3 Exciting Stocks – WBC, RWC, SSM

Stocks’ Details
 

Westpac Banking Corporation

 
Robust Net Interest Margins: Westpac Banking Corporation (ASX: WBC) has via a recent release stated that the required approval of the Oxford Proposal by IOF Unitholders has already been taken on 4 December 2018. The Investa Listed Funds Management Limited (ILFML) announced that the Supreme Court of New South Wales made orders approving the Oxford Proposal. The Oxford Proposal is expected to be implemented on the 14 December 2018 at which time IOF unitholders are expected to receive a cash payment for their IOF units. It is hence declared that the IOF units have been suspended from trading on the ASX at the close of trading on 6 December 2018. Besides this, the company has declared a fully franked dividend of $0.94 which shall be distributed to the common shareholders for the 1H 2019. The same shall be paid on December 20, 2018.
 
Bank’s pillar 3 report provided disclosures w.r.t the Australian Prudential Regulatory Authority (APRA) implementation of BASEL III Norms whereby it’s CET1 came in at 10.63% as at 30 September 2018. This was an improvement of 13Bps from the levels at 31 March 2018. The improvement in the capitalization was on account of the increase in cash earnings by 90Bps in the second half of 2018 & conversion of preference shares to common equity. Moreover, the ordinary RWA (Risk-weighted assets) fell slightly.
 

WBC’s Financial metrics (Source: Company Reports)
 
On the financial metric front, the company has Net Interest margins of 2.13% as compared to the 1.94% which is the Industry median. This shows that the bank has invested its funds more effectively as compared to the industry as a whole. In addition to this, the bank has got a dividend yield of 7.32% as compared to the banking industry median of 6.20% which shows the stock still has got enough value left at these levels. Meanwhile, the stock price has fallen by 6.76% over the past six months as on 6 December 2018, thus posing an attractive opportunity for the investors to acquire the stock at these levels. Hence considering the robust NIM’s and strong Dividend yields, we maintain our “Buy” recommendation on the stock at the current market price of $25.730.
 

Reliance Worldwide Corporation Limited

 
Strong External Sales Growth – A Catalyst: Reliance Worldwide Corporation Limited (ASX: RWC) has via a release stated that the company has registered strong growth for the FY 2018. The company’s net sales grew by a stellar 28% on a YoY basis. This was on account of the continued sales growth in all the operating segments. This growth is also attributable to the continued expansion of the Shark Bite PTC business in the Americas and the first full year contribution from the Holdrite. Based on topline growth, EBITDA grew by 25% on a YoY basis and came in at $150.9 Mn in FY18. Going further, the company has stated its guidance for the FY2019, as per the same the EBITDA is expected to be in the range of $280-290 Mn. This guidance is backed by the expectations of high growth in the acquired John Guest business and also the expected $10 Mn synergies which are to be realized out of the John Guest acquisition.

 

 
RWC’s FY 2018 Financial Performance (Source: Company Reports)
 
Meanwhile, the stock price has fallen by 16.88% over the past six months as on 6th December 2018 and is trading toward the lower range. Hence considering the strong external growth & expected synergies from the acquisitions made, we maintain our ‘’Buy” recommendation on the stock at the current market price of $4.560 (up 1.786% on December 07, 2018).
 

Service Stream Limited

 
Stellar EBITDA Growth: Service Stream Limited (ASX: SSM) has stated via a release that the company has entered into a pact to acquire Comdain Infrastructure Pty Ltd. The company has agreed to a purchase price of $161.7 million equating to an attractive FY19F EV/EBITDA multiple of 7.4 times, of which $93.7 million shall be payable in cash at completion and $68.0 million of stocks shall be payable in-Service Stream ordinary shares. Cash consideration shall be funded through a combination of cash-on-hand and bank borrowings of $60 million. The stock consideration shall be delivered by the issuance of app ~40.2 million new SSM shares based on the 1-month VWAP of $1.692 per share. This transaction is subject to the satisfaction of several conditions precedent and is expected to complete either on 2 January 2019 or 1 February 2019. The objective of this deal is to expand footprints across the additional geographies, enhancing service offerings, and broaden the scope of works to cover other utility networks.
 
For FY2018, EBITDA came in at $ 67.3 Mn, exhibiting a growth of 39% YoY. EBITDA growth was on the back of good performance in all three segments namely fixed communications, Network construction and energy, and water. Also, the NPAT grew by 45% over the year and stood at $41.10 Mn in FY18. This was due to the improvement in the EBITDA performance along with the higher Interest revenue earned.
The company has guided an EPS growth of at least 10% in the FY2019. This growth would be subject to the materialization of forecasted customer demand.

SSM’s Financial Performance (Source: Company Reports)
 
Meanwhile, the stock price has risen by 1.56% over the past six months as on 6th December 2018, and is inching towards its 52-week high level. Hence considering the recent acquisitions & the forecasted synergies & revenues from the same to materialize in future, we have a wait & watch view on the stock at the current market price of $1.695 (up 4.308% on December 07, 2018). 


 
 
Stock Price Comparative Chart (Source: Thomson Reuters)
 

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