Stocks’ Details

Amcor Limited

Cost Synergies to Strengthen Financials in Future: Amcor Limited (ASX: AMC) updated that to resolve the concerns raised in the US associated with the proposed combination of Amcor and Bemis, AMC has agreed upon with Tekni-Plex, Inc (Tekni-Plex), to sell its plants in Milwaukee (WI), Ashland (MA) and part of the Madison (WI) plant.The consideration for such transaction will be paid in cash of US$215 million. Sell-off this plant is subject to various approvals. Transaction is set to complete on 15 May 2019 provided all the approvals are received. The management expects the total remedies required by the European Commission and DOJ is unlikely to hamper the expected net cost synergies amount to USD 180 million to be delivered by the end of the 3^rd year following completion.

Financial Performance in 1H FY19: Amcor witnessed a good performance in the first half of FY19 with 3.4% growth in PAT to US$328.5 million and EPS of 28.4 US cents (on constant currency basis). Cashflow and the balance sheet remains strong with operating cash flow of US$115.3 million (up 27%, pcp) and interim dividend increased to 21.5 US cents per share. Rigid Plastics segment saw PBIT growth of 5.6% on account of higher volumes in the beverage segment and recently acquired the business.


1HFY19 Key Financials and Ratios (Source: Company Reports)

What to Expect: The management has kept unchanged the outlook for the full year which was provided in August 2018 with FY19 to see solid underlying earnings growth in constant currency terms from Flexibles and Rigids segments. A much stronger financial profile, higher margins and cash flow are expected as a result of US$ 180 million of cost synergies by combining with Bemis.

Stock Recommendation: At the current market price of $16.180, the stock is available at price to earnings multiple of 20.0x. Looking at the historical price movement, the stock has gained 13.99% in last one-year and 24.28% in last 6-months.
Considering the bright future business prospects and current trading level, we give a “Hold” recommendation on the stock at the current market price of $16.180 per share (up 1.315% on 26 April 2019).
 

Lendlease Group

Strong Development Pipeline of $74.5 billion to Fuel Growth: Lendlease Group (ASX: LLC), engaged in the business of development, construction and investment with overall $74.5 billion Development pipeline, $21.4 billion Construction backlog revenue, $34.1 billion Fund under Management (FUM), and $3.6 billion Investments as at the end of 1H FY19. LLC informed that it has been served with a representative proceeding filed by Maurice Blackburn, on behalf of securityholders who acquired an interest in LLC’s stapled securities or ADR in the period of 17 November 2017-8 November 2018.

Financial Performance in 1H FY19: The group’s revenue for 1H FY19 at $7771 million saw a decrease of 11% (pcp) with PAT de-growth of 96% to $15.7 million. The Construction segment got impacted by the pre-tax $500 million in expected losses on the underperforming Engineering projects.


1HFY19 Key Financials (Source: Company Reports)

What to Expect: Thegroup’s focus on urbanisation in targeted gateway cities with a development pipeline of $74.5 billion augurs well for earnings visibility in the future. Going forward, the group’s focus will be more on urbanisation and on leveraging the competitive advantage of the integrated business model. The investments segment of the company is in the robust position to continue to deliver recurring earnings derived from the $3.6 billion of investments, $34.1 billion in FUM and $26.6 billion of assets under management.

Stock Recommendation: Currently, the stock is trading at price to earnings multiple of 19.94x. The historical price movement shows that stock has dipped 25.45% in last 1-year but gained 11.35% in the past 1-month.

Considering the integrated business model with emphasise on urbanisation, strong development pipeline, higher growth in FUM, etc are likely to support earnings growth. Hence, we give a “Buy” recommendation on the stock at the current market price of $13.240 per share (up 1.223% on 26 April 2019).
 

Goodman Group

Valuations Stretched at Current Level: Goodman Group (ASX: GMG), is an integrated property group with operations throughout Australia, New Zealand, Asia, Continental Europe, the United Kingdom, North America, and Brazil. The company recently informed that David Collins has acquired 5000 shares for the consideration of $66,999.12 via on-market trade.

Financial Performance in 1H FY19: The company posted an operating profit of $465.0 million for 1H FY19 recording a growth of 10.4% (pcp). The statutory profit for the company came in at $929.2 million which includes the group’s share of valuation gains, derivative foreign currency mark-to-market and other non-cash or non-recurring items. The operating cash flows in 1H FY19 at $398.9 million was lower against 1H FY18 primarily due to the timing of development and revenue receipts, with the majority of cash proceeds from development often received at completion.


1HFY19 Income Statement (Source: Company Reports)

What to Expect: To maintain low financial leverage, the company has been targeting a pay-out ratio in the low 50% range. With this pay-out ratio, the company would be able to cater for an ongoing development work in progress (WIP) of over $4 billion while maintaining the disciplined approach to financial leverage and further strengthening the balance sheet over the longer term. The management has increased FY19 EPS guidance to 51.1 cents per share, (up 9.5% on FY18) and FY19 DPS to 30 cents per share, up 7%.

Stock Recommendation: The price to book at 2.4x for the stock is also higher than the industry median of 1.1x, hence, signalling the stock is overvalued at the current level.It has a higher EV/EBITDA and EV/Sales multiple of 24.5x and 18.4x as compared to the industry median of 19.1x and 15.6x, respectively, showing the stock to be overvalued. Looking at the historical price performance, the stock has risen significantly with the gain of 49.10% in last 1-year. Currently, the stock is trading at close to its 52-week high of $13.670. Hence, considering the stretched valuations and above-mentioned factors, we give an “Expensive” recommendation on the stock at the current market price of $13.600 per share (up 2.719% on 26 April 2019).


 
Comparative Price Chart (Source: Thomson Reuters)  

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