Tabcorp Holdings Limited

TAH Details

Integration Program Ahead of Schedule:Tabcorp Holdings Limited (ASX: TAH) is engaged in the provision of gambling and entertainment services. The company recently updated the market with full-year results for FY19 wherein group revenue stood at $5,482.2 million, posting a growth of 8.7% on pro-forma pcp. EBITDA for the period came in at $1,064.7 million with a growth of 7.6% on pro-forma pcp. The strong results were driven by excellent results from Lotteries & Keno, led by game portfolio initiatives, digital and retail channels, and favorable jackpots. The company during the period, announced a full year dividend of 22.0 cents per share, including final dividend of 11.0 cents per share (fully franked), showing a rise of 4.8% against the prior year dividend of 21 cps. The final dividend will be paid on 20 September 2019.

Coming to the segment performance, Lotteries & Keno saw a revenue growth of 22.8% on pro-forma pcp to $2,864.9 million with EBITDA growth of 28.9% on pro-forma pcp to $509 million. The record growth in the segment was led by game innovation, investment in technology and data-led capability. Digital and retail turnover witnessed a yoy growth of 73.5% and 17.75%, respectively.

Wagering & Media saw a fall of 3.6% (on pro-forma pcp) in sales to $2,312.2 million. EBITDA also witnessed a decline of 7.9% on pro-forma pcp to $416 million.TAB turnover growth of 1.3% translated to a revenue decline of 3.6% due to a step-up in customer generosities and lower gross yields. Turnover in the ex-UBET business (Queensland, Tasmania, South Australia and Northern Territory) also posted a de-growth of 9.5%, mainly due to legacy offering.

Gaming services, which now operates under the umbrella MAX brand, witnessed a fall of 3.5% in revenue to $304 million with EBITDA at $139.7 million, down 8.1% on pro-forma pcp. The segment went through a structural change in FY19 to create a sustainable base for the future and was simplified into two unit - MAX Venue Services, and MAX Regulatory Services.


FY19 Group and Business Results (Source: Company Reports)

Lotteries & Keno represented the major portion of the revenue at 52%, followed by Wagering & Media at 42%. Gaming Services accounted for 6% of the total revenue in FY19. Group EBITDA margin for the year remained healthy at 19%, with EBITDA margin for Lotteries & Keno, Wagering & Media and Gaming Services at 18%, 18% and 46%, respectively.

As far as integration is concerned, the company is progressing well and is ahead of schedule with delivering of $64 million in EBITDA from cost synergies and business improvements in FY19, surpassing the revised mid-year target of $55 million.

Stock Recommendation: At the current market price of $4.770, the stock is trading at a price to earnings multiple of 26.53x. The stock is currently trading towards the higher end of its 52-week trading range of $4.090 - $4.970. Annual dividend yield stands at 4.61% with the market capitalization of ~$9.63 billion. The stock has gained 12.50% on YTD. The substantial business of the company - Lotteries & Keno is positioned well for future growth on the back of recent investment in game innovation and technology and data capability. With integration on track, decent set of numbers for FY19, most activities to be completed by the end of FY20, the company is set to build a competitive advantage and drive long-term profitable growth, going forward. Hence, considering the aforesaid facts and current trading levels, we maintain our “Hold” recommendation on the stock at the current market price of $4.770 with no change on 11 September 2019.


TAH Daily Price Chart (Source: Thomson Reuters)
 

Scentre Group

SCG Details

Higher Occupancy Rate Led to Higher Funds from Operations:Scentre Group (ASX: SCG) owns and operates the pre-eminent retail property portfolio in Australia and New Zealand, with interests in 41 centres including 16 of the top 25 centres in Australia and 4 of the top 5 centres in New Zealand. With a recent updated on 11 September 2019, the company informed that it bought back 3,295,825 shares for the total consideration of $12,929,210.64 via on-market trade.

