Stocks’ Details

Incitec Pivot Limited

Strategic Review of Incitec Pivot Fertilisers:Incitec Pivot Limited (ASX: IPL) is into the manufacturing and distribution of industrial explosives, industrial chemicals and fertilisers and the provisioning of related services. The market capitalisation of the company stood at A$5.56 Bn as on 4^th November 2019. The company recently announced that it has commenced a strategic review of its Fertilisers Asia Pacific business segment, i.e., Incitec Pivot Fertilisers. It was mentioned that Incitec Pivot Fertilisers has made good progress on a numerous strategic milestones and operational issues during FY19, which primarily include, (1) The negotiation of various gas supply and other arrangements to allow the continuation of manufacturing operations at Gibson Island, (2) The return to reliable production at Phosphate Hill in Queensland. The following picture provides an idea of the total recordable injury frequency rate (TRIFR) in 1H FY 2019:


Total Recordable Injury Frequency Rate (Source: Company Reports)

Revised Guidance for FY19:The company has issued its FY19 guidance in May 2019 for EBIT, which stood in the range of $370 Mn to $415 Mn, based on disclosed forward commodity price and foreign exchange assumptions at that time. However, after applying the publicly available actual pricing and foreign exchange rates, the EBIT range stood at $321 Mn and $366 Mn for FY19.  It added that after a reassessment of earnings estimates at the end of August, it is currently estimated that the actual FY19 EBIT would be below this range, primarily because of lower forecast ammonia production at Waggaman and lower Fertilisers’ earnings, largely due to the continued drought impacts in NSW and Queensland, and increased gas costs at Gibson Island. This led the company to revise the EBIT range for FY19 to be around $285 Mn to $295 Mn.

Stock Recommendation:The gross margin and EBITDA margin of the company stood at 53.7% and 13.5% in 1H FY19 as compared to the industry median of 30.7% and 13.1%, respectively. The return on equity of the company stood at 0.9% in 1H FY19, reflecting a rise of 2.8% on pcp. This implies that the company is providing decent returns to its shareholders. On the valuation front, the stock is available at EV to sales multiple of 2.1x in comparison to the industry median of 30.8x on TTM basis. When it comes to the past performance, it generated a return of 7.12% on a YTD basis. Therefore, considering the strategic review of Incitec Pivot Fertilisers, decent fundamentals, and other factors, we maintain a “Hold” rating on the stock at the current market price of A$3.610 per share, up 4.335% on 4^th November 2019.
 

BINGO Industries Limited

New Appointment to Board:BINGO Industries Limited (ASX: BIN) provides recycling and waste management solutions throughout building and demolition and commercial and industrial waste streams with capabilities throughout waste collections, processing, separation and recycling components of the waste value chain. It has a market capitalisation of A$1.57 Bn as on 4^th November 2019. The company would be conducting its 2019 Annual General Meeting on 13^th November 2019. In another update, BINGO has recently appointed Elizabeth Crouch AM to the Board of the company as an Independent Non-Executive Director. The following picture provides an idea of performance for FY19:


Performance Highlights (Source: Company Reports)

What to Expect:The company anticipated to achieve strong growth in FY20, supported by a full-year contribution from Patons Lane Recycling Centre and Landfill, West Melbourne Recycling Centre and DADI, in combination with associated synergies and uplift from the redevelopment program. The company added that FY20 would be a transformational year for the company. Its strategic focus would be on ‘optimising the core’ through organic growth, business optimisation and consolidation in its existing markets.

Stock Recommendation:The company’s FY20 strategy is focused on completing the integration of DADI, further growth in its C&I business, and consolidating the Victorian business to maximise its earnings and ROCE, and to place the business for sustainable growth.On the valuation front, as per the ASX, the stock of BIN is trading at a price to earnings multiple of 61.540x as compared to the industry average of 81.1x on TTM basis. The current ratio of the company stood at 0.99x in FY19. Thus, considering its focus on completing the integration of DADI, optimism for FY20 along with above-mentioned factors, we give a “Hold” rating on the stock at the current market price of A$2.400 per share on 4^th November 2019.

