Stocks’ Details

Qantas Airways Limited

 Disciplined Capacity Management to Drive Growth: Qantas Airways Limited (ASX: QAN) has disclosed that they will be paying a fully franked dividend of AUD 0.12, the record date of which was March 5, 2019, and the payment date shall be March 28, 2019. For the 1H FY 2019, the company reported an underlying EBIT of $453 Mn up by 0.9% as in the same period of the previous year it was $449 million. This rise was witnessed on the back of efficient recovery of increased fuel cost, disciplined capacity management including the impact of increased pilot training, continued leadership in corporate market share & growing SME share.
 
What to Expect From QAN: As regards the FY19 group outlook, fuel cost is expected to be around $3.90bn. In FY 2019, the net depreciation and non-cancellable aircraft operating lease rentals expected to be ~$120m higher than FY18. The transformation benefits in terms of cost, fuel efficiency and net revenue are expected to be at least $400m in FY 2019. Also, the management feels that the company retains significant flexibility to respond to market conditions.
 

QAN’s Performance Highlights (In %) (Source: Company Reports)
 
On the financial metrics front, the company is trading at an EV/EBITDA multiple of 3.7x, while the industry median (passenger transportation services) is 4.8x which reflects that stock is slightly undervalued.Thus, considering the rise in unit revenues, recent capacity management drive and a decent EV/EBITDA multiple, we maintain our “Buy” recommendation on the stock at the current market price of $5.660 per share (down 0.527% on 8 March 2019).
 

Wesfarmers Limited

Strong Financial position:Wesfarmers Limited (ASX: WES) has recently disclosed that a briefing and operational site tour of the Bunnings business will be held on Wednesday 20 March 2019 at 10:00 am AEDT.  The Board has decided to declare a fully franked dividend of AUD 2.0, the record date of which was February 27, 2019 and the payment date shall be April 10, 2019.
 
In the half-year ended December 2018, the company’s EBIT excluding significant items derived from the Group’s continuing operations increased by 9.5 per cent compared to the prior corresponding period. This growth was underpinned by continued growth in Bunnings, Officeworks and the Chemicals, Energy and Fertilisers (WesCEF) business.
The company has maintained a very strong balance sheet. Its net financial debt at the end of the period stood at $324 million reflecting a decline of $3,256 million below the balance at 30 June 2018. This was possible on the back of receipt of proceeds from portfolio management activity and ongoing strong cash generation in the group’s operating businesses.
 

WES’s Financial highlights for the HY19 (Source: Company Reports)
 
What to Expect From WES: As regards the outlook, the management believes that despite cautious trading conditions, businesses within the portfolio are well positioned to continue to deliver long term growth in shareholder value. The company has a continued focus upon leveraging data & digital capabilities, developing great talent & teams, & driving entrepreneurial initiative. The company’s management feels that the balance sheet will remain strong & the Group will be able to take advantage of growth opportunities to create value for shareholders over the long term.
 
However, coming to the past performance, the stock rose 14.51% in the past three months while, in the time frame of previous one month, the stock rose 6.60%. As a result, the company’s stock is trading slightly towards a higher level. Thus, it can be considered that the company’s stock has discounted all the key growth catalysts in its stock price. Also, its P/B ratio stood at 3.5x while the industry median (diversified retail) stood at 1.5x reflecting overvaluation. Considering the above factors, our view is that the company’s stock is “Expensive” at the current market price of A$34.490 per share.
 

Rio Tinto Limited

 A Look at Recent Update: Rio Tinto Limited (ASX: RIO) has recently notified the London Stock Exchange (LSE) of PDMR/KMP interests in securities of Rio Tinto plc, in compliance with the EU Market Abuse Regulation. The PSP (or Performance Share Plan) happens to be a performance based share plan which gives participants the conditional right (known as a Performance Share Award or PSA) to get Rio Tinto plc or Rio Tinto Limited shares, subject to performance conditions being met, under the terms of the Rio Tinto plc PSP and Rio Tinto Limited PSP respectively. The 2014 PSA is subject to two performance conditions. Two thirds of the award is subject to Total Shareholder Return (TSR) performance and the remaining third to an Earnings based measure of Relative EBIT Margin.

RIO’s Performance Share Award Details (Source: Company Reports)
 
For FY 2018, the company reported an EBITDA of $18.1 billion while its EBITDA margin stood at 42%. This margin was maintained on account of the focus on mine-to market productivity and value over volume. The FY 2018 EBITDA has fallen from previous year EBITDA of $18.6 billion on the back of higher volumes of iron ore and copper and higher prices for aluminium and copper being offset by lower iron ore prices, the coal divestments, and a rise in energy and raw material costs.
 
What to Expect From RIO: As regards FY19 group outlook, the management has a view that there would be considerable geopolitical uncertainties, particularly in relation to trade, and the company is expecting a year of volatile commodity prices. But with some of the best people in the industry, world-class assets, and the balance sheet strength to invest throughout the cycle, the firm is in a strong position to continue to create long-term, sustainable value for its shareholders and for society.
 
However, the share price of the company has risen 30.49% in the past three months as at 08 March 2019 and is trading slightly towards the 52-week higher level. Thus, considering the current trading level and aforesaid facts, we maintain our “Expensive” recommendation on the stock at the current market price of A$90.60 per share (down 1.575% on 8 March 2019).
 

Stock Price Comparative Chart (Source: Thomson Reuters)   
 

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