Stocks’ Details

REA Group Ltd

Australian Business Aided REA’s Half-year Results: REA Group Limited (ASX: REA) had released the results for half-year ended December 2018. As the per the release, the company generated revenues amounting to $469.2 million which implies the rise of 15% on the YoY basis thanks to the 15% rise in Australian business. This implies robust performance with respect to Residential business and inclusion of Hometrack business which was not the case in the prior comparative period. Moreover, the contribution (full half-year) from Smartline business was also there while in the prior year the contribution was of 5 months.

 
Key Metrics (Source: Company Reports)

The company stated that there was a rise of 10% in the operating expenditure because of deployments towards the product innovation, higher costs because of inclusion of Hometrack as well as variable costs related to the success of Audience Maximiser product in Australia. The company’s net margins have witnessed a substantial improvement in FY 2018 on the YoY basis reflecting the company’s strong capability to convert the top line into bottom line. In FY 2018, the net margins were 32.8% while in FY 2017 it was 7.1%. The company’s return on equity also witnessed the improvement on YoY basis. In FY 2018, the ROE was 30.3% while in FY 2017 it was 6.3%.

What Expects from REA Moving Forward: REA Group Limited had stated that there are expectations that the market conditions would not witness improvement in short-term. The company added that listings might be weaker in lead up to the election of New South Wales in March as well as the Federal election (which is expected in May). It also added that BIS Oxford forecast with respect to new apartment commencements reflects continued to decline for the remaining time of this year. The company stated that these factors might result in a lower revenue growth rate in H2.

Stock Recommendation: On the daily chart of REA Group Limited, Relative Strength Index or RSI was applied, and default values were used for the purposes. After careful observation, it was noted that the 14-day RSI is trending towards the oversold region. If the 14-day RSI reaches the oversold region, the stock price might witness an upward momentum. Moreover, the company’s net margins have witnessed a significant YoY improvement in FY 2018 which might attract the market players’ attention. Based on the above-mentioned factors, we maintain our “Hold” rating on the stock at the current market price of A$72.690 per share (down 1.85% on 11 February 2019).
 

Japara Healthcare Limited

New Five-Year Debt Facility: Japara Healthcare Limited (ASX: JHC) had earlier made an announcement about the new five-year debt facility. The company stated that they have sealed new five-year $345 million syndicated loan facility with its relationship banks i.e. Commonwealth Bank of Australia or CBA, National Australia Bank or NAB as well as Australia and New Zealand Banking Group Limited or ANZ.  The company had also stated that they have made progress with respect to greenfield as well as brownfield developments and significant refurbishment program over the first 6 months of FY 2019. In FY 2018, the company generated total revenues amounting to $373.2 million which implies the rise of 3% as compared to FY 2017.


FY 2018 Highlights (Source: Company Reports)

The company also possesses a decent position with respect to the net margin in FY 2018 as compared to the broader industry median. In FY 2018, the net margin stood at 6.5% as compared to the industry median of 3.7% which reflects its robust capability to turn its top line into the bottom line.

Construction of State-of-The-Art Homes: Japara Healthcare had stated that its strategy revolves around the construction of the state-of-the-art homes for more than 88,000 future residents would be requiring high care support. They would be giving additional services that support the wellbeing of the residents as well as they would be giving specialist care for increasing number of Australians who are living with dementia.

The company had stated that it would be releasing the results for the half-year ended December 2018 to ASX on February 25, 2019.

Stock Recommendation: On the daily chart of JHC, a technical indicator, Relative Strength Index or RSI was applied, and default values were used for the purposes. After careful observation, it was noticed that the 14-day RSI is trending towards the overbought region. If it reaches the overbought region, the stock price might witness a downward momentum.

However, since the company is expected to announce half-year results (ended December 2018) on February 25, 2019, we suggest that the market players should closely watch the stock at the current market price of A$1.315 per share (up 5.2% on 11 February 2019 given the recent funding announcement made by the Federal Government in the Aged Care Space). 
 

Fortescue Metals Group Ltd

Delivered Strong Shareholders Returns: Fortescue Metals Group Ltd (ASX: FMG) had witnessed total shipments of 42.5 million tonnes (or mt) in December 2018 quarter while the cash production costs stood at US$13.02 per wet metric tonne. The company had stated that during the December 2018 quarter, it delivered robust shareholder returns with the help of payment of FY 2018 final dividend amounting to US$270 million as well as acquisition of US$101 million of the shares (on market). The company stated that they were able to maintain the cash balance of US$962 million at the quarter end.     


Production Summary (Source: Company Reports)

The company’s net margin is broadly in line with the industry median.In FY 2018, the net margin stood at 12.7% while the industry median happens to be 12.8%. However, the company’s EBITDA margin is higher than the industry margin. Its EBITDA margin stood at 45.3% in FY 2018 while the industry median stood at 30.2%.

What to Expect From FMG: Fortescue Metals Group had stated that there are expectations that it would incur total capital expenditure or CAPEX amounting to US$1.2 billion. It also added that increased volumes in the second half would be contributing towards the lower C1 costs and there are expectations that the full year costs would be towards the upper end of US$12-$13/wmt range.

Stock Recommendation: On the monthly chart of Fortescue Metals Group, Moving Average Convergence Divergence or MACD has been applied and default values were used for the purposes. After observation, it was noticed that the MACD line has crossed the signal line and is trending in the upward direction. This signifies that the company’s stock might witness an upward momentum moving forward.

As a result, we maintain our “Buy” rating on the stock at the current market price of A$6.250 per share (up 3.477% on 11 February 2019). 

 
Stock Price Comparative Chart (Source: Thomson Reuters)   

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