Stocks’ Details

Magellan Financial Group Limited

Robust investment performance coupled with better than expected pay-out: Magellan Financial Group Ltd (ASX: MFG) is a specialist fund management group involved in the development of globally-focused investment funds for retail and institutional investors. As per the latest release to the ASX, the company has funds under management amounting to $72,981 Mn (as at 31 October 2018), of which $19,725 Mn accounted from retail investors, and the rest came from institutional investor. As per the release, the company has more than 75% exposure towards global equities. The company has a market cap of $4.77 Bn as on November 13, 2018. The company has posted strong numbers for the year ended June 30, 2018 characterized by a 29% growth in the average funds under management which stood at $59 Bn for the 12 months to June 30, 2018. The PBT and the performance fees of the fund’s management business increased by 29% Y-O-Y to stand at $291.8 Mn. On the other hand, the company enjoys strong balance sheet position with cash and cash equivalent of $169.095 Mn as at 30 June 2018. Based on strong balance sheet, the company has decided to increase the total cash dividend payout by approximately 20% per annum to 90-95% of funds management profits from the previous payout ratio of 75-80%. The firm has declared a total fully franked dividend of $134.5 for the FY 2018. During the year, the funds were managed efficiently with the cost to income ratio of 25% while for the prior corresponding period it was 26.3%. As regards the Investment portfolio performance, considering a time frame of 3 years, the company’s global equity strategy has outperformed the MSCI world Index consistently, which is a sign of outperformance. Also, the firm’s Net Tangible Assets grew by 12.31% to reach at $ 2.92 per share.

Value Proposition: The company is trading at a TTM P/E multiple of around 22.07 times, while the industry average is much higher, which signifies that the company is trading at undervalued level. Also, the company’s dividend yield stands at 4.99% v/s the industry average of 3.16% which indicates that the firm is expected to have stable earnings in the future. The ROE (TTM) is 39.7%; however, the industrial average is at 9.9%; hence this parameter also suggests that the shareholders are getting better returns by investing in the stock vis-a-vis the industry average.
 
  
MFG’s model for Long term total shareholders return (in %) (Source: Company Reports)
 
 
Meanwhile, the stock price has marginally risen over the past one month by 1.85%, however over the period of past 6 months the stock has given a modest rise of 11.51%. If we look at the YTD performance, the stock is up by a mere 2.28%, thus demonstrating a consistently positive performance. Considering the hefty dividend pay-outs and stellar investment portfolio performance and improving cost-income ratio, we reiterate our “Buy” recommendation on the stock at the current market price of $26.24.
 

Transurban Group

Strong Order Pipeline amidst Continued Govt. focus on Infrastructure spending: Transurban Group (ASX: TCL) owns and operates urban toll road networks. The Company has core capabilities in network planning and forecasting, operations and customer management, project development and delivery, technology application, and community engagement. Transurban operates in Australia and North America. The company is Australia’s biggest toll road operator & has a market cap of $30.96 Bn as on November 13, 2018. The company achieved a statutory EBITDA of $1,649 Mn with a rise of 8.1% during FY 2018 on the back of growth in strong large vehicle traffic & due to full year impact of CTW large vehicle toll multiplier increase enhancing important freight route. The average daily traffic growth for the FY 2018 was 2.2%. This performance has reinforced the company’s global expansion strategy, with organic growth contributing $18.9 million to its profit growth. Based on the performance, the company has distributed a dividend of 56 cents per share in FY18 and expects the distribution of 59.0 cents per share in FY 2019 which represents the YoY growth of 5.4%. Besides this, the company has projects amounting to ~ $10 Bn in the pipeline across Australia and North America, which will be funded through raising the equity and cheap debt via an issuance of corporate notes, hence it is remodelling its debt profile and diversifying the sources of funds. Further, the growth for the company shall be fuelled on account of the heavy spending by the government on the Infrastructure sector and the inorganic growth strategy adopted by the firm.

Value Proposition: The company is maintaining a healthy Interest coverage ratio of 1.4 times thus signifying that the company is able to pay its financing cost. Also considering its strong EBITDA margins and continued efficiency in operations due to the decreasing cost required to maintain the assets, the company is expected to enhance shareholders wealth in future and seems to be a decent bet in the Infrastructure space. The September 2018 quarter update with 3.3% rise in average daily traffic speaks for the continued performance which will eventually benefit shareholders.

TCL’s Distribution growth trends (in cents/share) (Source: Company Reports)

Meanwhile, the stock price has risen substantially over the past one month by 8.01%, however over the period of past 6 months the stock has receded by 1.23%. Also, if we look at the YTD performance, the stock is down by 5.20%. Considering the strong pipeline of projects coupled with strong EBITDA margins and government’s continued focus on the spending towards the Infrastructure sector, we maintain our “Buy” rating on the stock at the current market price of $11.580.
 

Coca Cola Amatil Limited

Strong performance in the growing markets, however facing headwinds in the established markets: Coca-Cola Amatil Limited (ASX: CCL) is a mid-cap company with the market capitalization of circa $7.50 Billion as of November 13, 2018. The company is the market leader in the beverage segment with a market share of 63.8%. The recent media release dated November 02, 2018 stated that the firm has launched the latest technology in the Fiji bottling & thus the Fiji line is now capable of producing 21,000 bottles per hour which is three times greater than the previous capacity. The company has declared an interim dividend of 21 cps for the 1H 2018, franked to 65%, signifying underlying payout ratio of 85.0%. The underlying EBIT for the 1HFY18 has fallen by 4.9% which reflects increasing operational costs, soft market conditions in Indonesia and lower contributions from the corporate food & services segment. The EBIT for the Australian beverages segment for the first half year of 2018 fell by around 3.6% to $176.3 Mn v/s $182.9 Mn over the same period in the previous year. This fall was predominantly due to the volume contraction resulting from the impact of the newly introduced “NSW container deposit scheme” and also the company has reduced the CDS charges in NSW from 13.59 cents to 10.91 cents reflecting lower than anticipated redemption rates. The New Zealand & Fiji market has shown substantial growth in the underlying operating profits with a rise of 9% over the first half of the year on account of the strong volume growth across sparkling and still beverage segment. The alcohol & coffee segment has achieved substantial growth of 4.7% due to a double-digit EBIT growth in the alcohol drinks and revenue and volume growth in the coffee segment. 

Growth Proposition: New Zealand & Fiji and Alcohol & Coffee segments are expected to continue to deliver growth in line with expectations. However, the group’s near-term earnings will be negatively impacted by Accelerated reinvestment of ~$40Mn. In FY2018, marketing, execution, cold drink equipment, and digital technology is to drive growth. Also, the company is making good progress in growth areas such as dairy products, energy drinks & adult drinks.
Value Proposition: The company is trading at a TTM P/E multiple of around 16.42 times, while the industry average is 35.07 times, also the P/B  is above the industry average. The company has a dividend yield of 4.54% and the pay-out ratio is at around 73.45% which signifies that the investors will be getting recurring income in the form of dividends from company.


CCL Net Debt & Interest Cover Trends (in $Mn & times, respectively) (Source: Company Reports)
 
Meanwhile, the stock price has risen over the past one month by 5.39%, also over the period of past 6 months, the stock has given a substantial rise of 15.11%. Considering the heavy capex requirements and the soft Indonesian operations along with the impact of the “NSW CDR Scheme” on its major Australian operations, we maintain our “Hold” rating on the stock at the current market price of $10.27.


 
Stock Price Comparative Chart (Source: Thomson Reuters)
 
 
 

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