Stocks’ Details
 

Challenger Limited

CGF’s AUM Increased By 1% To $81.8 Bn In FY19:Challenger Limited (ASX: CGF) is an investment manager and the largest annuity provider in Australia. It is also expanding into the international markets, and besides Australia, it has offices in London, New York, Stockholm and Tokyo. Today on August 13, 2019, CGF published its FY19 annual report where it highlighted that the Group’s assets under management increased by 1% to $81.8 bn. Its normalised net profit before tax increased by $1 Mn to $548 Mn whereas its normalised net profit after tax decreased by $10 Mn to $396 Mn.The company reported a strong capital position with $1.5 billion of excess regulatory capital and Group cash. The Board of Directors declared (fully franked) full year dividend of 35.5 cents per share with record date and payment date on September 2, 2019 and September 25, 2019, respectively.

The company has continued to attract solid retail inflows in both Funds Management and Life, despite retail flows across the sector hitting record lows last year.In its life business, domestic sales were marginally down, with lower sales from major hubs offset by stronger sales by independent financial advisers.


CGF’s Key Financial Metrics (Source: Company Reports)

What to expect:While FY19 performance has been impacted by disruption across the Australian wealth industry, the business is in good shape to navigate the current operating environment and well-positioned to capture opportunities as they emerge. Investment in a range of new distribution, product and marketing growth initiatives in FY20 will support deeper integration with the advice process and build bottom up customer demand for Challenger annuities.In FY20, challenging operating conditions are expected to persist for domestic sales and is targeting normalised net profit before tax between $500 million and $550 million. This reflects $23 million in earnings impact due to a lower equities normalised growth assumption and investment in a range of initiatives of up to $15 million to drive future growth.

Stock Recommendation:Challenger Limited’s share is presently trading towards its 52-week low level of $6.220, indicating a decent opportunity for accumulation. Its gross margin for FY19 stood at 74.1%, better than the industry median of 67.2%. Its debt to equity ratio for FY19 stood at 1.97x, lower than the industry median of 2.12x, which implies the company is less leveraged as compared to its peer group. On the valuation front, its Price to Cash Flow and Price to Book Value for TTM stand at 11.9x and 1.1x, lower than the industry median of 13.7x and 1.2x, respectively, indicating undervalued position at the current juncture. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $6.660 per share (up 2.462% on August 13, 2019).
 

Woolworths Group Limited

Endeavour Drinks and ALH Group Merger Updates:Woolworths Group Limited (ASX: WOW) operates in the Australian Food, Endeavour Drinks, New Zealand Food, Big W, Hotels and Petrol. The company recently announced that it has entered into an agreement to merge its Endeavour Drinks division with Australian Leisure and Hospitality Group (ALH) to be referred to as Endeavour Group Limited, and a future intention to separate that combined entity from WOW by demerger or other alternative transaction.This merger is expected to complete in the second half of calendar year 2019, subject to necessary approvals and consents. The separation will allow Woolworths Group to benefit from a simplified organisational structure, a greater focus on its core food and everyday needs markets and opportunities to continue to build out the Woolworths Group retail ecosystem.

3Q FY 2019 Performance: As per the recently released sales results for third quarter of FY19, the momentum (in-terms of sales) has improved across the segments with Australian Food comparable sales growth of 4.2% (Easter-adjusted) was a highlight, after a challenging first half. Apart from the positive transaction and item growth, lower deflation and settled weather also supported the overall healthy sales numbers. After slower sales growth in 1H FY19, Endeavour Drinks’ sales improved in Q3 FY19 with Easter-adjusted comparable growth of 5.9%. 

 

Third Quarter Sales Result Data (Source: Company Reports)

What to expect:Going forward, the management expects the market to remain challenging for Australian Food, which includes ongoing input cost pressures. The company will remain focused on opportunities to simplify the businesses to improve productivity without impacting the experience for customers.

Stock Recommendation:The company’s EBITDA margin and net margin for H1FY19 stood at 6.7% and 3.1%, better than the industry median of 4.8% and 1.7%, respectively, implying decent fundamentals of the company. Its ROE for H1FY19 stood at 8.6%, better than the industry median of 5.8%. Currently, the stock is trading closer to its 52-week higher levels of $35.90 with PE multiple of 26.91x. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $35.880 per share (up 0.673% on August 13, 2019).
 

Tribune Resources Limited

TBR Reported Cash Balance Of $59.24 Mn At The End Of June Quarter:Tribune Resources Limited (ASX: TBR) is involved in the exploration, development and production activities at the Group’s East Kundana Joint Venture tenements. In a recent update about East Kundana Joint Venture (EKJV), it is highlighted that the Mineral Resource and Ore Reserve Statement has been prepared and reported to compile with the Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves. The total mineral resources defined within the EKJV tenements increased by 123,000 ounces to a total of 11.27 million tonnes at 6.0 gpt gold for 2.19 million ounces of gold.

June ’19 Quarter Key Highlights:TBR’s net cash outflow from the operating activities for the period was reported at $29.06 Mn. Its net cash outflow from the investing activities for the period was reported at $1.02 Mn. The following picture provides an idea of the net cash used in operating activities:


June ’19 Quarter Operating Cash Flow Statement (Source: Company Reports)

What to expect:The progress at the Raleigh Underground Mine and Rubicon Underground Mine under the East Kundana Joint Venture is expected to help the company in delivering a sustainable return for its customers and shareholders in the coming times.

Stock Recommendation:The company’s gross margin, EBITDA margin and net margin for H1FY19 stood at 52.1%, 41.8% and 24.2%, better than the industry median of 42.6%, 35.8%% and 13.3%, respectively, implying decent fundamentals of the company. Its ROE for H1FY19 stood at 22.6%, better than the industry median of 6.8%, which implies the company generated a higher return for its shareholders than its peer group. Its current ratio for H1FY19 stood at 3.49x, better than the industry median of 1.88x, which implies the company is in a better position to address its short-term obligations. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $8.090 (down 1.582% on August 13, 2019).

 
Comparative Price Chart (Source: Thomson Reuters) 

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