Stocks’ Details

WorleyParsons Limited

Awarded A New Contract:WorleyParsons Limited (ASX: WOR) provides professional services to the energy, resource, and complex process industries. Recently, the company, via a release dated 31^st July 2019 announced that BP (BP Oil New Zealand Limited) has awarded a contract to Worley for hook-up and commissioning integration services for BP’s Mad Dog 2 project as well as the Argos deep-water platform in the Gulf of Mexico. Under the terms of the contract, WOR would be preparing for the arrival of the floating production unit in the Gulf of Mexico and complete final systems commissioning in Texas, offshore hook-up at the Mad Dog field and handover of the platform to BP’s Global Operations Organization.

In another update, the company stated that its core debt facility has been successfully refinanced in February 2019 and the new syndicated facility consists of a US$500 Mn multi-currency revolving credit facility and US$800 Mn term loans maturing in 2024.


Debt Facility Maturity Profile (Source: Company Reports)

What to Expect: The company’s focus revolves around integrating the operations and delivering cost and revenue synergies, which are aligned with the current strategic priorities.The company has increased cost synergy target to A$150 Mn from A$130 Mn. The company is also focusing on the development of a transformational strategy for the new Worley that would enhance its leadership position in chemicals and petrochemicals and capture the opportunities presented by the global energy transition.

Stock Recommendation:The company reported gross margin and EBITDA margin of 8.0% and 6.9% in 1H FY19, reflecting the growth of 0.8% and 0.1%, respectively on a YoY basis. The current ratio of the company stood at 3.31x in 1H FY19 in comparison to 1.29x in 1H FY18. This implies that WOR is able to meet its short-term obligations. Additionally, because of improved liquidity levels, it can be said that the company would be able to make deployments towards the growth objectives. Hence, considering the above-stated facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$16.070 per share (down 0.495% on 1^st August 2019).
 

Over The Wire Holdings Limited

Quarterly Rebalance of S&P/ASX Indices:Over The Wire Holdings Limited (ASX: OTW) is into the provisioning of telecommunications, cloud and IT solutions to business clients. The market capitalisation of the company stood at ~A$245.11 Mn as on 1st August 2019.

In the month of March 2019, S&P Dow Jones Indices announced its quarterly rebalance March 2019 for the S&P/ASX Indices. OTW was added to All Ordinaries, effective at the open on March 18, 2019. The company published its first half results presentation, wherein it witnessed a rise of 43%, 53%, 56% and 45% in revenue, EBITDA, NPATA and NPAT, respectively in 1H FY19.


Financial Performance (Source: Company Reports)

Future Strategies:The company’s growth strategy revolves aroundgrowing organically as well as by acquisitions. It is continuing to target more than 20% organic growth each year. The target would be achieved via continued geographic expansion into New South Wales and VIC and Leveraging Access Digital’s strong presence in South Australia. Additionally, the company stated that the acquisitions would be considered where there would be a compelling strategic fit.

Stock Recommendation:  The gross margin of the company stood at 90.5% in 1H FY19 against the industry median of 73.6%. It posted a return on equity of 7.6% in 1H FY19 against the industry median of 7.7%. Over The Wire Holdings Limited reported a current ratio of 0.78x, reflecting YoY growth of 18.0%, which represents that the company has improved its position to address its short-term obligations. With respect to the stock’s past performance, it provided returns -4.04% and -6.13% in the time span of one month and three months, respectively. Hence, considering the above-stated facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$4.740 per share (down 0.211% on 1^st August 2019).

Nufarm Limited

Placement of Preference Securities:Nufarm Limited (ASX: NUF) is a marketer and manufacturer of chemicals. The market capitalisation of the company stood at ~A$1.85 Bn as on 1^st August 2019. Recently, the company, via a release stated that it has undertaken the placement of preference securities amounting to $97.5 million to its existing shareholder and Sumitomo Chemical Company Limited (Strategic business partner) via Nufarm Investment Pty Ltd, which is a wholly owned subsidiary of Nufarm Limited.

