Downer EDI Limited

DOW Details

Strong Financial Performance in 1HFY19: Downer EDI Limited (ASX: DOW) provides comprehensive engineering and infrastructure management services to the public and private Minerals & Metals, Oil & Gas, Power, Transport Infrastructure, Communications, Water and Property sectors across Australia, New Zealand and the Asia Pacific region.
 
Downer EDI Limited and Senvion GmbH, a leading global manufacturer of wind turbines, have entered into a contract for Stage One of the MurraWarra Wind Farm near Horsham in Western Victoria. As per the contract, Senvion will be responsible for the manufacture, transport, erection and commissioning of the turbines while Downer will be responsible for the balance of plant works. Stage One is valued at approximately $380 million, with Downer’s share approximately $100 million. On 17 April 2019, Senvion announced that its lenders and main bond holders had signed a binding loan agreement for a EUR100 million debtor-in-possession facility.
 

Results For 1HFY19 (Source: Company Reports)
 
The total revenue for the Group increased by $522.5 million, or 8.6%, to $6.6 billion in 1HFY19. It was primarily driven by the revenue growth of 34.1% in EC&M segment and 27.5% in Utilities segment during the period. The statutory net profit after tax and before amortisation of acquired intangible assets stood at $163.4 million in 1HFY19, showing an exponential growth of 2766.7% on PCP basis. The cash performance of the company continued to be strong, predictable and reliable with the Group cash flow conversion of 91% of adjusted EBITDA. The Gearing stood at 23.8%, down from 24.6% in the prior corresponding period with a liquidity of $1.4 billion.
 
What To Expect From Downer: FY19 guidance for consolidated net profit after tax and before amortisation of acquired intangible assets (NPATA) before minority interests was increased to $352 million, which is inclusive of the the fair value gain of $17 million from the acquisition of the remaining 50% of the Downer Mouchel JV in late 1HFY19.
 
Stock Recommendation: The stock has yielded a YTD return of 17.96% and is trading slightly towards to 52-week high level of $8.170 with PE multiple of 21.91x. Decent financial performance driven by reduced debt and strong cash flows, a high-value MurraWarra Wind Farm contract, favourable guidance, etc. augur well for future growth, going forward. Hence, considering aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $7.160 (down 9.137% on 29 May 2019).
 

Boral Limited

BLD Details

Headwaters' Acquisition Supported the Overall Growth in 1H FY19:Boral Limited (ASX: BLD) offers infrastructure and commercial building solution along with a providing wide range of products & services required for construction with three distinct segments of Australia, USG and North America.

1H FY19 Results Highlights (Source: Company Reports)
 
The company exhibited EBITDA of $485 million in 1H FY19 (down 3%) excluding the impact of divestments. Revenue from continuing operations was up by 4.6% to $2,928.8 million in 1HFY19 as compared to $2,798.7 million, primarily driven by North America segment which recorded a growth of ~11% in top-line for the same period. North America posted a healthy EBITDA growth of 9% with EBITDA margin of 18%.

The management is of the view that the Headwaters acquisition has delivered substantial growth and is expected to drive return on fund employed (ROFE) improvement, going forward. The company delivered a return on funds employed (ROFE) of 8.1%, with its Australia’s ROFE of 15.9%. USG Boral delivered a lower underlying ROFE of 8.1% due to softer earnings.

FY19 Outlook: The company expects FY19 EBITDA to be higher than FY18 with a skew to 2H FY19.  Boral Australia is expected to deliver broadly in-line EBITDA in FY19 (excluding property in both years). The property earnings in FY2019 is expected to be around $30 million as compared to $63 million in FY2018. In the North America segment, the company expects the spring recovery to benefit from March combined with a modest level of continued growth in underlying market demand across end-markets. The company expects a price growth for most of its products, thus, improving margins.

Stock Recommendation: We believe that decent underlying financial performance, robust fundamentals, and steady net debt level for the company augur well for the growth, going forward. Moreover, acquisition synergies from Headwaters of US$14 million was delivered in 1H FY19. And, the company is on track to deliver a four-year target of US$115 million. Based on the foregoing, we recommend a “Buy” rating on the stock at the current market price of $5.150 (down 0.194% on 29 May 2019).
 

Johns Lyng Group

JLG Details

Organic Growth In Core Segments: Johns Lyng Group (ASX: JLG) is focused on providing building and restoration services across Australia. The company caters to a range of builder groups including commercial builders, insurance builders, express builders, MakeSafe builders, regional builders, etc. Recently, the company reported a decent financial performance for 1HFY19, which was primarily driven by a 15.8% revenue growth in business-as-usual activity over the half. The company had several major new contracts wins and organic growth in the core segments. Profit for the consolidated entity after providing for income tax and non-controlling interest amounted to $8.0 million as compared to $6.9 million in 31 December 2017. The increase in profit was mainly on the back of higher sales by Insurance Building and Restoration Services and Commercial Construction segments. Besides this, Wilson Asset Management Group became a substantial holder of Johns Lyng Group with 5.60% voting power since May 21, 2019.
 

Financial Performance for 1HFY19 (Source: Company Reports)
 
Sales & EBITDA Guidance: The Board of the company stated that JLG has continued to trade above forecast based on key financial metrics year-to-date FY19. The sales & EBITDA are expected to outperform forecast in the order of 4% and 8% respectively on a normalized basis. This forecast includes early claims activity for the NSW hailstorm CAT but is not inclusive of activity from the recent Townsville CAT event.
 
Stock Performance: Meanwhile, the stock has generated an impressive return of 77.16% in the past six months and is trading closer to its 52-week high price of $1.550 with PE multiple of 28.19x. Although the company exhibited a strong financial performance in 1HFY19 against the prior corresponding period, however, considering the stock price has discounted all positive developments at the current juncture, we, therefore, advise investors to have a watch stance on the stock at the current market price of $1.450 (up ~1.045% as on 29 May 2019and suggest that the investors should wait for a better entry position. 
 

Comparative Price Chart (Source: Thomson Reuters)     

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