Acrow Formwork and Construction Services Limited

A Look at Q3 FY19: Acrow Formwork and Construction Services Limited (ASX: ACF) is a leading provider of formwork and scaffold hire. The market capitalisation of the company stood at ~A$55.02 Mn as on 9^th Aug 2019. Recently, the company with the help of a release dated 17^th July 2019 stated that it could confirmthat it is involved in discussions with Uni-Span Australia Pty Ltd in relation to a potential acquisition of the Uni-Span business. It added that the potential acquisition would be subject to agreeing on terms and the completion of due diligence. In another update, the company announced that Peter Andrew Lancken had made a change in his holdings by acquiring 170,000 fully paid ordinary shares at the consideration of $0.2894 per share. The company further provided an update on Q3 FY19 via a release dated 21^st May 2019, wherein it stated that it has witnessed a continued positive revenue mix change and importantly at an accelerated rate in the fiscal year to date.  In the quarter, the company won some large project in the commercial formwork sector in South East Queensland in the last recent months. The following picture provides a broader idea of the company’s earnings:


Earnings (Source: Company Reports)

What to Expect: The company is expecting EBITDA for 2H FY19 to slightly fall below than 1H FY19 as ACF accelerates the transition to more high quality civil and commercial formwork hire from low-quality scaffold residential hire. The acquisition of Natform continues to generaterevenue synergy wins in new markets and substantiates the cross-selling opportunities between Acrow and Natform. 

Stock Recommendation: The company reported a gross margin, EBITDA margin and operating margin of 54.3%, 15.6% and 11.6% in 1H FY19, respectively. The current ratio of the company stood at 1.28x in 1H FY19 against 2.40x in 1H FY18. Coming to stock performance, it generated the returns of -7.46% and -31.11% in the time span of one month and six months, respectively. Based on the foregoing, we have a watch view on the stock at the current market price of A$0.310 per share and suggest that investors should wait for a few more catalysts that may drive the stock. 
 

Commonwealth Bank of Australia

Stretched Valuations at Current Juncture: Commonwealth Bank of Australia (ASX: CBA) provides banking and financial services. Recently, the bank via a release dated 8^th August announced that Commonwealth Bank of Australia Equity Products Group is the Issuer of Instalment Warrants over ordinary shares in Rio Tinto. It added that Instalment Warrants would be adjusted as a consequenceof the special distribution which was recently announced by RIO. It was also mentioned in the release that RIO announced a fully franked special distribution of $0.885 per ordinary share on 2^nd Aug 2019. The shares were scheduled to be quoted ex-distribution on 8 August 2019 with a record date of 9 August 2019. CBA structured investments would apply the cash proceeds of the special distribution of $0.885, 100% franked dividend together with an interest refund, where applicable, to reduce the Loan Amount in respect of the RIO Instalment Warrants. The following picture provides an idea of the bank’s results in FY19:


Results Summary (Source: Company Reports)

Future Prospects: Commonwealth Bank of Australia anticipates that operating context will remain challenging as the bank adapts to heightened regulatory change, increasing competition and evolving customer preferences. Additionally, the bank happens to be well-placed to navigate the changing landscape with the backing of a resilient balance sheet, strong customer base and leading distribution and digital assets. Amidst challenging environments, most of the experts presume that the bank might cut its dividend in the upcoming years.

Stock Recommendation: The bank reported a CET1 ratio of 10.7% in FY19. CBA delivered cash return on equity of 12.5%, which can be considered at decent levels and might attract the attention of the shareholders. On the stock’s performance front, it produced returns of 5.48% and 6.27% in the time span of three months and six months, respectively. As per ASX, the stock is trading closer towards 52-week higher level of $83.990 with PE multiple of 15.48x. On the valuation front, its EV/Sales and P/BV multiple (on TTM basis) are trading at 5.7x and 2.0x, higher than the industry median of 3.2x and 1.4x, respectively. Hence, considering the aforesaid parameters coupled with premium valuations and current trading levels, we suggest investors to keep a close watch on the stock at the current market price of $79.420 per share (up 0.583% on 09 August 2019), and wait for better entry levels.

Afterpay Touch Group Limited

Robust Underlying Sales Performance: Afterpay Touch Group Limited (ASX: APT) is a multinational technology-driven payments company. In a recent update to the exchange, it was reported that The Goldman Sachs Group Inc ceased to be a substantial shareholder of the company.

The company’s subsidiary, Afterpay Pty Limited, received a notice from AUSTRAC in June 2019, for the appointment of an external auditor to audit the compliance related to Anti-Money Laundering/Counter Terrorism Financing program. As a result of the above requirement, the company’s Board has decided to defer the Share Purchase Plan announced on 11 June 2019, until the consideration of the final audit report by AUSTRAC appointed an external auditor. As per the recent update, Neil Jeans has been appointed as the auditors amongst the three specialist auditors nominated by Afterpay.

Business Update: Underlying sales during the 11 months to 31 May 2019 amounted to approximately $4.7 billion, up 143% in comparison to prior corresponding period. The company reported strong growth in the United States, with the acquisition of over 1.5 million active customers over 1 year of operations. The company has over 4.3 million customers transacting on its platform by the end of May. As at the end of May, the company has partnered with approximately 30,600 active merchants, up 32% on 31 December 2018.


Performance Summary (Source: Company Reports)

Stock Recommendation: The stock of the company generated returns of 69.02% over a period of 1 year. As per the recent business update, the company performed well in terms of sales during the 11 months period to 31 May 2019. Customer base recorded robust growth with an average per day addition of around 7,900 customers since 31 December 2018. The company has an EV/EBITDA multiple of 347.7x in comparison to a much lower industry median of 5.6x. EV/Sales multiple for the company is 25.6x, which is higher than the industry median of 2.1x. Based on the returns on the stock and stretched valuations, we give an “Expensive” recommendation on the stock at the current market price of $24.170, up 6.102% on 09 August 2019, owing to the press release of the company’s second biannual Afterpay Day in the US market for marketing purposes, which includes US active customer numbers, updated merchant numbers and references to merchant partners.  

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.