Orocobre Limited

ORE Details

Robust results during first full year of production: Shares of Orocobre Limited (ASX: ORE) moved up 14.2% on 31 August 2017, after the company announced 72% year on year growth in lithium carbonate production at 11,862 tonnes while posting total sales revenue of US$120 million (up from US$15 million) and EBITDAIX of US$71.2 million (up from US$7.8 million in FY16). However, reported profit of US$19.4 million was impacted by US$8.1 million of impairment at Borax Argentina, and sale of assets of US$14.8 million (FY16: loss of US$22 million). The company sold 12,296 tonnes of lithium carbonate at an average price of US$9,763/tonne and is positioned as one of the lowest cost producers with gross operating margins of 62% with lithium production costs at US$3,710/tonne. Moreover, FY17 was a challenging year for the company with pond management setbacks at Olaroz and extreme weather disruptions. However, these issues enabled the company to further analyse and improve operational processes and manage operations for long term. On the other hand, global market fundamentals for lithium remain intact with strong demand growth, tight supply and attractive pricing. Further, expansion of operations will commence with Phase 2 at Olaroz, which will see production double at its Olaroz facility, coupled with a 10,000 tonne per annum lithium hydroxide plant to be constructed with partner Toyota Tsusho Corporation. For FY18, the company expects approximately 14,000 tonnes of production with >US$10,000/tonne average price from Olaroz Lithium Facility. The stock has declined over 22% on YTD basis (as on August 30, 2017), while it is down 12.4% in the past one year owing to temporary operational glitches. Given the ongoing project developments coupled with robust operating margins and increasing demand for lithium, we give a “Buy” recommendation on the stock at the current market price of $ 3.86

Macquarie Atlas Roads Group

MQA Details

Earnings driven by revaluation gains: For the half year FY17 results, Macquarie Atlas Roads Group (ASX: MQA) reported a statutory net profit of A$437.6 million, largely comprising a revaluation gain of A$375.6 million relating to the acquisition of an additional 50% economic interest in Dulles Greenway as well as the share of net profit from MQA’s investment in APRR. Portfolio traffic grew 2.6% compared to the prior corresponding period (pcp), reflecting increased traffic volumes across all portfolio assets. Accordingly, proportionate revenue increased 3.6% to A$387.3 million and EBITDA increased 4.9% to A$294.8 million, led by higher traffic levels and revised toll schedules implemented over the past 12 months.The company expects distribution of 10.0 cents per security (cps) in H2FY17, resulting in a full year 2017 distribution of 20.0 cps (up 11.1% from 2016) while anticipating distribution of 22.5 cps (up 12.5%) for FY18.
 

Consolidated income statement; (Source: Company reports)
 
Dulles Greenway achieved traffic growth of 1.2% during the half year, with revenue and EBITDA up 3.6% and 4.4%, respectively, on pcp. Despite continued growth in regional economic activity, corridor traffic during the period was impacted by several local network changes and construction works which are anticipated to continue to create some volatility in the Dulles Greenway’s traffic volumes over the next 24-36 months. APRR (Autoroutes Paris-Rhin-Rhône) continued to reduce its net interest expense through replacing maturing facilities with new lower cost debt issuances under APRR’s Euro Medium Term Note program. In March 2017, €100 million of index-linked bonds were issued with a coupon of 0.34% and a maturity of April 2032. In May 2017, €500 million of bonds were issued with a coupon of 1.625% and a maturity of January 2032. Given the increasing traffic levels with continuous focus on value generating portfolio, we maintain a “Hold” recommendation at the current price of $ 5.68

Steadfast Group Limited

SDF Details

Solid performance despite challenging business environment: For FY17, Steadfast Group Limited (ASX: SDF) reported 7.2% yoy growth in underlying revenue at $504m while posting 10.6% growth in underlying EBITA at $143m. Further, underlying NPAT of $66m (up 9.8%) and statutory NPAT of $67m (compared to $73m in FY16) were reported. The company witnessed a 9.8% growth in gross written premium (GWP) at $5bn, which benefited from premium price increases in the last few months across its Australian SME (small-to-medium enterprise) portfolio and the addition of 18 new brokers to the Network. Steadfast Network brokers account for 28% of the Australian intermediated general insurance market. Further, Steadfast Underwriting Agencies also performed well with GWP up 4% for the year driven by strong momentum in 2H17 as brokers increasingly utilised agencies in a hardening market. Group organic EBITA grew by 8%, driven by an increase in premium prices and volume as well as margin improvement as a result of efficiency gains while acquisition growth of 3% was driven by broker acquisitions.


Group financial performance; (Source: Company reports)
 
Steadfast continued to build its international footprint in FY17 with 38 Steadfast Network brokers in New Zealand delivering record GWP of NZ$330m (up 7%) for the year. In Asia, SDF has been initially targeting the Singapore market with nine brokers joining the Network in the year and first equity investment being made in a Singapore-based broker in July 2017. For FY18, SDF expects underlying EBITA of $155 million - $165 million and underlying NPAT of between $70 million - $75 million. The stock has moved up 18.2% in the past one year, owing to solid performance despite low participation and challenging premium rates in the industry. The stock is up over 3.5% on August 31, 2017. We maintain our “Hold” recommendation on the stock at the current price of $ 2.69

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