3 Income Stocks for 2019 - NAB, MFG, SCG

National Australia Bank Limited

Decent performance and Outlook:National Australia Bank Limited (ASX: NAB) founded in 1817 is Australia’s leading bank serving more than 9 million customers through its branches located at more than 900 locations over the continent. The bank is making an additional investment of $1.5 billion over three years to 30 September 2020 to make NAB simpler, stronger and faster. The bank will be releasing its first quarter 2019 results on 8 February 2019. It is also aiming to diverge MLC Wealth so that it can concentrate on a more straightforward wealth offering through nabtrade and JBWere. The bank is also tracking to achieve a cost saving of $1 billion by 2020.

During FY18,the bank reported a net interest margin of 1.86% which was in line over the past five yearsbut was below the industry median of 1.94%. The efficiency ratio was in line with the industry at 51.9%. Tier 1 Risk-Adjusted Capital Ratio was reported at 12.38% which has improved over the past 5-years, and is above the industry median of 11.13% showing that the bank's financial health is improving.

The bank has 2.78 billion shares outstanding with the market cap of $67.88 billion, annual dividend yield of 8.1%, and a beta of 1.21x as on 9 January 2019. It reported a lower EV/EBITDA of 2.9x and P/E of 12x as compared to the industry median of 9.8x and 13.4x respectively showing that the stock is undervalued.

The stock has been in a downtrend over the past three months as a result of the overall banking sector going down because of the Royal Commission. It has generated a negative yield of 9.04% over the past three months. Today, the stock was marginally up by 0.532% as compared to the previous close, currently trading around its 52-week low of $22.520 at the price of level $24.570. With a better outlook in the future, the board working over streamlining bank’s structure, better financial health, decent industry multiples and price trading around 52-week low, we have a “Buy” recommendation for the stock at the current market price of $24.570.
 

Magellan Financial Group Limited

Value-driven Company with Higher margins:Magellan Financial Group Limited (ASX: MFG) is an Australian financial company engaged in generating returns for its clients by investing in various global equities and global listed infrastructure companies. As per the latest updates of December 2018, the total FUM was reported at $70.782 billion with a net inflow of $41 million including the net retail inflow of $90 million, and net institutional inflows of $49 million. The fund would be paying ~$54 million as distribution in January 2019. The fund is also entitled to a performance fee of ~$42 million from July 2018 to December 2018.


December 2018 FUM update (Source: Company Reports)

During FY18, it reported Gross, EBITDA and Net margin of 95.8%, 78.0%, and 47.0% respectively, which were above the industry median of 95.1%, 61.9%, and 30.3% respectively. Similarly, the company is generating good returns for its shareholders which is visible from its ROE of 39.7% reported above the industry median of 9.9% in FY18. The company is making more revenue out of its assets than its peers as it reported better asset turnover ratio of 0.77x against the industry’s ratio of 0.08x. The Fund has no debt in its Balance Sheet.

MFG has 177.09 million shares outstanding with the market cap of $4.34 billion,annual dividend yield of 5.49%,and a beta of 1.10x as on 9 January 2019. Over the past six months, the scrip price has generated a positive yield of 3.29% and is currently trading at $27.00. After reaching its support level of $22.20, the stock was up by 10.294% today. With the better performance against peers specifically ROE along with no debt, we maintain our “Buy” recommendation for MFG at the current price of $27.00, ahead of the half yearly result due in February 2019.
 

Scentre Group

Positive outlook for FY18:Scentre Group (ASX: SCG) is a real estate company established through the merger of Westfield Retail Trust and the demerger of Westfield Group. The company holds a portfolio of shopping centers in Australia and New Zealand. As per its Q3 2018 performance, it has achieved an occupancy of more than 99.5% across its portfolio showing a high-quality retail space demand. The Group reconfirmed its forecasted FFO growth for FY 2018 of ~4%. SCG is expected to pay a dividend of 22.16 cents per security, with an increase of 2% in FY18. Its Westfield Newmarket project with a cost of NZ$790 million started in 1Q18 is expected to be completed by the end of 2019.


Active Developments (Source: Company Reports)

The second half has always been better for the company in terms of the net margin and the return to its shareholders which can be seen from the table below:


From the table above, we expect the margins to grow in a similar pattern.

The company has ~5.32 billion shares outstanding with the market cap of $20.9 billion, annual dividend yield of 5.59%, and a beta of 0.74x. It reported slightly higher EV/EBITDA of 17.9x and P/E of 16.4x as compared to the REIT industry median of 17.7x and 15.7x respectively showing that the company still has decent growth potential.

During the past one year, the stock has generated a negative yield of 5.53%. But today, the stock was up by 1.781% as compared to the previous close, currently trading at the price of level $4.00. The Relative Strength Index along with the Bollinger bands exhibit a neutral stand while fundamentals remain strong. Hence, considering a better outlook along with the stable real estate markets, we maintain our “Buy” recommendation on the stock at the current market price of $4.00.


Stock Price Comparative Chart (Source: Thomson Reuters)
 

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