Stocks’ Details
 

Afterpay Touch Group Limited (ASX: APT)

New market opportunities: After the expansion in New Zealand, APT has continued to investigate to expand the market penetration for its leading product and has been working to develop internal capabilities and resources to ensure the Company’s ability to innovate and grow in its established markets. The Top Management is investigating opportunities to introduce AfterPay in the United States Market, but this process was earlier at a preliminary stage. With this intent, APT has now entered into a strategic relationship and into a new share issuance transaction with Matrix Partners (Matrix). Matrix is said to collaborate with and support Afterpay to further investigate and execute a potential expansion into the United States. Over the past 12 months, Afterpay has significantly developed its local talent pool in relation to all facets of the business, and Matrix will now invest US$15m in APT via new share issuance at $6.51 per share but it is subject to multi-year lock-up arrangement. Afterpay also performed really well and generated quarterly sales of $551m for Q2 18 against $367m of sales in Q1 18. Further, the number of merchants on board increased from 8700 at the end of Q1 FY 18 to 11,500 at the end of Q2 FY18. Its focus remains on customer satisfaction and its proprietary transaction engine continues to perform well. APT also aims to maintain the Net Transaction Loss for H1 FY 18 to be less than 0.8% of the underlying sales while Net Transaction Margin for H1 FY 18 is expected to be of the order that is around 2.25% of the underlying sales, which is broadly in line with FY17 performance after allowing for the finance cost. A number of new major retailer groups joined the Afterpay platform during the course of Q2 FY18 and are expected to make a more meaningful contribution to H2 FY 18 sales. A number of post-merger restructuring projects still remain in process and are expected to have an impact on the combined group performance in future periods. Afterpay expects a consolidated revenue for the six-month period to 31 December 2017 to be approximately around $60m (including other income) and EBTDA is expected to be in the range of $11m-$12m. At the back of the positive catalysts, the stock price increased by 146.6% in the past six months and also by 17.96% in the past one week (as at January 16, 2018). We give a “Hold” on the stock at the current price of $7.80
 

Transaction Margin Summary (Source: Company Reports)
 

Lendlease Group (ASX: LLC)

Strong Risk and governance frameworks:Recently, Lendlease has joined hands with the Canada Pension Plan Investment Board (CPPIB) and launched a major build-to-rent investment partnership in the UK valued at an initial amount of £1.5 billion ($2.6 billion). This takes the advantage of the US and the UK tax regime for developers of build-to-rent properties, which are more favourable than Australia. LLC believes that this type of asset class will support growth for its investment platform. Overall, LLC is committed to exceptional corporate governance policies and practices which are fundamental to the long-term success and prosperity of Lendlease. As far as FY17 financial performance is concerned, its Profit after tax was up by 9% and earnings per stapled security were up by 8% with growth in distribution per security of 10%. Its Return on Equity was 12.9% which was towards the upper end of its 10-14% target range. It reported two fatalities during FY 17, one was reported in Australia and another one in New York. The percentage of operations without a critical incident in the last 12 months increased from 88% of FY16 to 90% of FY17. It has been recognised as an international leader by GRESB and has increased its residential apartments while acquiring 90,000 square metres of office leasing in Australia. It is well positioned for its future success and plans to diversify its capital and earnings through growth in its international operations. There are 2 new projects in two new cities which were secured in FY17, one in Milan and another one in San Francisco.

LLC had delivered strong financial results in FY17 as the Profits after Tax were $759 million which were up from $698 million of the previous year. Securityholders received a distribution of 66 cents per security for FY17. The pay-out ratio for the year was 51%, which was within the range of 40 to 60% of earnings as expected. 2018 has also been a strong year so far as LLC had cash and cash equivalent of more than $1.2 billion and a gearing of 5%. Looking at the overall performance and growth opportunities generated by the integrated business model, we give a “Hold” recommendation on the stock at the current price of $15.44
 

Global Trends influencing LLC’s Strategy (Source: Company Reports)
 

The A2 Milk Company Limited (ASX: A2M)

Region-wise enhancement of Product Opportunities: The a2 Milk Company is expanding its a2 Milk brand across the North-East Region of the United States from January 2018. Up till now, the group was focussing on achieving its sales targets; and with the sales touching a sustainable level in California, the South-East Region, the group is aiming for further expansion on a region by region basis. The aforementioned brand has been accepted for ranging into a number of major retailers like Ahold, Shoprite, Safeway, H-Mart and into Fairway Foods. By this distribution, A2M is growing its presence in the natural channels through Wholefoods, Sprouts and by The Fresh Market, and this will help increase the ranging from 3600 stores to 5000 retail stores across US. The group is investigating into new product opportunities for the US market to further capitalise on the growing brand awareness and on the expanded distribution.Nonetheless, the group expects to witness higher marketing expenses for the above initiative, that too skewed to 2H 18. Meanwhile, A2M stock moved up by 96.8% in the past six months as on January 16, 2018, and still looks “Expensive” at the current price of $7.60
 

Evolution to a Global Leader (Source: Company Reports)

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