Stocks’ Details

CSL Limited

Ms Anjana Narain Appointed as Executive VP and GM of CSL’s Seqirus Business: CSL Limited (ASX: CSL) has an engagement in the research, development, manufacture, marketing, and distribution of biopharmaceutical and allied products. The company recently named Ms Anjana Narain, a seasoned leader in vaccines and biopharmaceuticals, as Executive Vice President and General Manager of its Seqirus business, one of the world’s largest influenza vaccines providers, effective from August 1, 2019.She has extensive global experience, living and working across three continents, including North America, Europe, and Asia. She brings 27 years of experience with major pharmaceutical companies such as GSK, Merck, and Bayer.

H1FY19 (ended on December 31, 2018) Financial Performance: Group’s total revenue for the period was reported at US$4,505 Mn, which is an increase of 11% as compared to the previous corresponding period. The net profit after tax for the period increased by 10% on pcp to US$1,161 Mn.


H1FY19 Income Statement (Source: Company Reports)

What to expect: As per the company reports, CSL advised that it would transition to its own Good Supply Practice (GSP) License in China in FY20. This license would enable CSL to own and sell products in the domestic Chinese market.The transition to CSL’s own GSP distributor will create a ‘one-off’ financial effect in FY20.  It is expected that albumin sales would be in the range of around $340 - $370 million. A more modest impact is expected on the cashflow as the Company continues to collect outstanding receivables from existing distributors.In addition, the cash collection cycle is expected to improve under the new model.

Stock Recommendation: Its gross margin, EBITDA margin and net margin for H1FY19 stood at 58.3%, 39.5% and 25.7%, respectively, which can be considered at respectable levels. It is presently trading close to its 52 weeks high level of $232.690, and with Relative Strength Index (14 days) indicating overbought position, the probability for correction increases. Hence, considering the aforesaid facts and current trading level, we give an “Expensive” recommendation on the stock at the current market price of $226.690 (down 0.575% on July 26, 2019).

Sonic Healthcare Limited

Overvalued Position at Current Juncture: Sonic Healthcare Limited (ASX: SHL) has an engagement in providing various medical diagnostic services, and administration services and facilities to medical practitioners. The company recently announced the issuance of new 68,000 Ordinary shares, where 33,000 shares will be issued at $27.34 per share on the exercise of options with an exercise price of $19.78 per option, and rest 35,000 shares will be issued on the exercise of options with an exercise price of $12.57 per option. In another update, SHL informed the market that it has sold its 85% shareholding in GLP Systems GmbH (“GLP”; headquartered in Hamburg, Germany) to Abbott (headquartered in Abbott Park, IL, United States). Abbott has also acquired the remaining 15% interest in GLP. The sale of GLP will generate an after-tax profit to Sonic of around €30 million (~A$48 million). Approximately €80 million (~$A130 million) of cash (comprising sale proceeds and shareholder loan repayments) will be returned to Sonic, which will be used to repay existing Euro debt, creating additional balance sheet capacity for further laboratory acquisitions. FY19 revenue for GLP is approximately €14 million (~$A23 million).

H1FY19 (ended on December 31, 2018) Financial Performance: The statutory revenue increased by 8.5% to $2.9 Bn as compared to the previous corresponding period. The statutory net profit attributable to Sonic shareholders decreased by 2.4% to $0.22 Bn as compared to the previous corresponding period.


H1FY19 Income Statement (Source: Company Reports)

What to expect:In its FY19 guidance (pre-Aurora Diagnostics acquisition), EBITDA growth is expected to be 3-5% on underlying FY 2018 EBITDA of A$962 million (on constant currency). Interest expense is expected to increase by ~4% (on constant currency). However, coming to the upgraded FY19 guidance which includes Aurora, EBITDA growth is expected to be 6-8% on the underlying FY18 EBITDA of A$962 million (constant currency) and interest expense is expected to approximate FY18 level of A$75 million (constant currency).

Stock Recommendation:It is presently trading towards its 52 weeks high level of $28.320. On the valuation front, its EV/Sales and EV/EBITDA multiple for TTM stands at 2.5x and 14.3x, higher than the industry median of 1.9x and 9.0x, indicating overvalued position at the current juncture.Hence, considering the aforesaid facts and current trading level, we maintain our “Expensive” recommendation on the stock at the current market price of $27.370 (down 2.771% on July 26, 2019).

Transurban Group

TCL Near To US$565 Million Fredericksburg Extension Project Deal: Transurban Group (ASX: TCL) has an engagement in the development, operation, maintenance, and financing of toll road assets as well as management of the associated customer and government relationships. The company recently announced that it has reached financial close on the US$565 million Fredericksburg Extension project, following the successful issuance of US$262 million private activity bonds. Transurban employed a two-stage financial close on the project, in which an all-equity financial close was achieved on 30 April 2019, and a subsequent debt financing closed on 25 July 2019. The debt financing consists of US$262 million of private activity bonds with a final maturity in 2049. The Fredericksburg Extension project will bring relief to one of the region’s worst congestion hotspots and extend the benefits that the company’s customers are experiencing on the 95 Express Lanes.

March ’19 Quarter Key Highlights: During the period, Average Daily Traffic (ADT) increased by 2.3%, with growth achieved across all markets. Sydney ADT increased by 2.1% to 813,000 trips and the Average workday traffic increased by 2.5% and average weekend/public holiday traffic increased by 0.9%. Melbourne ADT increased by 3.1% to 856,000 transactions and the Average workday traffic increased by 2.1% and average weekend/public holiday traffic increased by 5.8%. North America ADT increased by 2.9% to 136,000 trips.


March ’19 Quarter average daily trips data (Source: Company Reports)

What to expect: In the interim results report for the period ended 31 December 2018, the company reaffirmed the distribution guidance of 59.0 cps for FY19. In addition, the company expects 5 projects to be completed by FY21 and further 4 by FY24.

Stock Recommendation: Its EBITDA margin for H1FY19 stood at 46.7%, better than the industry median of 46.4%. The company has a number of projects in the pipeline in the coming years that are expected to support the ongoing distribution growth.The projected FY19 distribution growth based on the guidance of 59 cps is 5.4% over FY 2018. Hence, considering the ongoing progress in the business coupled with aforesaid facts and current trading level, we give a “Hold” rating on the stock at the current market price of $15.400 (down 0.581% on July 26, 2019).


Comparative Price Chart (Source: Thomson Reuters) 

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