Stocks’ Details
 

Challenger Ltd

 
Retirement income framework- Key growth driver: Challenger Ltd (ASX: CGF) has recently declared the staff trading policy w.r.t the Fidante ActiveX exchange traded product launched on the AQUA market at ASX. These policies have been stated to have a process in place that will ensure that the staff of the company does not trade in the financial products unlawfully while hurting its customers, clients, shareholders, etc. The company recorded the second highest quarterly annuity sales with a figure of $1,171 Mn for the Q1 2019 exhibiting a rise of 7% on PCP. This rise was seen on account of the strong demand for secure income from the growing number of retirees with increasing retirement savings. Annuity sales are also benefiting from Challenger’s expanded distribution reach.
 

The government had earlier proposed the retirement income reforms which are designed to provide secure income in retirement. These reforms would provide retirement solutions that manage risks in retirement while maximizing income. This is anticipated to drive significant growth in annuity sales going forth.

 
For FY19, the company is on track to achieve PBT growth in the range of 8% to 12% as compared to FY18. Further, it has remained firm to its 18% pre-tax ROE target.Also, the Normalised ROE is anticipated to rise in the FY19 on account of the higher levels of capital deployment from the MS&AD equity placement in August 2017, however the same is not expected to reach the target of 18%. Challenger has announced plans to further expand distribution by making its full range of annuities available on the fast-growing specialist Netwealth platform.

 

CGF’s Financial parameters (Source: Company Reports)
 
On the analysis front, the company has ROE of 10.10 % which is at par with the Industry median. However, the price to book is at 1.7x for the trailing 12 months, while the Investment Management Industry trades at 1.9x, hence a rerating of some sort is possible on that front in the long run. Meanwhile, the stock price has fallen 8.66% in the past three months as on 7 December 2018 and traded close to lower level, representing an attractive opportunity for the investors to acquire the stock at these levels. Hence considering the revenue drivers in the form of Government policy, we maintain our “Buy” recommendation on the stock at the current market price of $9.350 (down 1.475% on December 10, 2018).
 

Rea Group Ltd

 
Growing Property Listings & Audience Base - Key growth drivers: Rea Group Ltd (ASX: REA) has posted good numbers for the quarter ended 30 September 2018. The revenue surged by 17% on PCP basis to reach at $221.90 Mn. This growth was on account of the constant traction seen in the Australian Residential business and the recent inclusion of “Hometrack Australia Business”. Also, there was a full quarter contribution to the revenues from the Smartline Business as compared to the two months of the first quarter corresponding to the last year. The underlying EBITDA came in at $130.90 Mn, seeing a growth of 23% on PCP. This was on account of the robust growth achieved in the Developer as well as commercial businesses. However, it was partially offset by the volume contraction seen in their new apartment construction projects. The double-digit growth was on the back of better product mix along with deeper penetration in the Commercial business. Going further, the firm expects revenue growth will exceed the operating cost growth for the full year and hence will lead to margin expansion. Moreover, the company expects the conditions to remain challenging in the listings market. The conditions may remain slow till NSW elections in March 2019. Moreover, the forecasts for the new apartment’s listings continue to show a lower trajectory.
 

 
REA’s Financial Performance for FY 2018 (Source: Company Reports)
 
On the financial parameters front, the company is growing at a better pace considering its pre-tax margins of 46.8% vis-a-vis the industry median of 41.9%. Hence seems to be a growth stock. Meanwhile, the stock price has fallen by 14.42% over the past six months as on 7 December 2018 and trading at PE multiple of 39.21x. Hence considering continued traction in audience base and superior pre-tax margins, we maintain our “Hold” recommendation on the stock at the current market price of $71.860 (down 4.492% on December 10, 2018).
 

Transurban Group

 
Heavy Government Spending on Infra Sector will Drive the Top Line: Transurban Group (ASX: TCL) has announced via an ASX press release that the shareholders shall be distributed a sum of 29 cps for the period of six months ending 31st December 2018. This dividend shall be made up of 28 cents from the Transurban holdings trust and controlled entities and 1 percent from the Transurban holdings trust.
 
It was also declared earlier that the Westlink M7 (“M7”) has priced A$345 million fixed rate 12-year, A$195 million fixed rate 15-year and A$75 million fixed rate 20-year senior secured notes in the US private placement market (“Notes”). M7 forms part of the North-western Roads Group (“NWRG”). It is to be noted that Transurban has a 50% interest in NWRG. Most of these proceeds will be used for repaying the M7’s remaining term bad debt, which will get matured in August 2019 & August 2021. This pricing got completed on November 29, 2018, however the settlement is expected to be done in December 2018.
 
For the quarter ended September 2018, the total hike in the average daily traffic (ADT) was 3.3%. The Sydney’s average daily traffic (ADT) surged by 2.5% to 6,81,000 trips, this was on the back of increased large vehicle trips, with total trips on M4 West being 1,40,000 trips.
 
The company achieved an EBITDA growth of 10.2% during FY 2018 on a YoY basis. This was on the back of growth in strong large vehicle traffic & full year impact of CTW large vehicle toll multiplier rise. The average daily traffic growth for the FY 2018 was 2.2%. The company has projects amounting to ~ $10 Bn in the pipeline across Australia and North America, which will be financed via raising the equity & debt through the issuance of corporate notes, which will help the company in optimizing its debt profile. Further growth for the company shall be on the anticipation of the expected heavy spending by the government on the Infrastructure sector.

Corporate Debt Maturity Profile (Source: Company Reports)
 
Meanwhile, the stock price has risen by just 2.45% over the past six months as on 7 December 2018. Hence considering the expected heavy spending on the Infrastructure sector by the government and the favourable debt profile going forward, we maintain our “Buy” recommendation on the stock at the current market price of $11.770.
 

 
 
Stock Price Comparative Chart (Source: Thomson Reuters)
 

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