Stocks’ Details

Downer EDI Limited

Awarded with a Gas Services Contract Extension:Downer EDI Limited (ASX: DOW) provides integrated services in ANZ. The market capitalisation of the company stood at ~A$4.39 Bn as on 13^th August 2019. Recently, the company via a release dated 9^th August 2019 announced that it has been awarded an extension of five-year on its gas services contract with AusNet Services amounting to ~$350 Mn. Commencing in the month of April 2021, the contract extension would see Downer continue to provide operations, maintenance, capital works and 24/7 emergency response for AusNet’s gas distribution network.

In another update, the company announced that Vinva Investment Management ceased to be a substantial holder of the company from 6^th August 2019.For the six months ended 31 December 2018, the total revenue for the group stood at $6.6 Bn in 1H FY19, reflecting a rise of 8.6%. The following picture provides an idea of results from the mining business of the company:


Mining Business Results (Source: Company Reports)

What to Expect:The company has increased its target guidance to $352 Mn consolidated net profit after tax and before amortisation of acquired intangible assets (or NPATA) before minority interests for FY19. The increase considers the fair value gain amounting to $17 Mn from acquiring the remaining 50% of the Downer Mouchel Joint Venture in late 1H FY19. The company’s strategy focuses on Zero Harm, driving improvement in current businesses and operations, investing in targeted growth opportunities and creating new positions in appropriate markets.

Stock Recommendation:  The gross margin and EBITDA margin of the company stood at 47.0% and 6.3% in 1H FY19 in comparison to the industry median of 39.0% and 20.2%, respectively. It reported a net margin of 2.2% in the 1H FY19, reflecting YoY growth of 2.5%. This implies that the company has improved its capability to convert its top-line into the bottom-line. DOW delivered a return on equity of 4.5% with a rise of 4.9% on YoY basis. Hence, considering the above-stated facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$7.410 per share (up 0.407% on 13^th August 2019).
 
 

Transurban Group

Update on Security Purchase Plan:Transurban Group (ASX: TCL) owns, operates, and develops electronic toll roads and intelligent transport systems. The market capitalisation of the company stood at ~A$41.07 Bn as on 13^th August 2019. The company announced a security purchase plan to provide eligible security holders in ANZ with an opportunity to subscribe for up to $15,000 of the company’s stapled securities without incurring brokerage or other transaction costs. The company is currently intending to cap the amount raised under the SPP at $200 Mn. The company further stated that the Security Purchase Plan supplements the institutional placement of $500 Mn, which was wrapped up by Transurban on 7 August 2019.

The proceeds raised under SPP and institutional placement will utilise to finance the company’s acquisition of the remaining 34.62% interest in M5 West for an amount of $468 Mn and for general corporate purposes.The following picture provides an overview of statutory results of the company:

Statutory Results (Source: Company Reports)

Future Aspects:The Board of the company has set distribution guidance of 62 cents per security for FY20, which reflects a rise of 5.1% on FY19 distribution.  The company stated that the increase in distribution has been driven by the underlying performance of its assets and contribution of development assets commencing full operation. The near-term priorities for the company remain to:

(a) Deliver committed projects
(b) Maximise performance of operations
(c) Enhance customer and community offerings.  

 
Stock Recommendation:  For FY19, the company delivered a gross margin and EBITDA margin of 56.6% and 48.5% against the industry median of 64.2% and 47.2%, respectively. With respect to the stock’s performance, it generated returns of 9.62% and 23.98% in the time span of three months and six months, respectively. At the CMP of A$15.120 per share, the company’s annual dividend yield stood at 3.89%, which can be considered at respectable levels. Hence, considering the above-stated facts and current trading levels, we maintain our “Hold” rating on the stock at the current market price of A$15.120 per share (down 0.198% on 13^th Aug 2019).
 

Sydney Airport

Updates on SAT1 Indemnity:Sydney Airport (ASX: SYD) is a large-cap company with the market capitalisation of ~A$19.05 Bn as of 13^th Aug 2019. Recently, the company with the help of a release dated 9^th Aug 2019 provided an update on SAT1 (Sydney Airport Trust 1) indemnity in relation to historical investments. With respect to the announcement made by Sydney Airport Limited and Sydney Airport Trust 1 on 24^th May 2019 that recent decisions of the Court of Justice of the European Union after finalization and release of Sydney Airport’s 31 December 2018 Financial Report had prompted reconsideration of the status of the indemnities provided by SAT1 in relation to the 2011 sale of Copenhagen Airport. However, ECJ decisions were not in relation to Copenhagen Airport Denmark Holdings’ interest and dividend withholding tax disputes being contested in the Danish High Court.

Sydney Airport will be releasing its results for the half year ended 30 June 2019 on 15^th August 2019 before market open.The following picture provides an idea of Traffic Performance for June 2019:


Traffic Performance June 2019 (Source: Company Reports)

Future Aspects:Sydney Airport has provided distribution guidance of 39 cents per stapled security for FY19 and it is expecting capital expenditure in the range of $390 Mn-440 Mn.  In addition, the company has provided capital expenditure guidance in the ambit of $0.9 Bn-1.1Bn for 2019-2021.

Stock Recommendation:EBITDA margin and net margin of the company stood at 80.9% and 23.4% in FY18 in comparison to the industry median of 47.2% and 28.1%, respectively. It delivered a current ratio of 1.40x in FY18 against the industry median of 1.25x. This represents that the company is well-positioned to meet its short-term obligation in comparison to the broader industry. The stock has delivered a decent return of 6.84% and 20.40% during the last three and six months, respectively. On YTD, the stock has gained 26.92%.As per ASX, the stock of SYD is trading closer to its 52-week higher levels and, thus, it can be said that the price might witness some correction moving forward. Hence, considering the aforesaid facts coupled with decent returns in the recent past, and current trading levels, we have a wait and watch stance on the stock at the current market price of A$8.420 per share (down 0.237% on 13th Aug 2019), ahead of its full-year results which are to be released on 15 August 2019.

 
Comparative Price Chart (Source: Thomson Reuters)  

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