Rural Funds Group

RFF Details

Decent Fundamentals: Rural Funds Group (ASX: RFF) leases agricultural properties and equipment. Its revenues are derived from leasing almond orchards, macadamia orchards, poultry property and infrastructure, vineyards, cattle properties, a cotton property, agricultural plant and equipment, cattle and water rights.

H1FY19 Financial Performance: Property Revenue increased by 27% pcp to $30.7 Mn, due to recent transactions, development capital expenditure and leased indexation. Total comprehensive income and earnings per unit increased by ~47% pcp to $24.62 Mn and ~17.5% pcp to 7.73 cents respectively, predominantly due to additional property revenue and an independent revaluation of the Kerarbury almond orchard.

The distribution per unit increased by 4% pcp to 5.22 cents.As per the capital management, limit for the term debt facility was increased, and tenor extended to include expiries in two tranches i.e. $200m three-year facility with expiration in November 2021 (FY22) and $100m five-year facility with expiration in November 2023 (FY24).


H1FY19 P&L Statement (Source: Company Reports)

What to Expect: Rural Funds Management Ltd confirms its FY19 forecast for Adjusted funds from operations at 13.2 cpu and distributions of 10.43 cpu, an increase of 4% as compared to FY18.Distribution forecast for FY20 has been estimated at 10.85 cpu, an increase of 4% which is expected to in-line with RFM’s DPU growth target.

Stock Recommendation: RFF’s gross margin and EBITDA Margin for H1FY19 stood at 97.5%, and 82.9% which are better than the industry median of 73.3%, and 61.3% respectively, implying decent fundamentals. Moreover, its EV/Sales and EV/EBITDA multiple for TTM stand at 15.2x and 18.2x which are lower than the industry median of 15.8x and 19.3x, indicating a decent position at the current level.Its annual dividend yield stood at 4.53%. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $2.280 per share.
 

Challenger Limited

CGF Details

Decent Outlook: Challenger Limited (ASX: CGF) operates into two segments i.e. Life and Funds Management. The company recently announced that CGF and its entities increased its holdings in Fleetwood Corporation Limited from 5.01% to 6.21%, effective from May 21, 2019. Moreover, it became a substantial holder in Life360, Inc. with a voting power of 5.70%, effective from May 21, 2019. In another update, CGF expanded its strategic relationship with MS&AD in order to diversify and increase its access to the Japanese market.

H1FY19 Financial Performance: The total assets under management increased by 2% pcp to $78.4 Bn. Its normalised net profit before tax decreased by 2% pcp to $270 million, and normalised net profit after tax decreased by 4% pcp to $200 million. The Board of Directors declared an interim dividend of 17.5 cps and it kept unchanged as compared to 1H FY18 and supported by CGF’s strong capital position.


1HFY19 Key Financial Metrics (Source: Company Reports)

What to Expect: The Company expects FY19 normalised net profit before tax (NPAT) to be between $545 million and $565 million. It can be attributed to the number of factors such as lower than expected 1H19 earnings and flow on effects in 2H19, and impact from a reduction in capital intensity across Life’s investment portfolio.

It is expected that CGF will not be able to reach its 18% normalised return on equity before tax target in FY19 due to lower earnings. It continues to target a dividend pay-out ratio in the range of 45% to 50% of normalised net profit after tax.
Stock Recommendation: Its gross margin for H1FY19 stands at 87.6% than the industry median of 74.1%, which implies that the company is in a better position to address its operating expenses. Moreover, its Price to book ratio & Price to cash flow multiple for TTM stands at 1.5x and 11.6x which are lower than the industry median of 2.2x and 12.3x, respectively. Its dividend yield stands at 4.26%.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $8.250 (down 1.079% on May 23, 2019).
 

Vicinity Centres

VCX Details

Undervalued Position at the Current Level: Real Estate company, Vicinity Centres (ASX: VCX) in its March quarter update highlighted that its specialty store and mini majors moving annual turnover has reported a growth of 3.3%. Its specialty store moving annual turnover was reported at $10,939 per sqm which is an increase of 10.3% over the past year.

Its Four solar projects got completed and a further 10 underway as part of Vicinity’s $73 million solar investment. During the period, VCX acquired 91 million securities for $234 million at a 13.4% discount to December 2018 net tangible assets per security.

H1FY19 Financial Performance: Its net property income increased by 0.5% pcp to $450 Mn. Its statutory net profit after tax (NPAT) was reported at $235.3 Mn. Funds from operations (FFO) per share was reported at 9.06 cps. The FY19 interim distribution was 7.95 cents per security, reflecting an adjusted FFO pay-out ratio of 95.2%. It was paid on 4 March 2019 to its securityholders.


Key Financial Metrics H1FY19 (Source: Company Reports)

What To Expect: It is expected that the $430 million major redevelopment of The Glen continues with stage four on track to open in August 2019, with a new format David Jones, 60 specialty stores and alfresco dining. Construction of more than 550 apartments on site, by third party Golden Age, will commence in May 2019, with expected completion in 2021.

The Company has significant retail development projects planned for Bankstown Central, Box Hill Central, Chadstone, Chatswood Chase Sydney, DFOs, Emporium Melbourne and Victoria Gardens Shopping Centre. FY19 funds from operations (FFO) per security guidance remains 18.0 to 18.2 cents and the distribution pay-out ratio are expected to be the upper end of the target range of 95% to 100% of adjusted FFO.

Stock Recommendation: Its EBITDA margin for H1FY19 stands at 61.4% which is marginal above than the industry median of 61.3%. Moreover, its Price to book ratio & Price to cash flow multiple for TTM stand at 0.8x and 14.5x which are lower than the industry median of 1.1x and 18.1x, respectively, indicating an undervalued position at the current juncture. Its dividend yield stands at 6.14%.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $2.670 (up 1.521% on May 23, 2019).

 
Comparative Price Chart (Source: Thomson Reuters)   

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.