4 Income Ideas for 2019 - ANZ, MFG, SKI, AVN

Stocks’ Details

Australia and New Zealand Banking Group Limited

Trading at Lower Level- An Opportunity for Value Investors: Australia and New Zealand Banking Group Limited (ASX: ANZ) founded in 1835, is one of the five largest companies in Australia by the market capitalization operating in 34 markets across the world. Itprovides various banking and financial products and services. It has multiple divisions such as the Australia division, the New Zealand division, institutional division, Wealth Australia division, the Asia Retail division, and the Pacific division providing various products and services to its customers. The company has recently paid a dividend of 80 cents on 18 December 2018. The annualized dividend yield reported is 6.71%.


FY18 Financial Highlights (Source: Company Reports)

During FY18, the bank reported a net interest margin of 1.87% which was below the industry median of 1.94%. The efficiency ratio reported at 50.0% was also slightly below the industry median of 52.0% and has declined by 3.6% over the past five years. The bank reported loan growth of 4.4% which was again below the industry median of 12.5%. The deposit growth of 3.8% was also below the industry median growth of 5.8%. However, the Tier 1 Risk-Adjusted Capital Ratio was reported at 13.40% which has improved over the past 5-years and is above the industry median of 11.13%.

The bank has ~2.87 billion shares outstanding with the market cap of $68.46 billion (as on 3 January 2019) and a beta of 1.27x (estimated based on 5-years monthly basis).

On the valuation front, the P/E of 10.9x and EV/EBITDA of 2.7x is currently below the industry median multiples of 12.7x and 9.8x respectively showing that the scrip is undervalued. During 2018, the ANZ stock price has fallen by 16.52% Today, the stock was up by 2.012% as compared to the previous close, currently trading at the price of level $24.340, and has breached its support levels of $26.00. The price had crossed the lower band of Bollinger band and has reversed its direction now. Even the Relative Strength Index is also visible in a positive position.

All these indicators along with the bottoming of prices and lower price and EBITDA multiples exhibits a “buy” recommendation for the stock at the current price of $24.340.
 
 

Magellan Financial Group Limited

FY18 Performance Better than Industry Median: Magellan Financial Group Limited (ASX: MFG) is an Australian financial company engaged in generating returns for its clients by investing in various global equities and global listed infrastructure companies. As per the latest updates of November 2018, the total FUM was reported at $72.111 billion with a net inflow of $522 million including the net retail inflow of $72 million, and net institutional inflows of $450 million.


Key Dates for 2019 (Source: Company Reports)

Fundamental analysis: Although the margins of the company have declined over the years, but they are still above the industry medians as can be seen from the table below:


The company is generating more revenue out of its assets than its peers as it reported better asset turnover ratio of 0.77x against the industry’s ratio of 0.07x.

MFG has ~177.09 million shares outstanding with the market cap of $4.14 billion (as on 3 January 2019) and a beta of 1.06x (estimated based on 5-years monthly basis).

On the analysis front, the P/E of 19.16x and EV/EBITDA of 11.2x is currently above the industry median multiples of 12.4x and 9.6x respectively. The company has no debt as on date. During 2018, the scrip price has declined by 11.24% and is currently trading at lower level. It has almost reached its support level of $22.20. The price had crossed the lower band of Bollinger band and has reversed its direction now. Even the Relative Strength Index is also visible in a positive position. Also, the chart shows a wave pattern and the current situation indicate a bullish movement in the stock. With the better performance from its peers specifically higher ROE with no debt, and the bullish sign indicated by the charts exhibits “Buy” signal for MFG at the current price of $23.950 (up 2.482% on January 03, 2019).
 

Spark Infrastructure Group

Relative Strength Index showing bullish signal for Spark: Spark Infrastructure Group (ASX: SKI) is an Australian based company falling under the utility sector. The company owns 49% interest CitiPower and Powercor in Victoria and SA Power Networks in South Australia; all the companies are engaged in electricity distribution. It also holds a 15.01% interest in New South Wales electricity transmission business TransGrid.

 

2018 Outlook and Guidance (Source: Company reports)

Although, the margins of the company have declined over the year, but it reported higher margins in 1H 2018 as compared to the industry.

Table showing margins compared with the Industry Median


The company is unable to generate revenue out of its assets as it reported a lower asset turnover ratio of 0.08x against the industry’s ratio of 0.16x. SKI has ~1.68 billion shares outstanding with the market cap of $3.65 billion and a beta of 0.36x. Moreover, the P/E of 37.29x and EV/EBITDA of 16.4x is currently above the industry median multiples of 10.1x and 8.3x respectively.The company reported a dividend yield of 7.4% which is above the industry median of 5.4% indicating that the company offers more dividend to its shareholders as compared to other companies.

During 2018, the SKI stock price has fallen by 12.85%. Today, the stock was up by 0.922% as compared to the previous close, currently trading at the price of level $2.190, and is trading around its support levels of $2.160. The price is moving around the lower band of Bollinger. Even the Relative Strength Index is also visible in a positive position. Also, the chart shows a wave pattern and the current situation indicate a bullish movement in the stock. All these indicators along with the bottoming of prices exhibits a “buy” recommendation for the stock at the current price of $2.190.
 

Aventus Group

Changes in Accounting Period: The Aventus Group (ASX: AVN) is an Australia based payday lender. The Group comprises two subsidiaries, Aventus Holdings Limited, and Aventus Capital Limited, who is acting as the responsible entity for Aventus Retail Property Fund. Its portfolio comprises 20 centers which are valued at $1,900 million. The Fund was listed in October 2015. Along with the active portfolio management, value-enhancing developments and strategic acquisitions have contributed to a total Security holder return of 31.9 % since IPO of the Fund in October 2015.

After the approval from ASIC, the company has changed its reporting period from 20 January 2019 to 31 December 2018 for the 1H 2019.


FY18 Financial Highlights(Source: Company reports)

During FY18, the company reported FFO per Share of $18.10. Further it reported lower profitability margins. The company reported an EBITDA and Operating margins of 50.2% each which were below the industry median of 64.8% and 64.1% respectively. Further, it reported a lower net margin of 82.4% as compared to the industry median of 93.8%. the ROE of 11.9% was above the industry median of 11.1%. The asset turnover ratio reported at 0.10x was above the industry median of 0.07x, but the company is unable to fully utilize its assets to generate the revenue.

The company has ~531.04 million shares outstanding with the market cap of $1.14 billion (as on 3 January 2019) and a beta of 0.15x. Moreover, the P/E of 7.78x is currently below the industry median multiple of 12.7x showing that the scrip is undervalued.

During 2018, the AVN stock price has fallen by 3.60%. Today also, the stock was down by 1.869% as compared to the previous close, currently trading at the price of level $2.10. The stock is positioned near to the Simple Moving Average (SMA) level of the Bollinger band and is in the favorable position of the Relative Strength Index (RSI). Based on foregoing, we might see some improvement in the near future. We, therefore, maintain our “speculative buy” recommendation on the stock at the current market price of $2.10.


Stock Price Comparative Chart (Source: Thomson Reuters)
 

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