Appen Limited

Increase in Underlying EBITDA Guidance:Appen Limited (ASX: APX) is engaged in the development of high-quality, human annotated datasets used in machine learning and artificial intelligence.

Highlights for the Six Months Ended 30 June 2019: APX announced its half-yearly results, wherein the company reported total revenue at $245.1 million, up 60% on y-o-y basis, driven by growth in speech and image revenue from expansion of existing projects and new work. The business reported a 48% growth in the relevance segment at $193.7 million. APX reported underlying NPAT at $46.3 million as compared to $25.6 million in the previous corresponding period. EBITDA margin during H1FY19 stood at 18.9%, up from 16.8% in H1FY18. The business reported the addition of new customers through Figure Eight and investments in sales and marketing.


H1FY19 Financial Highlights (Source: Company Reports)

Dividend Distribution:APX distributed a 42.53% franked dividend of AUD 0.0400 for each ordinary share held. At the current market price of $26.430, the stock of APX has generated a dividend yield of 0.34% on an annual basis.
Outlook:As per the full-year guidance for 2019, APX expects underlying EBITDA in the range of $96 million - $99 million, up from the previous guidance of $85 million to $90 million. The above estimate translates November and December performance at $1=US$0.74, and the business is estimated to add a further of $1.0 million - $1.5 million to underlying EBITDA. Improvement in earnings forecast is aided by growth in monthly relevance revenues and margins due to improved realization from existing projects with existing customers. APX reinforces its high conviction for the acquisition of Figure Eight and confirms previous FY19 ARR guidance of $30 million to $35 million (at $1=US$0.74).

Stock Recommendation: The stock of APX is quoting at $26.430 with a market capitalization of ~$2.82 billion. The 52-week trading range of the stock stands at $10.890 to $32.00. The stock has given negative returns of 2.47% and 3.56% during the last three-months and six-months, respectively. The business has delivered stellar organic growth during H1FY19, and the Management expects to retain its growth momentum in FY19. Considering the current price movements, trading levels, improved underlying EBITDA guidance for FY19 and organic growth, we recommend a ‘Hold’ rating on the stock at the current market price of $26.430, up 13.385%, on account of improved guidance announced on 18 November 2019.
 

Coca-Cola Amatil Limited

Target Dividend Payout of ~80% Over the Medium-Term: Coca-Cola Amatil Limited (ASX: CCL) is engaged in the manufacturing, distribution and marketing of soft drinks.

1H2019 Financial Highlights for the period ending 28 June 2019: CCL announced its first-half financial results for FY19, wherein the company reported trading revenue at $2,406 million, up 5.2% from 1H2018. CCL reported an ongoing EBIT of $289.9 million as compared to $301.4 million in the previous corresponding period. Australian EBIT was benefited from $10 million credit due to lower actual redemption rates in the NSW container deposit scheme compared to forecast. The company reported $4.6 million benefits from the introduction of AASB16 lease accounting standard. The New Zealand segment witnessed continued momentum from FY18 achieving strong revenue, volume and earnings growth as well as margin improvement. The company reported 1H2019 net profit at $168 million as compared to $158.1 million in 1HFY18.


H1FY19 Financial Highlights (Source: Company Reports)

Outlook: As per the Management guidance, CCL is expecting higher growth in 2020, aided by the completion of an additional $10 million investment in the Accelerated Australian Growth Plan and Container Deposit Schemes across NSW and Queensland substantially embedded in 2019. 2019 performance in the New Zealand & Fiji, Papua New Guinea and Alcohol & Coffee segments is expected to remain flat. Capex is estimated to be around $250 million in 2019 and $300 million for 2020. Moreover, the company is targeting a dividend payout ratio of over 80% for the medium-term.

Stock Recommendation: The stock of CCL is trading at $11.430, with a market capitalization of ~$7.89 billion. The stock is trading at the upper band of its 52-week trading range of $7.846 to $11.450. The stock has given returns of 6.83% and 21.69% during the last three-months and six-months, respectively. At the current market price, the stock is available at an enterprise value (EV) to sales multiple of 2.0x on trailing twelve months basis (TTM) as compared to the industry median of 3.7x. The business has generated a return on equity of 10.6% during 1H2019 as compared to the industry median of 10.2%. Considering the aforesaid facts, current price movements, trading levels, and future growth plans, we recommend a ‘Hold’ rating on the stock at the current market price of $11.430, up 4.862% on 18 November 2019, taking cues from the guidance issued for 2020.
 

Qantas Airways Limited

Market Capacity Management Aids Unit Revenue Growth: Qantas Airways Limited (ASX: QAN) provides air transportation services in both domestic and international segments. The company is also engaged in several activities likecatering, information technology, ground handling and engineering and maintenance. Recently, the company notified about the cancellation of 79.71 million shares amounting to $443.2 million, bought under its buyback program.

FY19 Operating Highlights for period ended 30 June 2019: QAN announced its FY19 results, wherein the company reported total revenue of $17,966 million as compared to $17,128 million in FY18. FY19 Underlying Profit Before Tax stood at $1,302 million as compared to $1,565 million in the previous financial year. Available Seat Kilometers (ASKs) stood at 151,430 million as compared to 152,428 million in FY18. Revenue seat factor stood at 84.2% as compared to 83.2% in the previous year. The business witnessed a 4.1% increase in Domestic Unit Revenue in the flat market capacity scenario as market demand absorbed excess capacity.

 

FY19 Financial Highlights (Source: Company Reports)

Outlook: As per the outlook for 1HFY20, the company expects mixed demand from its domestic market. On the domestic front, the company is focusing on growing its market share across the SME segment and the corporate market. Within the international segment, the company has a positive outlook for premium demand. On the international front, the company expects strong demand from Asia in the price sensitive leisure market to offset currency related weakness.During 1HFY20, the company expects group international capacity to improve by ~1.5% on pcp terms. FY20 fuel cost is expected to be ~$3.95 billion.

Stock Recommendation: The stock of QAN is quoting at $6.980, with a market capitalization of ~$10.11 billion. The stock has generated returns of 21.72% and 27.92% in the last three-months and six-months, respectively. The stock has an EV/EBITDA multiple of 4.2x on TTM basis as compared to the industry median of 4.9x. In FY19, the business reported a gross margin of 53.2% and net margin of 5%, better than the industry median of 39.7% and 4.2%, respectively. Considering the performance in FY19, stock price movements, better margins than industry, and decent demand outlook, we recommend a ‘Hold’ rating on the stock at the current market price of $6.980, up 2.95% on 18 November 2019.

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