Stocks’ Details 

BHP Group Limited

­A Look at Chairman’s Speech: BHP Group Limited (ASX: BHP) is a large-cap global resources company with the market capitalisation of ~A$105.37 Bn as on 28^th October 2019. The key personnel of the company stated that the commitment to the strategy has delivered significant value and returns.  This, along with the stronger commodity prices, allowed the company to declare final dividend amounting to 78 cents per share - or US$3.9 billion in total. That is on top of US$17 billion the company returned to the shareholders in the last financial year. At the current market price of A$36.170 per share, the annual dividend yield of the company stood at 5.36% in comparison to the industry average (Basic Materials) of 4.6% on a TTM basis.

What to Expect:The company stated that it remains cautious in the short-term, and optimistic about the long-term outlook. The management of the company is confident that its portfolio is well placed to seize the opportunities that would be coming from population growth and better living standards, as well as trends like electrification and decarbonisation. It added that these might increase demand for its products well into the future. The following picture gives an idea of production as well as guidance for FY20:


Production and Guidance (Source: Company Reports)

Stock Recommendation:BHP anticipates a US$3.8Bn increase in net debt in FY20 from the application of IFRS 16 ‘Leases’, new leases commencing in the year as well as a change in its definition of net debt to include the fair value of derivatives related to net debt. On the valuation front, the stock of BHP is trading at EV to EBITDA multiple of 5.75x as compared to the industry average of 6.00x. When it comes to past performance, it produced a return of 10.77% on a YTD basis. Therefore, in light of decent dividends, outlook as well as valuation parameters, we maintain a “Hold” rating on the stock at the current market price of A$36.170 per share, up 1.118% on 28^th October 2019. 
 

Spark New Zealand Limited

Expansion of Sports Offering:Spark New Zealand Limited (ASX: SPK) is in the business of telecommunications services. The market capitalisation of the company stood at A$7.61 Bn as on 28^th October 2019. The company with the help of a release dated 18^th October 2019 announced that Stefan Knight would become Chief Financial Officer, which will become effective on 1^st March 2020. It added that Mr Knight would be succeeding David Chalmers. In another update, the company announced that Spark Sport would be the official rights partner for all New Zealand Cricket’s matches played in New Zealand, with TVNZ joining as the free-to-air partner for a selected number of T20 International and Super Smash matches.

The company declared a dividend of 25.0 cents per share, which totalled to $459 million for the year ended 30^th June 2019.At the current market price of A$4.130 per share, the annual dividend yield of the company stood at 4.83% against the industry average (Telecommunications Services) of 2.6% on TTM basis. The following picture depicts the idea of financial results for the period ended 30^th June 2019:


Results (Source: Company Reports)

Future Aspects: Spark New Zealand Limited manages the capital considering interests of the shareholders, value of Spark’s assets and the credit rating. The company’s Board continues to be committed to maintaining single ‘A Band’ credit rating and the capital management policies have been designed to ensure that this objective is met. It would focus on systems around its critical H&S risks, such as asbestos, confined spaces, fatigue, driving at work and working at height in FY20.

Stock Recommendation:On the valuation front, the stock of SPK is trading at EV to EBITDA multiple of 9.1x against the industry average (Telecommunications Services) of 10.4x. It has EV to sales multiple of 2.8x as compared to the industry average (Telecommunications Services) of 11.9x. On the stock’s performance front, it produced returns of 9.89% and 22.17% in the frame of three months and six months, respectively.

Hence, considering SPK’s expansion in sports offering, decent outlook and valuations, we maintain a “Hold” rating on the stock at the current market price of A$4.130 per share, down 0.242% on 28^th October 2019.
 
 

Transurban Group

 A Look at September 2019 Quarter: Transurban Group (ASX: TCL) is an owner, operator and developer of electric toll roads and intelligent transport systems. Recently, the company has released its results for the September 2019 quarter, wherein, it witnessed a rise of 1.8% in average daily traffic with growth achieved throughout all markets. It was mentioned in the release that the benefits of company’s development activities were demonstrated during the quarter, with an additional 1 Mn trips generated in Queensland, after the completion of three major projects in the 12 months to August 2019. The development activities throughout Transurban’s markets continue to progress, with three additional projects on track to open by the end of 2020.

At the current market price of A$14.880 per share, the annual dividend yield of the company stood at 4.01% as compared to the industry average (Industrials) of 3.8% on TTM basis. The company declared a distribution totalling 30.0 cps for the six months ended 30 June 2019. This consisted of 28.0 cps distribution from Transurban Holding Trust and controlled entities as well as a 2.0 cps fully franked dividend from Transurban Holdings Limited and controlled entities. The following picture provides an idea of statutory results:
 

Statutory Results for FY19 (Source: Company Reports)
FY20 Guidance:The company provided distribution guidance of 62.0 cents per security for FY20, reflecting a rise of 5.1% against FY19 distribution. The near-term priorities of the company revolve around to (1) Delivering committed projects, (2) Maximising the performance of operations, and (3) Enhancing customer and community offerings.

Stock Recommendation:With respect to Sydney, it stated that NorthConnex project happens to be on track for the opening in mid-2020, and the paving is now complete and mechanical and electrical works are underway. On the stock’s performance front, it produced a return of 7.14% in the last six months. However, on a YTD basis, it delivered a return of 27.36%.

Currently, the stock is trading towards its 52-week higher levels of $16.06 with PE multiple of 222.88x. Thus, considering the three additional projects, which are on track to open by the end of 2020 coupled with FY20 distribution guidance and current trading levels, we give a “Hold” rating on the stock at the current market price of A$ 14.880 per share, up 1.156% on 28^th October 2019.

CIMIC Group Limited

A Quick Look At Results For the Nine Months To September 2019:CIMIC Group Limited (ASX: CIM) happens to be an engineering-led construction, mining, services as well as public private partnerships leader working throughout lifecycle of the assets, infrastructure and resources projects. The market capitalisation of the company stood at A$11.09 Bn as on 28^th October 2019. The group through a release dated 23^rd October 2019 announced that Trevor Gerber would resign as an Independent Director of the company and his resignation would become effective on 31^st December 2019. The company recently updated the market with results for nine months to 30 September 2019, and the company witnessed growth in NPAT and solid operating cash flow. The company reported a strong financial position with net cash of $826 Mn. It returned $294 million to shareholders via dividends and share buyback during the third quarter.

At the current market price of A$33.650 per share, the annual dividend yield of the company stood at 4.58% against the industry average (Industrials) of 3.8% on TTM basis.


Key Metrics for 9 Months (Source: Company Reports)

Future Prospects:The company stated that it is having a $20 Bn pipeline of construction, mining and services opportunities for the remainder of 2019, extending to $475 Bn for 2020 and beyond. This pipeline includes approximately $130 Bn of PPP opportunities identified for the remainder of 2019 and beyond. Subject to market conditions, the company confirmed guidance for 2019 NPAT in the ambit of $790 Mn to $840 Mn.

Stock Recommendation:On the valuation front, the company is having an EV to Sales multiple of 0.6x as compared to the industry median (Industrials) of 1.6x on TTM basis. It has EV to EBITDA multiple of 5.3x against the industry median (Industrials) of 6.7x on TTM basis. It can be said that CIM is undervalued at the current trading levels. When it comes to stock’s past performance, it produced a return of 9.35% in the time period of one month.

Hence, considering the decent nine-month results, development pipeline, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$33.650 per share, down 1.781% on 28^th October 2019.


Comparative Price Chart (Source: Thomson Reuters)

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