3 Blue-chip Stocks of Choice – BHP, QBE, SCG

Stocks’ Details

BHP Billiton Limited

On-Track to Meet FY19 Guidance Except that for Copper: BHP Billiton Limited’s (ASX: BHP) stock tumbled 1.367% on October 18, 2018 depicting a fall continued after the release of update on quarter ended 30 September 2018 on October 17, 2018, wherein the group has revised its forecast for full-year copper production guidance from 1,675 - 1,770 kt to 1,620 - 1,705 kt, owing plant outages at Olympic Dam in Australia and Spence in Chile, resulting in lower production volume, while production guidance for  all other resources remained unchanged. As per the release, the company delivered 2% rise in copper equivalent production despite maintenance at a number of its operations and is on track to meet guidance for the 2019 financial year across its commodities, except copper. In petroleum, BHP has extended its exploration success and encountered hydrocarbons in three wells. Moreover, onshore US sale process is on track to be completed by the end of October 2018, with the Fayetteville transaction completed on 29 September 2018. The net proceeds from the sale of onshore US assets are expected to be returned to shareholders.


Production guidance for the 2019 financial year (Source: Company Reports)

In the long run, we expect that the group has a strong outlook underpinned by well-diversified business model and disciplined financial framework approach which provides decent free cash flow along with a strong balance sheet position. Meanwhile, the share price has risen 12.46 percent in the past six months (as at October 17, 2018) and traded at PE level of 35.74x. The stock has a market capitalization of $108.11 Bn, a price-to-book value ratio of 2.26x and a beta of 1.23x as of October 18, 2018, exhibiting overvalued scenario at the current juncture. We, therefore, maintain our “Hold” recommendation on the stock at the current market price of $33.20 while it is expected to move up with better commodity scenario.

QBE Insurance Group Limited

Share Buy-back Cancellation Update: QBE Insurance Group Limited (ASX: QBE) announced the cancellation of 7,150,000 QBE shares as a part of the on-market share buy-back and issue of 298,390 Bonus Share Plan shares.Following this cancellation, the total number of shares on issue has been 1,338,498,360. Besides this, the Group bought back about 1,000,000 more shares (as on 17 October 2018) from the market for the consideration of $11,306,200.0 and before that it has already bought back 22,113,799 shares via on-market trade. However, the group focuses on product innovation and cost reduction to support the overall growth of the company in the years to come. Based on this, the group anticipates for FY18, the combined operating ratio to be in the range 95.0% - 97.0% and the Investment return to be in the range of 2.25% - 2.75%. As at 30 June 2018, the company had cash and cash equivalent of US$311 Mn with total borrowing of US$3,205 Mn. Additionally, during the first half of FY18, the company had reduced the debt-to-equity ratio to 36.9% as compared to the previous six months where it was at 40.8%.

Key Metric Guidance for FY18 (Source: Company Reports)
In the meantime, the share price has risen 16.40 per cent in the past three months and traded close to 52-week high level of $11.660. By looking at its ongoing development and current trading level, we maintain our “Buy” recommendation on the stock at the current market price of $ 11.590.
 

Scentre Group

Decent Fundamentals: Scentre Group (ASX: SCG) has a sound track record of delivering decent financial performance and growth. The Company has achieved a five-year compound annual growth (CAGR) in revenue and EBIT of 17.8% and 17.1% respectively to FY17 while PAT recorded CAGR growth of 27.4 percent over the same period. Moreover, the company delivered another decent first half-year performance wherein Funds from Operations (FFO) were up by about 3.0 percent against 1HFY17. It was mainly supported by strong demand for high-quality retail space. Topline and the Bottom line came in at $1,282.2 Mn and $1463 Mn, respectively in 1HFY18 over the prior corresponding period, exhibiting 6.5% and 3.4% growth, respectively on a Y-o-Y basis. On the balance sheet front, the company had cash and cash equivalent of $200.8 Mn as at June 30, 2018. The current ratio increased from 0.18x to 0.22x in 1HFY18 over the prior six months while the Debt-to-Equity Ratio stood at 0.59x in 1HFY18.

On the other hand, SCG has acquired a 50 percent stake in Westfield Eastgardens in Sydney's South?East from the Saunders family's Terrace Tower Group for $720 million, representing a capitalization rate of 4.25%. The objective of this deal is the expansion of the retail segment and a mixed-use development (including, commercial, accommodation and education facilities) thereby resulting in the overall growth of the company.
 

1HFY18 Financial Metric (Source: Company Reports)

Meanwhile, the stock has fallen 10.93% in the past three months as at October 17, 2018 and traded at lower PE level of 4.87x. The stock has a market capitalization of $20.79 Bn, a price-to-book value ratio of 0.89x and a beta of 0.78x as of October 18, 2018, displaying undervalued scenario at the current juncture. Based on aforesaid facts and revaluation uplift of $966 million across the portfolio at the first half year, underpinned by the completion of developments, growth in NOI and improvement in capitalization rates for high-quality assets, we maintain our “Buy” recommendation on the stock at the current market price of $3.920.


 
Stock Price Comparative Chart (Source: Thomson Reuters)
 
 

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