Stocks Details

Rural Funds Group

Robust Growth in Property Revenues:In FY 2018 (which ended on June 30, 2018), Real estate group, Rural Funds Group (ASX: RFF) generated property revenues amounting to $51,087,000 which imply a rise on the YoY basis. The company also encountered improvement in the AFFO or adjusted funds for operations from $25,599,000 in FY 2017 to $32,323,000. Both of these increases were encountered on the back of development capital expenditure, lease income because of the acquisitions as well as indexation. Moreover, the favourable momentum was also encountered in the TCI or total comprehensive income as well as EPU or earnings per unit. These increases were witnessed primarily on the back of non-cash changes with regards to investment properties’ fair value as well as lease income.

Income and Earnings metrics (Source: Company Reports)

Movement in the Key Ratios: There has been marginal improvement in the gross as well as EBITDA margins in FY 2018 on the YoY basis. The company posted gross margins of 97.3% in FY 2018 implying a marginal rise from FY 2017 as in the previous year it was 96.5%. Talking about the EBITDA margin of the company, Rural Funds Group posted EBITDA margin of 81.5% in FY 2018 while in FY 2017 the figure stood at 80.1%.

Acquisitions, Capital growth to Support RFF’s Future: In the financial results presentation for FY 2018, Rural Funds Group stated that they would be maintaining the focus towards garnering stable income as well as growth in the capital with the help of owning as well as enhancing farms’ productivity.The Rural Funds Management has plans to work for acquisitions. There are anticipations that the acquisitions would be towards the existing sectors. Also, the acquisitions would be those which have robust potential with regards to the improvement in rent review profile of Rural Funds Group as well as productivity.

Stock Analysis: On the daily chart of Rural Funds Group, Moving Average Convergence Divergence or MACD has been applied and the default values have been considered for the purposes. As per the observation, the MACD line has crossed the signal line and is moving downwards reflecting bearish momentum.

However, the company’s gross and EBITDA margin ratios have improved in FY 2018 on the YoY basis which reflects the positive momentum.Therefore, we maintain our “Hold” rating on the stock at A$2.210 per share.

Commonwealth Bank of Australia

Favourable momentum in Key Metrics Supported CBA in First Quarter: In Q1 2019, Commonwealth Bank of Australia (ASX: CBA) witnessed strong performance thanks to the fundamentals of the bank. The favourable momentum was witnessed in the deposit growth while the bank’s balance sheet as well as credit quality were also in the strong position. However, in Q1 2019, the bank witnessed some negative impacts in the net interest margins or NIMs because of the home loan price competition as well as increased levels of the funding costs.


CBA’s Key Financials (Source: Company Reports)  

With regards to the business and private banking segment of CBA, the bank stated that it would work towards the improvement of business banking and it would keep up the pace when it comes to innovation so that it can tackle the challenges which might arise because of the competition.

Aiming to Work for Commercial banking, Core retail business:  In the annual general meeting or AGM for 2018, the management of CBA stated that they have maintained their focus towards making the bank simpler. They stated that Commonwealth Bank of Australia would be more inclined towards its commercial banking as well as core retail operations.

In the annual report for 2018, the bank stated that they would be working towards its crucial capabilities like data and analytics, operational risk as well as compliance, innovation and cost reduction.
 
Stock Analysis: On the daily chart of Commonwealth Bank of Australia, Exponential Moving Average or EMA has been applied by considering the default values. As per the observation, the stock price has crossed the EMA and after the crossover there are expectations that it might move upwards representing that it was a bullish crossover. Hence, the stock might witness upward momentum.

As a result, we maintain our “Buy” rating on CBA at the current market price of A$70.080 per share, up 2.4% on December 12, 2018.

Adairs Limited

Robust Growth in Sales in FY 2018: In FY 2018, Adairs Limited (ASX: ADH) posted sales of $314.8 million which implies the YoY growth of 18.8%.The top management of the company also reflected favourable views for the FY 2018 results focusing on sales as well as NPAT or Net Profit After Tax. The company also witnessed robust growth momentum in the gross profit which, in FY 2018, stood at $189.6 million because of the success in terms of the retail execution as well as because of better product offerings.


ADH’s EBIT (Source: Company Reports)

Additionally, in FY 2018, the company also witnessed robust growth momentum with respect to the online sales.

Favourable Momentum Expected in FY 2019: When the company posted FY 2018 results, the management of Adairs Limited reflected positive views about the expected performance in FY 2019.Moving forward, the company is expected to witness positive movement in its business because of favourable momentum in the online channels as well as stores. At the time of announcement of FY 2018 results, the management stated that they would be enhancing 3-5 stores while addition of 7-10 stores might also be witnessed.

Additionally, management stated that the shareholders as well as customers would be benefited because of the company’s robust position.

Stock Analysis: Moving Average Convergence Divergence or MACD and Relative Strength Index or RSI has been applied on the daily chart of Adairs Limited and default values have been used. As per the observation, the stock price has just crossed the EMA and is moving upwards which signifies bullish momentum. On the other hand, the 14-day RSI is moving towards the overbought region.
As a result, we maintain our “Hold” rating on the stock at the current market price of A$1.785 per share, up 4.1% on December 12, 2018.  
 

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