Wesfarmers Limited

WES Details
Acquisition of Kidman: Wesfarmers Limited (ASX: WES) is primarily in retailing of home improvement and outdoor living products and supply of building materials. It is also in the manufacturing of chemicals and fertilisers. The market capitalisation of the company stood at A$44.67 Bn as on 9^th October 2019. Recently, the company published a presentation, wherein it discussed its strategic position and its focus. The company stated that it has successfully wrapped up the acquisition of Kidman with WesCEF holding a 50% interest in the Covalent JV and the Mt Holland Lithium Project alongside SQM. It added that the work is progressing on the Definitive Feasibility Study, with the Final Investment Decision expected to be made in 1H CY20. The company would be conducting its 2019 Annual General Meeting on 14^th November 2019. The following picture has been extracted from the company’s reports:


EBIT Breakdown (Source: Company Reports)

When it comes to shareholders’ return, the Board of Directors of the company declared final ordinary dividend amounting to 78 cents per share, fully franked, which reflects the company’s earnings from continuing operations, as well as its dividend policy which considers available franking credits, current earnings and cash flows, future cash flow requirements and targeted credit metrics.This takes the full-year ordinary dividend to $1.78 per share as well as total dividends to shareholders to $2.78, including a fully franked special dividend amounting to $1.00 per share which was paid in the month of April 2019. As per the release dated 1^st October 2019, the company announced the allocation price of $39.4499 for shares to be issued via dividend investment plan for the final dividend to be paid in respect of the period ended June 30, 2019.

What to Expect:WES stated that the portfolio actions taken during the year 2019 have allowed the delivery of improved shareholder returns & significantly strengthened the balance sheet. Considering the diversity & resilience of the portfolio, the group happens to be well placed for a range of economic conditions. Wesfarmers would continue to build on its unique capabilities & platforms in order to take benefits of growth opportunities within its existing businesses, recently acquired investments & to pursue transactions that create value for shareholders over the long term.

Stock Recommendation:On the valuation front, Enterprise value to sales multiple of the company stood at 1.6x in comparison to the industry median (diversified retail) of 1.2x on TTM (Trailing Twelve Months) basis. The EV/ EBITDA of WES stood at 13.3x against the industry median (diversified retail) of 9.6x on a TTM basis. As per ASX, the stock of WES is trading closer towards its 52-week higher levels. It can be assumed that the stock is overvalued at the current market price of A$38.690 per share and might witness some corrections moving forward. Therefore, in light of above-stated facts, we advise the investors to closely Watch the stock at the current market price of A$38.690 per share (down 1.802% on 9^th October 2019).

 
WES Daily Technical Chart (Source: Thomson Reuters)
 

AMP Limited

AMP Details

Completion of SPP:AMP Limited (ASX: AMP) provides life insurance, superannuation, pensions and other financial services in ANZ and has a market capitalisation of A$5.74 Bn as on 9^th October 2019. The company recently announced that BlackRock Inc. and subsidiaries have ceased to become a substantial holder in the company from 17^th September 2019. In the release dated 10^th September 2019, the company stated that it has successfully completed its share purchase plan (SPP) and raised a total of around A$134.1 million. The company issued 83.8 million new shares to eligible applicants on 13 September 2019, at an issue price of A$1.60 per new share.

When it comes to dividends, the Board of the company has resolved not to declare a dividend for 1HFY19. However, the board would maintain a consistent approach to capital management until the completion of the sale of AMP Life. At the current market price of A$1.600 per share, the annual dividend yield of the company stood at 8.38% against the industry median (Financials) of 4.6% on TTM basis.  The following picture provides an idea of 1H FY19 profit summary:


Profit Summary of 1H FY19 (Source:  Company Reports)

Future Aspects:The company stated that the new AMP strategy would create a client-led, simpler, growth-oriented business. It added that the strategy would reinvent wealth management in Australia, tackle legacy issues as well as position AMP Capital and AMP Bank for growth. The company is anticipating that cost reduction initiatives would be delivering A$300 million of annual run-rate cost savings by FY 22.

Stock Recommendation:When it comes to valuations, the EV/sales multiple stood at 8.9x in comparison to the industry median (Investment Banking & Investment Services) of 5.3x on TTM basis. As per ASX, the stock of AMP is trading close to its 52-week lower levels. The company’s EV/EBITDA multiple stood at 22.31x, which is higher than the industry average of 11.53x. Hence, considering the aforesaid facts, higher valuations, and current trading levels, we advise investors to avoid the stock at the current market price of A$1.600 per share, down 4.192% on 9^th October 2019. 

 
AMP Daily Technical Chart (Source: Thomson Reuters)

Orora Limited

ORA Details

Notice of 2019 Annual General Meeting:Orora Limited (ASX: ORA) provides innovative packaging solutions and has a market capitalisation of A$3.32 Bn as on 9^th October 2019. The company announced that Perpetual Limited and its related bodies corporate has made a change to their substantial holdings on 1^st October 2019 and their current voting power stands at 12.78% in comparison to the previous voting power of 13.87%. The company would be conducting its 2019 Annual General Meeting on 15^th October 2019.

The company declared a final ordinary dividend amounting to 6.5 cents per share, which is franked to 30.0% and 70.0% sourced from the conduit foreign income account, reflecting a rise of 4.0% on a full-year basis.

At the current market price of A$2.730 per share, the annual dividend yield of the company stood at 4.73% against the industry median (Containers & Packaging) of 3.9% on a TTM basis.  The following picture provides an overview of financial summary for the full year ended 30^th June 2019:


Financial Summary (Source: Company Reports)

Future Priorities:The company would continue to invest in efficiency, growth and innovation, as well as integrate recent acquisitions in FY20 to help offset challenging market conditions and cost headwinds. The company anticipates that corporate costs in FY20 would be broadly in line with the underlying costs in FY19.

Stock Recommendation:On the valuation front, the enterprise value to EBITDA multiple stood at 8.91x against the industry average of 10.02x. The enterprise value to sales multiple stood at 0.88x in comparison to the industry average of 1.45x. The company witnessed a CAGR growth of 9% over the period of FY 2014 - FY 2019 in terms of total revenue. Hence, considering the above-stated facts, we give a “Buy” recommendation on the stock at the current market price of A$2.730 per share, down 0.727% on 9^th October 2019.
 
 
ORA Daily Technical Chart (Source: Thomson Reuters)

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