Stocks’ Details

Seven West Media Limited

Cost efficiencies and reduction in leverage level- catalyst for 2019: Seven west media Ltd (ASX: SWM) has clocked in an EBIT of $ 236 Mn for the FY ending 30 June 2018. This was at the upper end of the company’s stated guidance of $220 Mn - $240 Mn. This performance was achieved on the back of the market growth, combined with company’s strong ratings and cost reduction programs. Further, the Company’s NPAT for the FY 2018, came in at $142.50 Mn vis-à-vis $166.80 Mn, down by 14.60% on a YoY basis. This fall was on the back of write down of assets held for sale and restructuring costs offset by a gain on other assets and net gain on disposal of investments and controlled entities.
 
Net Cost Savings Upgraded: Going further, the company has modified its cost saving targets for the 2019 financial year from the erstwhile $10-20 million to $20-30 million, which will be delivered as the firm continue to focus upon the efficiencies. The company has thus iterated that the EBIT for FY 2019 is expected to grow by a 5-10% on a YoY basis. Moreover, in order to strengthen its financial position, the company is determined to bring leverage below 2x in the 2019 financial year.

SWM’s Revenue Trends (Source: Company Reports)

On the financial metrics front, the company’s financial leverage for the FY 2018 has reduced to a level of 1.47 times from the earlier 1.89 times in FY 2017. Thus, it has strengthened its financial position over the past year.  Moreover, the company has a ROE of 28.40% as compared with the Industry median of 14%, thus the company seems to be producing the better returns for its shareholder as compared to the Industry at large.
In the meantime, if we look at the past six month’s performance, the stock has fallen by 38.15% as on 7 January 2019. Hence, considering the improving Cost efficiencies and reduction in leverage level, we maintain our “Hold” recommendation on the stock at the current market price of $0.555 (up 3.738% on January 08, 2019).
 

Telstra Corporation Limited

 Strategic acquisitions & constant growth in customer base: Telstra Corporation Ltd (ASX: TLS) has lately declared that it has entered into pact to purchase a 25% stake in Southern Cross Cable Network (SCCN). The consideration which is to be paid shall be around US$300 million. For the FY18, the company reported a net profit after tax of $3.50 Bn, a decline of 8.90% on a YoY basis. This fall was witnessed due to rollout of the nbn which did prove to be disruptive for the operations and lower Average Revenue Per User (ARPU). During the year, the company had added 342,000 retail customers, 88,000 retail fixed broadband customers and 135,000 retail bundles. Additionally, the company has provided its revised FY 2019 guidance. As per the revised guidance, the company will be able to achieve an income of $ 26.5-28.4 Bn in FY19. There is no impact on the CAPEX forecasted amounting to $ 3.90-4.40 Bn and remains the same even after revisions. However, the company is expected to continually face the challenging trading conditions in FY 2019 that will impact the ARPU.
 
 

 
TLS’s FY 2018 Financial highlights (Source: Company Reports)
 
Meanwhile, the stock has risen by 2.92% in the past 6 months as on 7 January 2019 and is trading at reasonable PE multiple of 9.50x. Hence, considering the acquisition spree that will lead to revenue expansion in future & constantly increasing customer base, we maintain our “Buy” recommendation on the stock at the current market price of $2.90.
 

Vocus Group Limited

Proposed 5G rollout & expansion opportunities in the midsized organisation: Vocus group Ltd (ASX: VOC) has recently inked a five-year extension of its current Mobile Virtual Network Operator (“MVNO”) pact with Optus Wholesale. This will involve an access to the Optus 5G network and other innovative technologies. The partnership is expected to drive growth & synergies for both the businesses and hence will provide a platform for Vocus to grow its mobile customer base. For FY 2018, the company delivered results which were in line with the guidance released by the management in February 2018. The revenue for the period was clocked at $ 1.90 Bn, up by 2% on a YoY basis. The company’s enterprise, government as well as wholesale business witnessed the robust performance and its EBITDA (underlying) had witnessed the rise of 15% and the growth in the revenues were 11%. This was on the back of a focussed approach on sales and with a target expansion in the East coast. However, product mix improvements also supported this rise. The underlying EBITDA was clocked at the $366 Mn, a rise of 7% over the previous year. Going further, we believe that within the Australian Enterprise segment, Vocus has a low market share in all geographies and sectors outside Western Australia. Considering the increasing demands for diversity across multiple providers, and the underserved mid-sized organisations, the management is also of the view that the company has a strong opportunity in this segment. Currently, the company is trading at an EV/Sales multiple of around 1.57x, while the industry median is 1.70x, thus, we consider that the stock is marginally cheap, on the basis of revenue generated.


 
VOC’s Financial & Operational Highlights (Source: Company Reports)
 
Meanwhile, the stock price has risen over the past six months by 29.15% as on 7 January 2019 and is trading toward a higher level. Hence, considering Proposed 5G rollout & expansion opportunities in the midsized organisation, we maintain our “Hold” recommendation on the stock at the current market price of $3.190.


Stock Price Comparative Chart (Source: Thomson Reuters)
 

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