Whitehaven Coal Limited

Rio Tinto sells Hail Creek and Valeria to Glencore:Whitehaven Coal Ltd.’s (ASX: WHC) stock surged 8.8% on March 21, 2018, after Rio Tinto Limited signed a binding agreement with Glencore for the sale of its entire interests in the Hail Creek coal mine and the Valeria coal development project in Queensland for $1.7 billion. The deal is expected to be completed in the second half of 2018. WHC was interested in buying some of Rio Tinto’s assets and Hail Creek and was bidder to these assets. WHC was considering the assets to be highly accretive to their earnings, but the market was against the transaction and felt the debt-funded deal would be negative for WHC. Therefore, the market has reacted positively for the WHC stock after the announcement of deal by Rio Tinto. Meanwhile, WHC stock is trading at higher levels despite falling 4.75% in three months as on March 20, 2018. In the December quarter, the coal production at Narrabri was affected and WHC has reduced the saleable coal production guidance for FY 18. Looking at the scenario, we give an “Expensive” recommendation on the stock at the current price of $4.58
 

Nufarm Limited

First half underlying EBIT in line with guidance:Nufarm Ltd.’s (ASX: NUF) stock rose 5.4% on March 21, 2018 after the company announced the 1H 2018 results ending 31st January 2018. NUF in 1H 2018 has delivered 7.4% growth in the group revenues (10% in constant currency) to $1.46 billion, though there was little to no growth in the overall industry during the period. The growth in revenue in 1H 2018 is driven by sales growth in North America, Europe, Asia and in the company’s seeds business. Further, the revenues were generally in line with the prior period in Australia/New Zealand but were lower in Latin America. Moreover, the 1H 2018 earnings were impacted by production interruptions due to the planned upgrade of its Laverton manufacturing plant and challenging operating conditions in Brazil. The underlying earnings before interest, tax and amortisation (EBITDA) fell 4% on the first half of last year, to $123.2 million and underlying earnings before interest and tax (EBIT) fell 11.8% to $75.0 million, in line with the company’s guidance. Additionally, for the full year 2018, NUF is expecting the underlying EBIT growth of between 5% and 10% on the prior year. Meanwhile, NUF stock has fallen 4.95% in three months as on March 20, 2018 and is trading at a high P/E relative to peers. This in conjunction with the half year result (40% fall in first half net profit) makes us believe that the stock is “Expensive” at the current price of $8.71
 

1H 18 Financial Performance (Source: Company Reports)
 

Synlait Milk Limited

Strong NPAT growth in 1H 2018: Synlait Milk Ltd.’s (ASX: SM1) stock surged 14.6% on March 21, 2018 after the company reported for 1H 2018 net profit after tax (NPAT) of NZ$40.7 million compared to NZ$10.6 million for the same period last year. The growth in earnings is driven by increasing canned infant formulas, as well as improved margins and earlier sales of the ingredients products. The infant formula capacity has almost tripled from the same period last year and is up 36% on the second half of last year. However, the 1H 2018 performance included some one-time gains, which are not expected to be witnessed in the second half of 2018. SM1 has also benefitted from its relationship with the a2 Milk Company. However, SM1 expects the second half of 2018 to be not as strong as 1H 2018, while there will be overall strong earnings growth for the full year. Meanwhile, SM1 stock has risen 17.98% in three months as on March 20, 2018 and is trading at a high level. Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $8.72
 

Second Half Canned Infant Formula Sales Forecast (Source: Company Reports)

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