Stocks’ Details

Qantas Airways Limited

Highlights of AGM:Qantas Airways Limited (ASX: QAN) is engaged in the business of international and domestic air transportation services, sale of worldwide and domestic holiday tours and associated support activities, including catering, information technology, ground handling, and engineering and maintenance. The market capitalisation of the company stood at $10.63 billion on 20^th November 2019.

The company reported underlying profit before tax of $1.3 billion for FY19, lower than the record results achieved in 2018. However, considering the headwinds witnessed by the company showed the resilience of the business.Due to higher oil prices, the company’s fuel bill rose more than $600 million. The company also had a $154 million hit from the lower Australian dollar on non-fuel expenses. In FY19, the company returned $1 billion through dividends, and buy-backs and in the month of August 2019, it announced a fully franked ordinary dividend of 13 cents. Also, the company announced a $400 million off-market buyback of up to 80 million shares.

Successfully Completion of Off-market Buy-Back: Qantas Airways Limited has successfully completed its off-market buy-back of 79.7 million shares worth $443 million. The key outcomes of the buyback are given in the table below:


Key Outcomes (Source: Company Reports)

Future Focus:The company has upgraded its A380 entered service and is also improving the economics of these aircraft by increasing the proportion of higher-yielding premium seats by 27 per cent.The company is making continued investment in Jetstar, and the first set of 18 new A321 NEOs will start arriving in mid next year, which are more efficient, longer-range aircraft that will help Jetstar deliver lower fares to more destinations. By FY24, the company is targeting an EBIT margin of ~18% and ~22% from Qantas Domestic and Jetstar Domestic, respectively.

Stock Recommendation: The company has registered a CAGR growth of 12.46% in bottom-line over the past five years (FY15 to FY19). However, the company’s gross margin and EBITDA margin have decreased by 340 bps and 150 bps to 53.2% and 17.4%, respectively, in FY19. As per the ASX, the stock is trading close to its 52-week high. The stock has gained 33.27% and 26.42% in the past six months and three months, respectively. Currently, the stock is trading at a P/E multiple of 13.060x, which is above the industry average (Passenger Transportation Services) of 7.0x on TTM basis. Based on the returns generated over the past few months, margin guidance and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $7.210 per share, up by 1.122% on 20^th November 2019.

Sydney Airport

Airport’s Traffic Performance for October 2019:Sydney Airport (ASX: SYD) is engaged in the business of airport operations and has a market capitalisation of $20.37 billion as on 20th November 2019. 

The key highlight for the month of October was domestic traffic, which grew by 2.3% on a year-on-year basis to more than 2.5 million passengers.On the international front, the traffic grew by 0.3% on a year-on-year basis to more than 1.4 million. Noticeable traffic growth was registered from the USA, India and Indonesia, which grew by 9.1%, 8.3% and 9.4%, respectively, on YTD basis.


Top Ten Nationalities Travelling Through Sydney Airport (Source: Company Reports)

Changes to the Compliance Committee: The Trust Company (Sydney Airport) Limited, part of Perpetual Limited, which is the responsible entity for the Sydney Airport Trust 1 has advised that Michelene Collopy has retired as Chairman and member of the Compliance Committee of the responsible entity. Johanna Turner has replaced him to serve the above role. The current members of the Compliance Committee of the responsible entity are Johanna Turner, Virginia Malley and Simone Mosse.

Outlook: Sydney Airport has a resilient business model that has a proven history of execution and growth across all economic cycles. The company has given distribution guidance of 39 cents per stapled security for 2019, which is expected to be more than fully covered by Net Operating Receipts (NOR), subject to aviation industry shocks and material forecast changes.

Stock Recommendation: Currently, the stock is trading at an EV/EBITDA multiple of 22.4x on TTM basis, which is above the industry (Industrials) median of 6.7x on TTM basis.The stock is available at a P/E multiple of 51.080x on TTM basis, which is above the industry average (Transport Infrastructure) of 14.0x. In the past five years (FY14 to FY18), the company has registered a top-line CAGR of 8.03%. As per the ASX, the stock is trading close to its 52-week high. The stock has gained 20.11% and 9.33% in the past six months and three months, respectively. Based on the valuation multiples and current trading levels, we give an “Expensive” rating on the stock at the current market price of $8.820 per share, down by 2.217% on 20^th November 2019.

ALS Limited

H1FY20 Financial Highlights:ALS Limited (ASX: ALQ) is engaged in providing professional technical testing services to the global minerals, life sciences, energy and industrial sectors. The market capitalisation of the company stood at $3.9 billion as on 20^th November 2019.

The company announced underlying net profit after tax (NPAT) of $98.2 million from continuing operations in H1FY20, which stood higher than the guidance of $90 million to $95 million, provided to the market in July 2019. On a pcp basis, NPAT increased by 5.3%. The growth in NPAT was mainly driven by strong organic growth across all regions in the Life Sciences and Industrial divisions, combined with some acquisition growth. Geochemistry sample volumes were down by 11% during the half, resulting in a 2.9% reduction in revenue. Life Sciences registered 15.4% revenue growth to $468.6 million. Underlying EBIT grew by 20.9% to $74.0 million while the margin continued to expand to 15.8% (pre-AASB16 impact), an improvement of 73 bps compared to H1 FY19.

The Commodities division registered a growth of 1.9% in revenues to $319.9 million. Underlying EBIT reported a reduction (pre-AASB16 impact) of 2.9%, with subdued equity funding for junior miners in the period impacting Geochemistry. The Industrial division delivered a 23% increase in revenue and a 27% increase in underlying EBIT (pre-AASB16 impact) at a margin of 12.2%, up by 38 bps.

The company has declared an interim dividend of 11.5 cents per share, partially franked to 30%. This represents a 4.5% increase over the prior year and a payout ratio of 56.5%, in-line with the target of 50 – 60%.


H1FY20 Financial Summary (Source: Company Reports)

Outlook for FY20: The Life Sciences segment remains to grow on an organic basis and is expected to deliver an overall FY20 margin growth of 50 bps. Geochemistry sample flows are projected to see a small improvement in H2 FY20, as investment in the mining sector slowly increases, but is expected to be slightly lower than pcp. The Commodities Division is likely to deliver low single-digit revenue growth for FY20, led by price and mix in geochemistry, and growth in metallurgy, inspection and coal. The Industrial division expects to see an increase in contribution in H2 FY20 compared to pcp, from new business wins and operational improvements. The company’s underlying NPAT from continuing operations for the full year is expected to be in the range of $185 million - $195 million.

Stock Recommendation: As per the ASX, the stock gained 7.16% in the past three months, and is currently trading close to the upper band of its 52-weeks trading range of $6.400 - $9.180. the company’s current ratio has decreased by 59.4% to 1.13x in FY19. The company’s price to earnings multiple stood at 25.590x on TTM basis as compared to the industry median (Professional and Commercial Services) of 7.2x. Based on the current trading levels and stretched valuations, we give an “Expensive” rating on the stock, at the current market price of $9.060 per share, up by 12.129% on 20^th November 2019, owing to the release of its 1H FY 2020 results.

 
Comparative Price Chart (Source: Thomson Reuters)

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