Stocks’ Details

BHP Group Limited

Annual General Meeting is to be held on 7 November 2019:BHP Group Limited (ASX: BHP) is involved in the exploration, production and processing of minerals and exploration, production and refining of hydrocarbon. It has a market capitalization of ~A$111.62 Bn as on 18^th September 2019. The company has recently announced that it would be conducting its 2019 Annual General Meeting on 7^th November 2019. When it comes to financial performance, the company reported revenue amounting to US$44.3 Bn in FY19, reflecting a rise of 3% against FY18. This increase was mainly attributable to higher average realised prices for iron ore, petroleum and metallurgical coal, as well as higher sales volumes at WAIO (Western Australia Iron Ore) as a result of record production at Jimblebar and the expiry of the Wheelarra Joint Venture. 
The net finance costs of the company stood at US$1.1 Bn in FY19, with a decline of 15% as compared to FY18 primarily because of higher interest earned on increased term deposit holdings as well as a lower average debt balance after the repayment on maturity of Group debt. The following picture provides an idea of key events which would take place:


Key Dates for FY20 (Source: Company Reports)

What to Expect:With respect to India, the company believes that the growth prospects are solid, and the company is optimistic about the short-term outlook. During FY19, it acquired the world’s first deepwater exploration ocean bottom node seismic survey in the western US Gulf of Mexico. The acquisition survey and node recovery have been completed and will be incorporated into its ongoing analysis, wherein the company will continue to progress over the next 18 months. It added that the global steel production has maintained healthy growth in 2H FY19, continuing the upswing from the trough towards the end of the calendar year 2015.

Stock Recommendation:The company has declared a final dividend amounting to 78 US cps, which includes an additional amount of 25 US cps above the 50% minimum payout policy. The total ordinary dividends announced stood at US$1.33 per share or US$6.7 billion, which was equivalent to a payout ratio of 74%. The return on equity of the company stood at 16.8% in FY19 as compared to the industry median of 12.2%, which implies that the company is providing decent returns to its shareholders as compared to the broader industry. On the stock’s performance front, it produced returns of 4.52% and 2.46% in the time frame of one month and six months, respectively. Currently, the stock is trading slightly towards its 52-week high of $42.33 with PE multiple of 16.58x. Therefore, in the light of above-stated facts and current trading levels, we give a “Hold” recommendation on the stock at the current market price of A$37.790 per share (down 0.264% on 18^th September 2019).
 

REA Group Limited

Decent Fundamentals:REA Group Limited (ASX: REA) provides property and property-related services on websites and mobile apps throughout Australia and Asia and has a market capitalisation of ~A$13.97 Bn as on 18^th September 2019. The company recently announced that Tracey Fellows has made a change to its holdings in the company by disposing 9,100 ordinary shares at the consideration of $956,428 on 5^th September 2019. The total securities held with Tracey Fellows post-change stood at 7,386 ordinary shares. 

For the year ended 30^th June 2019, the company reported net profit of $295.5 Mn, reflecting a rise of 6%. In Australia business, the media, data and other revenue witnessed a rise of 16% to $110.2 Mn due to the inclusion of Hometrack business, coupled with greater display advertising from developers arising from longer project durations.However, the media revenue was lower as a result of decreased advertising spend in key segments and lower available inventory as Premiere listings increased.


Key Financial Metrics (Source: Company Reports)

Future Aspects:As per the release of FY19 results, the Australian Residential business would have the benefit of price increases which became effective on 1^st July 2019 plus stronger levels of both Premiere and total depth product penetration on the back of the latest Premiere offering. It added that the listings for the 1H FY20 are likely to be lower than the same half last year, because of the comparatively favourable listings environment in 1H FY19, particularly in Melbourne and Sydney. As a result, it expects revenue growth to be heavily skewed towards the 2H.

Stock Recommendation:The cash balance of the company stood at $137.9 Mn in FY19 with YoY growth of 19%. The Board of the company has declared a fully franked final dividend amounting to 63.0 cps, which takes the total dividend to 118.0 cps for the 2019 financial year, reflecting a rise of 8% on the prior year. Coming to the stock’s past performance, it delivered returns of 3.13% and 14.81% in the past one month and three months, respectively.  Currently, the stock is priced close to its 52-week high level of $108.300 with expensive PE multiple of 133.10x. Hence, considering the above-stated facts and current trading levels, we maintain our “Hold” rating on the stock at the current market price of A$106.500 per share (up 0.396% on 18^th September 2019). 
 

Kirkland Lake Gold Ltd

Pipeline of Growth Projects: Kirkland Lake Gold Ltd (ASX: KLA) is into the gold mining and exploration and has a market capitalisation of ~A$13.57 Bn as on 18^th September 2019. Recently, the company has released its results for Q2 FY19, wherein it reported revenue amounting to $281.3 Mn, reflecting a rise of 31% from $214.7 Mn in Q2 FY18. It added that this increase primarily reflected a 29% increase in gold sales, to 212,091 ounces, which had a $62.2 million favourable impact on revenue against Q2 FY18. The following table provides a broader idea of the financial highlights of the company:

 
Financial Highlights (Source: Company Reports).

Future Guidance:The company is focused on delivering superior value for its shareholders and maintaining a position within the mining industry as a sustainable, growing low-cost gold producer. KLA is well-positioned in order to achieve further growth in profitable, low-cost gold production in support of further increases in shareholder value. It is having a pipeline of growth projects and continues to conduct extensive exploration on its land holdings in Canada and Australia.

Stock Recommendation:During Q2 FY19, the free cash flow stood at $53.0 Mn as compared to $60.7 million in Q2 2018 and record free cash flow of $93.1 million in the previous quarter. The change from both prior periods was because of increased capital expenditures in support of advancing key growth projects. As per ASX, the stock is presently trading slightly towards its 52-week high level of $81.0 with PE multiple of 25.09x. Based on the mix scenario and looking at the current trading levels, we have a watch view on the stock at the current market price of A$68.000 per share (up 5.1% on 18th September 2019) and suggest investors to wait for better entry level.
 
 

Cochlear Limited

A look at Full-Year Financial Performance:Cochlear Limited (ASX: COH) is into the sale and manufacturing of Cochlear implant systems. It has a market capitalisation of ~A$12.1 Bn as on 18^th September 2019. The company recently announced that it will conduct its 2019 Annual General Meeting on 22^nd October 2019. In another update, the company announced that Pinnacle Investment Management Group Limited and its subsidiaries have ceased to become a substantial holder in the company on 11^th September 2019. On the financial performance front, the company stated that FY19 was a slower year for implants with an uplift in sales since the launch of a new product. The underlying net profit stood at $265.9 Mn, reflecting a rise of 7%, which was within the guidance range of $265 Mn to $275 Mn. The following picture provides an idea of the key financial figures of the company:


Profit & Loss Statement (Source: Company Reports)

Future Prospects:For FY20, the company expects to deliver reported net profit of $290-300 million, with a rise in the range of 9%-13% on underlying net profit for FY19. It anticipates strong growth in cochlear implant units in FY20, driven by numerous new products launched late in FY19 and the continued investment in market awareness and access activities. COH expects to continue to deliver growth in revenue and earnings in the coming years, underpinned by the investments made in product development and market growth initiatives.

Stock Recommendation:As per ASX, the company has an annual dividend yield of 1.58%. According to the same source, the stock of Cochlear Limited is trading towards its 52-week high price of $226.710 with PE multiple of 43.64x. Hence, in light of above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of A$208.770 per share (down 0.253% on 18^th September 2019).

 
 Comparative Price Chart (Source: Thomson Reuters)

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