Stocks’ Details

Treasury Wine Estates Limited

Strong Organic Growth: Treasury Wine Estates Limited (ASX: TWE) is into consumer staples sector and engaged in sourcing and grape growing; wine production and marketing; and selling and distribution.

1HFY19 Financial Performance (Source: Company Reports)
 
Net Sales Revenue (NSR) increased by 16.4% to $1,507.7 million in 1HFY19 on a reported currency basis and by 12.7% on a constant currency basis, which represents the strongest organic growth in the company’s history, primarily driven by 1.4% increase in volume, portfolio premiumisation and price realisation on Luxury and Masstige wine. The company reported EBITS of $338.3 million, up 19.4% on a reported currency basis as compared to prior corresponding of $283.3 million in 1HFY18 on the back of decent revenue growth during the period. The ROCE of the company was up by 0.7 ppts to 13.3% in 1HFY19, indicating decent returns while investing in growth. The investment grade credit profile of the company was maintained with Interest Coverage ratio of 13.9x and Net Debt to EBITDAS ratio of 2.0x.

Strong EBITS guidance: The company reiterates guidance on reported EBITS growth of ~25% in FY19, with a balanced earnings outcome across the fiscal year to reflect the even phasing of Luxury shipments between 1H19 and 2H19. TWE expects growth in FY20 reported EBITS in the range of approximately 15% to 20% which is broadly in line with consensus.

The stock has generated a YTD return of 2.66% and is currently trading at a PE multiple of 27.600x. Hence, consideringthe strong organic growth, decent EBITS guidance for FY19E and FY20E, strong credit profile, we give a “Buy” recommendation on the stock at the current market price of $14.900 (down 1.128% on June 17, 2019).
 

Coles Group Limited

Supermarket Sales Supported By ‘Fresh Stikeez’ Campaign: Coles Group Limited (ASX: COL) is a leading Australian retailer, with more than 2,500 retail outlets nationally.

 
Statutory Results for 1H FY19 (Source: Company Reports)
 
Turning on to the financials, the statutorysales revenue from continuing operations increased by 2.0% to $20,235 million, largely due to 3.1% growth in Supermarkets’ sales revenue. The EBIT from continuing operations decreased by $212 million or 27% to $567 million, mainly on the back of $146 million restructuring provision in Supermarkets, reduction in Express EBIT of $35 million and higher corporate costs associated with the demerger.

Company’s Guidance: The third quarter sales momentum of FY19 is broadly in line with the second quarter. The cost pressures from the new store enterprise bargaining agreement (EBA) along with energy & drought impacts on input costs are likely to continue going forward. The company hopes to pay the first dividend in September 2019 which seems to be the final dividend for the year ending 30 June 2019. This reflects earnings post demerger during the seven months. The target dividend pay-out ratio of 80-90% of earnings is payable in September 2019, as confirmed by the Board for the time frame from 28 November 2018 to 30 June 2019.

Based onstrong normalised cash realisation (141%) due to favourable seasonal working capital movements, robust balance sheet providing significant flexibility for long term growth and successful ‘Fresh Stikeez’ promotional campaign driving high customer engagement,we believe the company has decent prospects going forward. Hence, we givea “Buy” recommendation on the stock at the current market price of $12.770 (down 1.845% on 17 June 2019).
 

Westpac Banking Corporation

Sound Credit Quality: Westpac Banking Corporation (ASX: WBC) is engaged in the banking and financial services related activities.

The bank recently gave notice of the aggregated percentage of voting shares in the company, in respect of which its controlled entities have the power to control voting or disposal of in accordance with the terms of an exemption granted by the Australian Securities and Investments Commission pursuant to subsection 259C (2) of the Corporations Act 2001.


1HFY19 Results (Source: Company Reports)
 
Net profit for Westpac Banking Corporation for the first half of 2019 stood at A$3,173 million, a decrease of A$1,025 million or 24% as compared to 1HFY18. Net interest income decreased by A$15 million to A$8,263 million as compared to first half of 2018. Average interest-earning assets grew 4%, mostly from total loan growth but this was more than offset by a net interest margin decrease of 7 basis points to 2.09%.
 
The Common equity Tier 1 capital ratio stood at 10.64%, which is above APRA’s unquestionably strong benchmark. Net interest margin (NIM) was down by 12 bps as compared to the prior corresponding period due to provisions for customer refunds and higher short-term funding costs. The bank will pay an interim ordinary dividend on 24 June 2019.
 
What To Expect Going Forward: The housing prices are likely to remain soft with home building set to reduce through 2019 and into 2020. The system housing credit growth is expected to be slow to 3% in the current bank year and fall further next year to 2.5%. Although the second half will continue to be challenging, the bank believes that its service-led strategy will remain the best way to create value for shareholders.
 
The balance sheet of WBC remained healthy, with a strong common equity Tier 1 capital ratio in a low growth environment, allowing the company to absorb the significant impact of customer remediation provisions and the costs of the wealth reset. The liquidity & funding metrics of the bank has been at respectable levels with a sound credit quality of its loan book. Hence, considering the above-mentioned facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $27.980 per share (up 0.359% on 17 June 2019).
 

Comparative Price Chart (Source: Thomson Reuters)     

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