The company further stated that the securities might be exchanged for Nufarm shares at Sumitomo’s election any time after 24 months at an exchange price of A$5.85 per Nufarm share. NUF might purchase the preference securities (or PS) from Sumitomo at any quarter after the issue of the securities for the full principal amount outstanding at that time and the amount of any unpaid distributions. Adding to that, it was mentioned that a quarterly distribution at a fixed rate of 6% is payable to Sumitomo for the first 12 months and 10% thereafter. The following picture provides an overview of the sales:


Sales Performance (Source: Company Reports)

Future Aspects:Nufarm Limited anticipates underlying EBITDA (earnings before interest, tax, depreciation and amortization) of approximately $420 Mn for the financial year 2019. However, it is subject to finalisation of the accounts and audit. Adding to that, the company is anticipating significant items (before tax) amounting to around $50 million that would be excluded from underlying EBITDA in FY19.

Stock Recommendation:  The current ratio of the company stood at 1.80x at the end of January 2019 in comparison to the industry median of 1.54x. On the stock’s performance front, it generated returns of 18.45% and -1.01% in the time period of one month and three months, respectively. As per the Australian Securities and Investments Commission (ASIC) report, the short position for NUF’s share was reported at ~17.0% as on July 26, 2019. Hence, considering the above-stated facts and current trading levels, we maintain our “Hold” recommendation on the stock at the current market price of A$5.030 per share (up 3.074% on 1^st August 2019).
 
 
 

Adelaide Brighton Limited

A Quick Look at Investor Presentation:Adelaide Brighton Limited (ASX: ABC) is a mid-cap company with the market capitalisation of ~A$2.31 Bn as on 1^st August 2019. Recently, the S&P Dow Jones Indices has announced changes in S&P/ASX indices, wherein Adelaide Brighton Limited has been removed from S&P/ASX 100 Index,effective at the open onJune 24, 2019. In the investor presentation, the company stated that its consistent long-term strategy is supporting growth in shareholder value. The following picture provides an overview of the company’s performance in FY
18:

Operating Performance (Source: Company Reports)

Guidance: The company anticipates underlying NPAT ex-property to be in the ambit of $120 Mn -130 Mn for the year ended 31 December 2019. The company stated its major priorities, i.e., maintaining market share, strengthening its balance sheet, prudently manage capital expenditure, contain costs and right size the business in order to improve performance, and pursue future growth and investment opportunities.

Stock Recommendation:  The gross margin of the company stood at 18.7% in FY18 in comparison to the industry median of 38.6%. It posted a debt to equity ratio of 0.42x for the same period against the industry median of 0.41x. As per ASX, the stock of Adelaide Brighton Limited is trading closer to 52-week lower levels, and it has fallen 14.90% in the span of the previous one month. Based on the foregoing, we advise the investors to avoid the stock at the current market price of A$3.330 per share (down 5.932% on 1^st August 2019). 
 

JB Hi-Fi Limited

Key Takeaways from Result Presentation:JB Hi-Fi Limited (ASX: JBH) is a retailer of home consumer products with major focus on consumer electronics, whitegoods and appliances, etc. The market capitalisation of the company stood at ~A$3.46 Bn as on 1^st August 2019. Recently, JB Hi-Fi Limited via a release made an announcement that UBS Group AG and its related bodies corporate ceased to be substantial holder in the company. The company stated that JB HI-FI New Zealand witnessed total sales growth of -1.2% and comparable sales growth of 4.6% in Q3 FY19 andThe Good Guys reported total sales growth of 2.2% and comparable sales growth of 1.0% in the same time period. However, in 1H FY19, the company reported total sales growth of 4.2%.

Group Performance (Source: Company Reports)
Future Aspects:The company is expecting group net profit after tax to be in vicinity of $237 Mn to $245 Mn. It is anticipating group sales to be around $7.1 Bn. It is establishing a group merchandise function led by Cameron Trainor as Managing Director Group Merchandise. With respect to group supply chain strategy, it is focused on enabling a better customer experience delivered through a cost effective, fit for purpose supply chain solution.
Stock Recommendation:The gross margin of the company stood at 21.5% in 1H FY19 against the industry median of 25.1%. The company delivered return on equity of 16.0% in 1H FY19 in comparison to the industry median of 8.5%. With respect to the stock’s past performance, it had provided returns of 17.26% and 19.03% in the time span of one month and three months, respectively. As per ASX, the stock of JBH is trading towards the 52-week higher level. As per ASIC report dated 26 July 2019, 14.12% has been reported as short positions as a percentage of total product in issue. Hence, considering the above-stated facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of A$30.300 per share (up 0.698% on 1^st August 2019).

 
Comparative Price Chart (Source: Thomson Reuters) 

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