Stocks’ Details

James Hardie Industries Plc

Acquisition of Fermacell in Europe Supported the Top-line Growth in FY19: James Hardie Industries Plc (ASX: JHX) is a world leader in the manufacturing of fiber cement siding and backerboard. The management recently declared the second half ordinary dividend of USD$0.2600 per security with an ex-date and payment date of June 5, 2019 and August 2, 2019 respectively.

Financial Performance in FY19: Net sales for the Group came in at US$624.8 million for 4Q and US$2,506.6 million for FY 19, an increase of 19% and 22%, respectively, compared to pcp.

For both periods, revenue was favourably impacted by the acquisition of Fermacell in Europe and strong performance by North America Fiber Cement segment which delivered decent revenue growth of 3% for 4Q and 6% for FY 19. The acquired Fermacell business in Europe contributed net sales of US$89.9 million and US$332.5 million in 4Q and FY 19, respectively.

The group recorded adjusted net operating profit of US$73.8 million in 4Q and US$300.5 million for FY 19, a decrease of 9% and an increase of 3%, respectively on pcp basis.


FY19 Group Results Overview (Source: Company Reports)
 
The company has been able to meet working capital and capex requirements from a combination of cash flows from operations and credit facilities.The company stated that seasonal fluctuations with respect to working capital generally have not had material impact on the short or long term liquidity.

Outlook: The management expects to see a modest growth in the US housing market in FY2020. The single-family new construction market and repair and remodel market growth rates in FY2020 are likely to increase, albeit lower than FY2019. The management expects FY2020 EBIT margin for North America Fiber Cement segment to be in the range of 20% to 25% on the back of continuing operating performance, improved net average sales price and mix, continued inflation for input costs and modest underlying housing growth.

Addressable underlying market for the company is anticipated to decrease in FY2020 as compared to FY2019. Top line from Australia is expected to continue to trend above the average growth of the domestic repair and remodel and single family detached housing markets in the eastern states of Australia. The management also expects Europe Building Product segment to achieve net sales and EBIT margin growth year on year.

Stock Recommendation: At the current market price of $18.500 per share, the stock is trading at price to earnings multiple of 31.180x. On stock price performance, it has gained a ~20% return on YTD basis whereas in last one month, the stock has given negative return of ~6%. Hence, considering the strong results in FY19 and stable outlook for FY2020 by the management, further capacity expansion to meet demand and market penetration objectives, comfortable liquidity position lead us to recommend a “Buy” rating on the stock at the current market price of $18.500 per share (up 3.758% on 21 May 2019).
 

Incitec Pivot Limited

TRIFR Improved to 0.78: Incitec Pivot Limited (ASX: IPL) is engaged in the business of the manufacturing and distribution of industrial explosives, industrial chemicals and fertilisers, and the provision of related services. The company recently announced an ordinary dividend of $0.013 per security with the record date and payment date of June 5, 2019 and July 1, 2019, respectively. The company recently, announced 1H FY19 results which were largely impacted by some significant non-recurring events. The underlying market fundamentals remain strong and improved performance for the second half and beyond is expected, going forward.

Financial Performance in 1H FY19: The company reported Net Profit After Tax (NPAT) of $41.9 million as compared to $7.6 million, pcp.The company’s total Recordable Injury Frequency Rate (TRIFR) for the rolling twelve-month period ended 31 March 2019 was 0.78, an improvement from 0.93 at 30 September 2018 and a progress toward 2021 target of 0.70. The company also reported an improvement in Potential High Severity Incidents to 17 (pcp: 23) and a flat result of 16 (pcp: 16) for Process Safety Incidents.
 

Financial Summary for 1H FY19 (Source: Company Reports)
 
Net leverage (Net Debt/EBITDA) of 2.6x was higher as compared to 30 September 2018and 31 March 2018, primarily on the back of lower earnings in the first half, impact of the share buy-back; and maturing debt hedges during 1H FY19.Interest coverage for 1H FY19 at 5.8x was well above the industry norms, however, lower as compared to 7.5x (pcp).

Outlook:The management does not provide earnings guidance as business is exposed to commodity prices and foreign exchange movements. However, considering the significant impact from non-recurring items on the Group’s FY19 results, the management has made an exception to provide earnings guidance for FY19.

The management expects an improved performance for the second half of FY19.EBIT for FY19 is expected in the range of $370 million and $415 million (after $209 million impact from non-recurring events). The company remains well-positioned to benefit from expected improved 2H19 demand with assumptions of normal weather conditions and absence of further major manufacturing outage. Sustenance capital expenditure for FY19 is expected at ~$250 million, plus lease buy-outs of ~$48 million.

Stock Recommendation: Notwithstanding a challenging first half of FY19, the company’s balance sheet remains strong, reflecting the Group’s ongoing commitment to financial discipline and effective cash management. At the current market price of $3.390 per share, the stock is trading at price to earnings multiple of 25.920x with the market capitalisation of ~$5.2 billion and annual dividend yield of 2.31%. Hence, considering the above-mentioned factors, we give a “Buy” recommendation on the stock at the current market price of $3.390 per share (up 4.63% on May 21, 2019).
 

Qantas Airways Limited

Shift in the Timing of Easter to Benefit 4Q FY19 Trading Numbers: Qantas Airways Limited (ASX: QAN) is engaged in the operation of international and domestic air transportation services, the provision of freight services, and the operation of a frequent flyer loyalty program. As per the daily share buy-back notice as on 21 May 2019, the company has bought back 41,942,542 shares via on-market for the total consideration of $23,26,59,536.8.

Group Trading Update – 3Q FY19: The Group continued to deliver revenue growth in 3Q FY19 as it remains on track to fully offset the impact of significantly higher fuel costs as compared to the last year.  Total revenue in the quarter under consideration grew by 2.3% to $4.4 billion and Group Unit Revenue was up by 4%.

With a shift in the timing of Easter which started in 3Q FY18 but moved wholly into the 4Q FY19, a significant amount of revenue also shifted into 4Q. Qantas Loyalty continued to witness strong revenue growth from the Frequent Flyer program as well as its other businesses, including Qantas Money and Qantas Insurance.

Financial Performance and Framework in 1HFY19: At the top-line, underlying profit before tax (PBT) stood at $780 million whereas statutory profit was recorded at $735 million.The company faced a drop of $179 million at the underlying level as compared to the record results last year. However, the performance can be considered strong on the face of a 27% ($416 million) increase in its fuel bill. QAN met all the targets of its financial framework in the first half of FY19. Net debt at $5.2 billion in 1H FY19 came in at the bottom of the target range. Debt maturity has been improved by a 10-year, $450 million debt program. Short-term liquidity also remained healthy at $2.5 billion.


Reconciliation to Underlying PBT (Source: Company Reports)
 
Outlook: There are several initiatives to be announced in the fourth quarter that will continue to support Loyalty’s performance, with earnings growth of 7%-10% expected for the second half of FY19. Fuel cost for FY19 is expected at $3.90 billion, 21% higher as compared to FY18. Fuel burden for the financial year 2020 is completely hedged with 73% participation in favourable price movements.

Stock Recommendation: The Group is expected to achieve a record level of revenue and strong cash flow in FY19. With strong forward revenue projections, reduced fuel headwinds and continued transformation, the company is expected to witness strong net free cash flow in 2H19. Hence, we recommend a “Buy” rating on the stock at the current market price of $5.320 per share (down 0.561% on 21 May 2019).


Comparative Price Chart (Source: Thomson Reuters)    

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.