Stocks’ Details
 

Transurban Group

Balance Sheet positioned for an environment of rising interest: Transurban Group (ASX: TCL), Australia’s largest toll road operator, stock has fallen 2.40% in three months as on August 03, 2018. TCL had submitted the bid for a 51 per cent interest in the WestConnex assets that are currently for sale by the NSW Government. However, the company’s bid is conditional and it has to get approvals from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board, which is mandatory. TCL aims to obtain all necessary approvals. Meanwhile, NSW will evaluate conditional bids before taking any decision. Additionally, earlier ACCC had delayed the decision date for its review of Sydney Transport Partners’ proposed acquisition of a majority interest in the WestConnex project. Sydney Transport Partners is a consortium led by TCL. ACCC had raised preliminary concerns that the proposed acquisition would substantially lessen competition for concessions to construct, own and/or operate toll roads in NSW or nationally and in the markets for the supply of road services to motorists on various origin/destination combinations in the Sydney region. On the other hand, TCL’s balance Sheet is positioned for an environment of rising interest as the company requires minimal refinancing until FY 20. The company is also refinancing interest rates at rates lower than the maturing debt. Further, TCL’s investment proposition is supported by capital strategy which will realise future opportunities. While short-term risks prevail, the toll giant has many long-term catalysts with rising traffic scenario and population trends. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 11.900 (up 1.1% on August 06, 2018) ahead of its earnings update.
 

Commonwealth Bank of Australia

Plans to demerge wealth management and mortgage broking businesses: Commonwealth Bank of Australia’s (ASX: CBA) stock has fallen 1.46% in three months as on August 03, 2018. CBA plans to unlock value for shareholders by the formatting of a leading independent wealth management business through the demerger of its wealth management and mortgage broking businesses. CBA has also planned to undertake a strategic review of its general insurance business, including a potential sale. These initiatives by CBA are expected to result in the creation of a leading independent wealth management business and enable CBA to increase its focus on its core banking businesses in Australia and New Zealand. Further, the demerged business, CFS Group, will offer investors a company that has a strong earnings base, with pro forma 2017 NPAT of over $500 million and a strong capacity to pay franked dividends. Meanwhile, CBA stock is trading at a reasonable P/E of 12.68x. Therefore, we give a “Buy” recommendation on the stock at the current price of $ 73.560 ahead of earnings result due this week.


Third Quarter 2018 Financial Performance (Source: Company Reports)
 

Magellan Financial Group Ltd

Improvement in Funds under Management: Magellan Financial Group Ltd (ASX: MFG), a financial specialist recently established a small debt facility to aid in overall liquidity management. This facility is sized at $50 million and is currently undrawn funds management business. MFG stock has fallen 1.78% in three months as on August 03, 2018 while its Funds under management rose to $69,974 million as at July 2018 against $69,509 million as at June 2018, which was again up against $67,354 million as at May 2018. The company had terminated its three-year partnership with Cricket Australia as the naming rights sponsor of the Australian Men’s Domestic Test Series. Meanwhile, MFG during the first half 2018 has delivered 25% growth in the average funds under management to $53.6 billion and underlying profit after tax. MFG had completed the $1.57 billion initial public offering of the Magellan Global Trust, which is the largest closed end fund raising in Australian history. Moreover, MFG has planned two strategic acquisitions, which are Frontier Partners in the United States; and Airlie Funds Management. Additionally, MFG for FY 18 expects the employee expenses, which are the largest contributor to expenses, to rise at the lower end of the 5-8% guidance. The marketing expense for the FY 18 is expected to rise in the range of $11-$11.5 million, in line with the company’s previous guidance.


1H 18 Financial Performance (Source: Company Reports)
 
The company maintains a strong balance sheet with Net Tangible Asset per share of $2.54. MFG has established a small debt facility to manage overall liquidity, sized at $50 million and is currently undrawn. With improving funds scenario, we give a “Buy” recommendation on the stock at the current price of $ 24.040 ahead of full year results due on August 09, 2018.
 

Comparative Stock Movement (Source: Thomson Reuters)
 

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