3 Financial Stocks that we like for 2018 – NAB, SUN and APT

Stocks’ Details
 

National Australia Bank Ltd

Increased investment over the next three years: National Australia Bank Ltd.’s (ASX: NAB) stock has fallen 6.59% in three months as on January 9, 2018 along with other Australian Banks as the government had announced for a Royal Commission into the alleged misconduct of Australia’s banking and financial services sector. This step has been undertaken to ensure that the financial system is working efficiently and effectively. Moreover, NAB has planned an estimated $1.5 billion increase in investment over the next three years and has a key focus to drive a major uplift in innovation and capabilities in the Group’s leading Australian SME franchise. With cumulative cost savings, NAB is currently targeting a figure of greater than $1 billion by 30 September 2020, as the bank is significantly simplifying and automating processes, that reduces procurement and third-party costs, and enables the bank getting closer to its customers with a flatter organizational structure. Meanwhile, NAB is trading at a reasonable level. With long term potential and management’s transformation track record, we give a “Buy” recommendation on the stock at the current price of $29.50
 

Suncorp Group Ltd

Update on impact from natural hazard: Suncorp Group Ltd (ASX: SUN) has more or less a steady operating environment while short-term challenges with regards to impact from insurance claims and marketplace strategy are emanating. Post assessing the impact of the hailstorm in Melbourne in December 2017, SUN expects to receive more than 21,000 claims across its insurance brands including AAMI, GIO, Suncorp, Apia, Shannons and Bingle. The majority of the claims will be related to home and motor vehicle damage and the financial impact of the event is anticipated to be in a range of $160-170 million. Moreover, SUN’s total natural hazard claim costs (encompassing both Australia and New Zealand) for the six months to 31 December 2017 is currently projected to be in the range $406-416 million, that is $60-70 million above the allowance for the half. Additionally, SUN’s Natural Hazard Aggregate Protection is in place for FY18, which provides $300 million of cover once the retained portion of natural hazard events greater than $10 million exceeds a total of $475 million. As at 31 December 2017, it is anticipated that between $259 million and $269 million of the deductable has been eroded and the second half of FY18 allowance for natural hazards is $346 million. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of 13.73
 

Estimates for major natural hazard events (Source: Company Reports)
 

Afterpay Touch Group Ltd

Growth levers seem to be in place: Fintech group, Afterpay Touch Group Ltd (ASX: APT) formed with the merger of Afterpay with Touchcorp in FY17 has been on a transformational track. In FY17, the underlying sales were approximately $560m; and in FY18 year to date, the current underlying annualised sales, based on recent monthly performance, is over $1.7b. The revenue margins are stable. Net transaction loss (NTL) is anticipated to increase in Q2 FY18 and is expected to be impacted by some degree of seasonality. On the other hand, the group has over 1 million new users and key merchant deals with many popular retail outlets and brands are in place. Further efforts on collaborative moves and geographic expansion can pay well. The group might also have FY18 as its profitable year with all levers continuing to move as expected. Meanwhile, APT stock has risen 53.46% in three months as on January 9, 2018, but slipped by 3% on January 10, 2018 partly owing to some profit booking activity. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $6.46
 

Continued Performance (Source: Company Reports)

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