Stocks’ Details

Wesfarmers Limited

Decent Growth in Online Sales: Wesfarmers Limited (ASX: WES) is engaged into retailing of home improvement and office supplies, general merchandise and operates specialty departments stores. The market capitalisation of the company stood at $53.93 Bn as on 12^th November 2020. Recently, the company released its trading update for the financial year to date ending 31 October 2020, wherein, it stated that trading performance for the period was attractive. During the said period, the retail businesses (excluding Catch) reported total online sales growth of 166%. In addition, the total online sales (Including Catch) for the period has increased to $1.3 billion. Following the strong results of 2H FY20, the company experienced decent demand in Bunnings, Officeworks and Catch. With respect to Kmart and Target, the company experienced continued growth in home, active and kids categories, which was partially offset by lower customer demand for apparel products.

Sales Summary (Source: Company Reports)

Sales Growth in Segments Supported Topline Growth: During FY20, the company recorded revenue amounting to $30,846 million, reflecting YoY growth of 10.5%. This indicated strong sales growth in Bunnings, Kmart, Officeworks and Catch. NPAT excluding significant items for the period amounted to $2,099 million, up 8.2% over pcp. The company has paid a fully franked final and special dividend of 77 cents per share and 18 cents per share, respectively, on 1^st October 2020, which took the total dividend to $1.70 per share.

Outlook: Going forward, the company will be focused on matching changing customer needs and delivering even greater value, quality, and convenience with respect to its retail businesses.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: WES remains on track to expand and improve its portfolio, building on its unique capabilities and platforms in order to take benefits of growth opportunities within existing businesses The stock of WES has provided a return of 30.66% in the last six months. On a technical analysis front, the stock of WES has a support level of ~$46.962 and an immediate resistance level of ~$49.661. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). Therefore, in light of the decent growth in online sales, consistent payment of dividend, sales growth in segments and returns in the past months, we give a “Hold” rating on the stock at the current market price of $48.780 per share, up by 2.543% on 12^th November 2020.

Telstra Corporation Limited

Expansion in 5G Networks: Telstra Corporation Limited (ASX: TLS) is engaged in the provisioning of telecommunication and information services. The market capitalisation of the company stood at ~$35.56 Bn as on 12^th November 2020. The company recently stated that its 5G network has now reached 44% of the Australian population, which is likely to expand to 75% by June 2021. In addition, the T22 strategy of the company is placing the company in a decent position for accelerating digital economy bolstered by COVID-19. During the year ended 30^th June 2020, TLS added 240,000 retail postpaid mobile services, including 154,000 from Belong. Total income for FY20 amounted to ~$26.2 billion, reflecting a fall of 5.9% over pcp.  In addition, underlying EBITDA for the period amounted to $7.4 billion. In the same time span, NPAT amounted to $1.8 billion, reflecting a fall of 14.4% over pcp.

Key Financials (Source: Company Reports)

Outlook: The company is working to generate net productivity of $2.5 billion by FY22. For FY23, the company is expecting underlying EBITDA in the ambit of $7.5 to $8.5 billion and ROIC of 8%.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is expecting to return to revenue and EBITDA growth by FY22, depicting a growth in 5G networks and focus on the enterprise segment. The 52-week low-high range for the stock stands at $2.660 - $3.940, respectively. On a technical analysis front, the stock of TLS has a support level of ~$3.024 and an immediate resistance level of ~$3.189. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Vocus Group Ltd (ASX: VOC), Spark New Zealand Ltd (ASX: SPK) and Uniti Group Ltd (ASX: UWL), to name few. Therefore, in light of the growth in 5G network, decent outlook and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $3.080 per share, up by 3.010% on 12^th November 2020.

Suncorp Group Limited

Healthy Capital Position: Suncorp Group Limited (ASX: SUN) provides banking, insurance, wealth and other financial solutions to the retail, corporate and commercial sectors. The market capitalization of the company stood at ~$12.16 billion as on 12 November 2020. During September 2020 quarter, the lending portfolio of Suncorp Bank contracted to $336 million, owing to a decline of 1% in retail lending, which was partly offset by an increase of 1% in business lending. However, Suncorp Bank reported net stable funding ratio (NSFR) and liquidity coverage ratio (LCR) of 130% and 147%, respectively as on 30^th September 2020. This showcases the SUN’s strong funding and liquidity position. For the year ended 30^th June 2020, SUN recorded a net profit after tax of $913 million and cash earnings of $749 million. During the year, SUN also maintained a healthy capital position with excess Common Equity Tier 1 capital of $823 million.

Financial Summary (Source: Company Reports)

Outlook: The strategic priorities of the group revolve around enhancing the performance of its core business, including Insurance Australia, New Zealand, and Banking & Wealth.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company seems to be well-placed for FY21 on the back of strong funding and liquidity, low risk and high-quality investment portfolio. The stock of SUN is inclined towards its 52-week low level of $7.300, offering decent opportunities for accumulation. The stock of SUN has provided positive returns of 6.46% and 10.6% in the last three and six months, respectively. On a technical analysis front, the stock of SUN has a support level of ~$8.367 and a resistance level of ~$9.689. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). Therefore, considering decent liquidity and funding, healthy capital position and strategic priorities, we give a “Buy” recommendation on the stock at the current market price of $9.410 per share, down by 0.948% on 12^th November 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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