Stocks’ Details

Australian Foundation Investment Company Limited

A Look on Full-year Results: Australian Foundation Investment Company Limited (ASX: AFI) is engaged in making an investment in shares. The market capitalisation of the company stood at ~A$7.67 Bn as on 22^nd July 2019. The company via a release reported its results for the year ended on 30^th June 2019. The company posted a net profit for the period of $406.4 Mn, reflecting a rise of 45.6% in comparison to year ended on 30^th June 2018. It reported revenue from operating activities of $441.4 Mn, witnessing an increase of 43.1% from pcp. The company mentioned its top 25 investments which have been valued at the closing prices at 28^th June 2019 as shown in the following picture:


Portfolio Facts (Source: Company Reports)

Whatto Expect: The company stated that very low interest rates are reinforcing the move by many investors to purchase the equities at a time when the Reserve Bank of Australia is concerned about the future of the economy. If the economy does weaken, then this is likely to put the implications for the outlook for earnings for the range of companies.

Stock Recommendation: The gross margin of AFI stood at 99.8% in 1H FY19 in comparison to the industry median of 95.8%. It posted a net margin of 94.2% in 1H FY19 against the industry median of 20.4% and it implies that the company is effectively converting its top-line into the bottom-line which might attract the attention of the market participants. The current ratio of the company stood at 5.81x in 1H FY19 as compared to the industry median of 1.50x. This showcases that AFI is well-positioned to meet its short-term obligations in comparison to the broader industry. The asset to equity ratio stood at 1.15x in 1H FY19 against the industry median of 4.17x.The company declared a fully franked final dividend of 14 cents per share. The company stated that the special dividend amounting to 8 cents per share fully franked was paid with the interim dividend amounting to 10 cents per share fully franked in the month of February 2019.Coming to the stock’s past performance, it produced returns of 1.59% and 8.12% in the time span of one month and three months, respectively. As per ASX, the stock is trading closer towards its 52-week higher level of $6.410, thus, it can be presumed that the majority of the positive factors have been discounted at the current level. Hence, considering the above-stated facts and current trading level, we give an “Expensive” rating on the stock at the current market price of A$6.390 per share.
 

Milton Corporation Limited

Increase in Net Profit: Milton Corporation Limited (ASX: MLT) is involved in making an investment in the companies and trusts. The market capitalisation of the company stood at A$3.24 billion as of 22^nd July 2019. The company delivered net profit after tax of $147.7 Mn in the financial year 2019 with a rise of 13.6% on pcp. The company increased its investment in BHP, Macquarie Group, Transurban and AGL with new investments in Cleanaway and Altium. The company reported earnings per share of 22.19 cents, reflecting a rise of 12.1%, which includes special investment revenue. Adding to that, it posted EPS of 20.08 cents, with a rise of 2.4% excluding the special investment revenue.


Financial Summary (Source: Company Reports)

Future Aspects: The company stated that in comparison to historical averages, the valuations in the Australian market are elevated as decreasing interest rates encourage investors to go after equity yield. The earnings growth of MLT has been strong in FY19, primarily in the resources sector, because of high commodity prices. However, it anticipates the earnings growth to slow in 2020.

Stock Recommendation: The company posted a net margin of 94.9% in FY 2019, reflecting a YoY rise of 0.8%, which represents that the company’s capability to convert its topline into the bottom line has been improved. The company’s current ratio stood at 82.20x in FY 2019. Milton Corporation Limited’s investment management team would continue to monitor the companies, which are already held by MLT as well as search for opportunities to further diversify its portfolio. The company has a strong balance sheet with no debt. On the stock’s performance front, it generated returns of 2.54% and 8.50% in the time span of one month and three months, respectively. Based on the foregoing coupled with decent outlook and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of A$4.840 per share (down 0.206% on 22^nd July 2019).
 

Cadence Capital Limited

EstimatedNet Tangible Assets: Cadence Capital Limited (ASX: CDM) invests in an actively managed portfolio of securities. The market capitalisation of the company stood at A$247.41Mn as of 22^nd July 2019. The company via a release stated that Mr Karl Peter Siegling has changed his interest in the company by acquiring 100 ordinary shares at the consideration of $77.09. The total number of securities held after change stood at 22,389,181 Ordinary Shares. The pre-tax net tangible assets of the company stood at $0.91 and post-tax NTA stood at $1.05 as at 19^th July 2019. The following picture gives an idea of top 20 holdings of the company as at June 2019:


Top 20 Holdings (Source: Company Reports)

Future Prospects: There are expectations that the company’s investments might be influenced by the macro-economic factors and by the geopolitical conditions. If the economic conditions stabilize, the company’s investments might witness the positive impacts.  CDM has recently rolled out the Cadence Opportunities Fund, a fund that would benefit in times of volatility with shorter-term trends.

Stock Recommendation: The biggest contributors to half-yearly performance were, Aurelia Metals (AMI), G8 Education (GEM), Credit Corp Group (CCP) and Stanmore Coal (SMR). The biggest detractors from performance were Emeco Holdings (EHL) and ARQ Group (ARQ) amongst others. On the performance front, the company’s stock produced negative returns of 3.13% and 13.89% in the time span of one month and three months, respectively. Currently, the stock is trading close to a 52-week low level of $0.735, proffering a decent opportunity for accumulation. Hence, considering the above-stated facts and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.770 per share (down 0.645% on 22^nd July 2019).   

 
Comparative Chart (Source: Thomson Reuters) 

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