James Hardie Industries Plc

2QFY29 Results to be Announced on November 7, 2019:James Hardie Industries Plc (ASX: JHX) is involved in research, development, manufacturing, sale and marketing of fibre cement building materials. The market capitalisation of the company stood at A$11.22 Bn as on 4^th November 2019. The company, through a release, announced that it would be conducting a management briefing on its Q2 FY20 results on 7^th November 2019. It added that the group’s adjusted net operating profit stood at US$90.2 Mn for the Q1 FY20, with a rise of 13% compared to the prior corresponding period. The following picture depicts an overview of results for the three months ended 30^th June 2019.


Q1 FY20 Results (Source: Company Reports)

Future Guidance:JHX anticipates witnessing a modest growth in the US housing market in the fiscal year 2020. It expects new construction starts between around 1.2 million and 1.3 million. The company projects that its Europe Building Product segment will achieve year on year net sales and EBIT margin growth. The management of the company anticipates full-year adjusted net operating profit to be in the range of US$325 Mn and US$365 Mn for FY20 by assuming, among other things, housing conditions in the United States remain consistent, and in line with its assumed forecast of new construction starts, input costs remain consistent, and an average USD/AUD exchange rate that is at or near current levels for the remainder of the year.

Stock Recommendation:On the valuation front, the stock of JHX is trading at a price to cash flow multiple of 18.9x against the industry median of 9.4x on TTM basis. It has EV to EBITDA multiple of 15.7x as compared to the industry median of 9.2x on TTM basis. Thus, it can be said that the valuations of JHX are stretched. As per the ASX, the stock of JHX has gained 68.14% on YTD basis and is currently trading close to its 52-week high of A$25.960. Therefore, considering the stretched valuations, decent price movement and current trading levels, we recommend an “Expensive” rating on the stock at the current market price of A$25.260 per share, up 0.758% on 4^th November 2019.
 
 
 

NRW Holdings Limited

Response to Media Speculation:NRW Holdings Limited (ASX: NWH) is in the provisioning of services, which include civil contracting, mining services, and equipment to the resources sector. It has a market capitalisation of A$847.77 Mn as on 4^th November 2019. With a recent update, the company has responded towards the media speculation in relation to the acquisition of a potential interest in BGC Contracting. NRW has confirmed that it has been selected as a preferred bidder in sale of BGC Contracting, subject to the final documentation and numerous conditions considered customary in this sort of transaction.

The following picture provides an overview of the financial summary for FY19:

Financial Summary (Source: Company Reports)

Future Aspects:The order book of the company at 30^th June 2019 stood around $2.2 Bn, of which around $1.1 Bn has been scheduled for delivery in FY20, excluding any orders secured by Urban and RCRMT. The company stated that the near-term tender pipeline has strengthened to $8 Bn, of which NRW has submitted tenders of around $1.2 Bn. It remains very confident of strong activity levels throughout the resources and infrastructure sectors in the coming years. The company is expecting revenue of around $1.5 Bn in FY20.

Stock Recommendation:The return on equity of the company stood at 11.4% in FY19 as compared to the industry median of 9.9%. The net margin of the company stood at 3.0% in FY19 against the industry median of 2.7%. This implies that NWH has better capabilities to convert its top-line into the bottom-line in comparison to the broader industry. When it comes to the valuation, NWH is trading at EV to sales multiple of 0.7x in comparison to the industry median of 1.7x on TTM basis. The stock is available at EV to EBITDA multiple of 5.8x against the industry median of 6.7x on TTM basis. Hence, considering the recent clarification on BGC contracting, decent valuations and near-term tender pipeline, etc., we give a “Speculative Buy” recommendation on the stock at the current market price of A$2.550 per share, up 13.333% on 4^th November 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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