Stocks’ Details

Challenger Ltd

Well positioned for the future: Challenger Ltd (ASX: CGF) has lately released its results for the first half year ending 31 December 2018 (1H FY19). As per the report, the company posted normalised net profit before tax was $270 million, down 2% on the pcp. Earnings were squeezed on account of the volatility witnessed in the investment markets which resulted into lower asset returns in the Life business and lesser Funds Management performance fees. The company’s capital position was supported by lower capital intensity within the Life’s investment portfolio, which saw the decline from 14.1% to 13.0%.
 
What to Expect From CGF: For FY19, the company has revised its expected normalised NPBT between $545 million and $565 million from the range of $591.0 million-$613.0 million. The company will focus upon building relationships and innovate with the launch on Netwealth and Hub24. It would also focus on actively managing the Life?s investment portfolio.
 
 

CGF’s financial highlights (Source: Company Reports)
 
The company’s price to book ratio is at 1.4x for the trailing 12 months, while the Insurance industry trades at 1.8x, hence the stock seems to be a bit undervalued at the current juncture. Meanwhile, the stock price has fallen by 32.81% over the past six months and is trading close to its 52-week lower level. However, the company’s gross margin stood at 87.6% at the end of December 2018 which is higher than the industry median of 76%. Hence, considering the strong position with respect to its gross margins, we maintain our “Hold” rating on the stock at the current market price of $7.980 per share (up 3.636% on 21 February 2019).
 

WAM Capital Limited

Constant Growth in Assets: WAM Capital Limited’s (ASX: WAM) investment portfolio rose by 2.30% in the month of January 2019. This rise was on account of the better price performance witnessed in the CCP and IDP Education.CCP rose on account of the better earnings reported for 1H19 beating the analysts expectations. IDP Education rose by 15% for the month. Since inception, WAM Investment Portfolio generated 16.5% returns per annum against the S&P/ASX All Ordinaries Accumulation Index returns of 8.0% p.a.
 

WAM Capital’s January 2019 portfolio performance (Source: Company Reports)

What to Expect Moving Forward: Further, the fund remains bearish on the Australian equities as a whole and anticipates the year 2019 to remain challenging. Thus, considering this the fund will continue holding high levels of cash to manage risk & ensure the needed liquidity. The management is of the view that the next bear market will provide some of the rarest opportunities to pick undervalued growth companies.
 
Meanwhile, the share price has receded by 14% in the past six months (as at 20 February 2019) and is trading at reasonable PE multiple of 11.14x. Hence, considering an outperformance achieved in the long term compared to the benchmark as well as noting that the stock price is presently trading slightly towards the lower level, we maintain our “Buy” rating on the stock at the current market price of $2.180 per share (up 1.395% on 21 February 2019).
 

Telstra Corporation Limited

Constant growth in customer base & cost out the program to aid the company going forward: Telstra Corporation Ltd (ASX: TLS) has lately declared its results for the half-year ended 31 December 2018. The total income on a reported basis was $13.8 billion, down 4.1 per cent, EBITDA on a reported basis was $4.3 billion, down 16.4 per cent, and NPAT was $1.2 billion, down 27.4 per cent on PCP basis. This fall in the performance was mainly on account of the rollout of the nbn™ network which has resulted into lower one-off nbn Definitive Agreement (DA) receipts and connection revenue and intense market competition aided the cause. Also, the Board resolved to pay a total fully franked interim dividend of 8 cents per share.

 

TLS’s HY 2019 Financial highlights (Source: Company Reports)
 
What to Expect From TLS: The company has provided FY 2019 guidance. It will be able to achieve total income of $ 26.2-28.1 Bn in FY19. The company is expected to post free cashflow in the range of $3.1 and $3.6 billion. Meanwhile, the stock has risen by 5.05% in the past 6 months. The company has been providing decent income to its shareholders by way of distribution which is evident from the annual dividend yield of 3.91% as compared to the industry median of 2%. Hence, considering the better dividend yield as well as decent returns from the past few months, we maintain our “Buy” rating on the stock at the current market price of $3.220 (up 0.625% on 21 February 2019).


 
Stock Price Comparative Chart (Source: Thomson Reuters)  
 

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