H1FY19 Performance Highlights:Scentre Group posted H1FY19 income at $994.6 million, 5% higher on pcp. Funds from operations for the period came in at $676.2 million as compared to $657.2 million in H1FY18. The company’s EBIT came in at $952.1 million, up 5.2% from prior corresponding period. The company reported net cash inflows from operating activities at $629.1 million during the first half of FY19. SCG posted total assets at $40,055.5 million and net assets at $23,797.3 million as on 30 June 2019. The company reported +535 million of annual customer visitations, aided by longer hours staying and frequent visiting by the customers. During the quarter, the occupancy rate remained high at 99.3% with comparable net operating income increasing 2.3% during H1FY19. The company introduced 118 new brands and reported 117 existing brands which has collaborated with the company. At the end of the period, SCG had total active developments underway of $835 million wherein the company’s share stood at $413 million.


H1FY19 Fund from Operations (Source: Company Reports)

The company paid an unfranked interim dividend of 11.30 cents per share on 30 August 2019.

Outlook: As per the Management guidance for FY20, the company expects FFO growth per security would be around 0.7% including the impact of the transactions announced in the first half (3.0% excluding those transactions). The forecast does not include the expected impact of positive earnings up to $800 million from security buy-back program. The Group reconfirms the Distribution forecast for 2019 of 22.60 cents per security, an increase of 2%.

Stock Recommendation: The stock of SCG is trading at $3.980 along with the market capitalization of $21.06 billion. The stock is trading towards the upper band of its 52-week trading range of $3.630 to $4.190. The stock has delivered positive returns of ~3.13% and ~0.25% in the last three months and six months, respectively. The stock is available at a price to earnings multiple of 13.420x as compared to its industry median of 17.7x. While, EV to EBITDA multiple for the stock stands at 17.8x on TTM basis as compared to its industry median of 29.2x. The annualized dividend yield of the stock stands at 5.65% as compared to the industry median of 4.9%. The company has excellent occupancy rate of 99.3%, aided by higher customer visit and going forward, we expect that the company will continue to retain its occupancy rate, driven by healthy product offerings. Considering the aforesaid facts along with business prospects, and valuations, we recommend a “Buy” rating on the stock at the current market price of $3.980, up 0.505% as on 11 September 2019.


SCG Daily Price Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation

WBC Details

Higher Dividend Yield with Sustained Margins: Westpac Banking Corporation (ASX: WBC) is engaged in the provision of financial services including lending, deposit taking, payments services, investment portfolio management and advice, superannuation and funds management, insurance services, leasing finance, general finance, interest rate risk management and foreign exchange services. Recently, with a market update, WBC announced that it is amending the previously announced dividend payable on the Westpac VIEWs (Westpac Vanilla Instalment Equity Warrants) over securities in BHP from $1.1499 per security to $1.1370 per security with a payment date on or about 25 September 2019.

H1FY19 Financial Highlights as on 31 March 2019: Westpac announced its half yearly results, wherein the company posted net profit at $3,173 million, down 24% on pcp with cash earnings of $3,296 million, down 22% from H1FY18. Cash earnings for consumer banking came in at $1,514 million, lower by 11% on pcp due to a decline in net interest margin, higher wholesale funding costs and lower mortgage spreads. Business bank de-grew by 6% on y-o-y at $1,013 million, impacted from provisions for estimated customer refunds, payments and associated costs. Westpac Institutional Bank and Westpac New Zealand segment posted a growth of 1% and 4% on pcp, respectively. The company delivered ROE at 10.4% during the first half of FY19. Common Equity Tier 1 capital ratio stood at 10.64%, above APRA’s unquestionably strong benchmark.


H1FY19 Financial Highlights (Source: Company Reports)

Stock Recommendation: At the current market price of $29.610, market capitalization of the company stands at $101.63 billion. On 11 September 2019, the stock closed at its 52-week high with 52-week trading range of $23.300 to $29.610. The stock has given positive return of 2.90% and 7.77% in the last three-months and six-months, respectively. The stock is available at a price to book value of 1.6x on TTM basis as compared to the industry median of 4.1x. The dividend yield of the company stood higher at 6.46% as compared to the industry median of 4.9%. The bank has delivered improved products and services and ensured right customer outcomes. Despite low growth environment, WBC has delivered sustainable margins. Considering the aforesaid facts and valuations, we recommend a “Hold” rating on the stock at the current market price of $29.610, up 1.683% on 11 September 2019.


WBC Daily Price Chart (Source: Thomson Reuters)

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