been instrumental to the overall transformation of business and has also driven the strategy to increase the engagement levels of people, which are now at record levels. The stock declined 5.6% on August 28, 2017, after moving up about 4% on August 25, 2017. We maintain an “Expensive” recommendation on the stock at the current price of $ 5.68

Japara Healthcare Ltd (ASX: JHC)

JHC Details

Decline in profit and earnings per share despite revenue growth: Shares of Japara Healthcare tumbled 13.4% on August 28, 2017 after reporting a 2.3% decline in net profit after tax at $29.7 million (FY16: $30.4 million) despite 10.7% yoy (year on year) growth in total revenue at $362.2 million (FY16: $327.3 million) and 7.3% growth of EBITDA at $60.2 million (FY16: $56.1 million). The company has secured the land and licenses for 11 greenfield developments in line with its medium-term growth strategy. JHC witnessed steady average occupancy at 94.6% (excluding facilities under development) with total operational places up 3.3% to 3,841. Developments program during FY17 include 4 extensive brownfield developments completed delivering 124 premium rooms with a further 179 in progress; 5 additional land sites secured in optimal metropolitan locations to support greenfield development program; and 1,050 licenses held to support the development program including 266 allocated in FY17. Further, commencement of a significant refurbishment program upgrading 14 facilities over the next 2 years has been highlighted.


FY17 Financial overview; (Source: Company Reports)

The Company continued its good record of strong cash generation during the year with a strong balance sheet and available liquidity of circa $190 million. On guidance front, the company expects FY18 EBITDA to be in line with or slightly above FY17, and anticipating further improvement from FY19 as more greenfield developments complete and ACFI indexation increases recommence. Given the guidance and sector’s high dependency on government funding, we maintain an “Expensive” recommendation on the stock at the current price of $ 1.75

Commonwealth Bank of Australia (ASX: CBA)

CBA Details

CBA faces APRA inquiry: Commonwealth Bank of Australia has come under the scrutiny of the Australian Prudential Regulation Authority for its culture, governance and accountability frameworks at the back of recent scandals at the bank. CBA announced that it acknowledges and supports APRA’s announcement of an independent prudential inquiry into the bank. The inquiry, which will focus on governance, culture and accountability frameworks and practices, will have the Bank's full cooperation. Further, the Chairman of CBA said that events over recent years have weakened the community’s trust and have been working hard to strengthen trust. APRA's oversight of this inquiry will ensure the independence and transparency needed to reassure all its stakeholders. CBA also notes APRA's confirmation that the Bank is well capitalised and financially sound. CBA Equity Products Group, as the Issuer of Instalment Warrants over ordinary shares in Telstra Corporation Limited (TLS), declared the record date as 31 August 2017 for entitlements to the $0.155, 100% franked dividend for the TLS Commonwealth Bank Instalments. Given the uncertainty of the ongoing developments,we maintain an “Expensive” recommendation on the stock at the current market price of $ 76.68

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