Stocks’ Details

Spark New Zealand Limited (ASX: SPK)

Acceleration of Quantum Improvement Programme - Spark New Zealand Limited is a supplier of telecommunication and digital services in New Zealand. Spark recently announced that it will be accelerating its Quantum performance improvement programme so that it can realise financial benefits earlier than previously envisaged. As the Group recently identified opportunities which were part of Group’s transition activity to an ‘Agile at scale’ operating model, it could move faster with the programme. The Group has made a rapid progress on its Agile journey during FY2018. In accordance, Spark has been identified as the industry’s lowest cost operator through radically simplified and digested processes, products and services. This programme was originally envisaged and was planned for progressive improvement with associated costs of change, through until 2020. The Group has now decided to implement few Quantum changes, prior to the end of FY18 which were originally planned to occur in FY19. This will further improve customer experience and will strengthen earnings in FY19 and beyond. It is expected that the Group will pay a total Dividend of 25.0c in FY18 and the Group updated its Guidance for FY18 and expects that adjusted EBITDA excluding FY18 costs of change will be between $50 million and $55 million. Its overall performance will be impacted due to competitive market dynamics and decisions to reinvest in the business so that it can derive long-term sustainable earnings. The stock prices have been climbing up by 7.42 per cent since the start of the year and were up by 3.82 per cent in last five days. We give a “Hold” recommendation at the current market price of $3.59 by looking at the initiatives it has taken and performance which remains in line with the Company’s plan.


Guidance Update (Source: Company Reports)
 

Cedar Woods Properties Limited (ASX: CWP)

Strong sales across Portfolio - Cedar Woods Properties Limited is engaged in property investment and development and it is continuing to build upon the strong sales momentum that it experienced in the first half of the 2018 financial year with solid sales and is progressing towards its portfolio in the third quarter. Construction of several projects was completed by the Company during the third quarter of FY18 and it is expected that further stages will be completed by the end of the financial year and a significant number of settlements are scheduled for the last quarter from these stages. Buoyant market conditions will continue to support the demand for the Company’s Melbourne projects and the Group will continue to operate with the strong pre-sales across all product lines. Pre-sales beyond FY18 are at $230 million and were up by 35 per cent on the $170 million that was recorded at the same time last year which provides a solid platform to the Company for FY19 and FY20 for its growth. The Company continues to invest in its digital and technology improvement program and upgraded its customer relationship management in FY18 which will enhance its sales and marketing capabilities. The Company is witnessing a delay in settlement of its few projects like in Victoria, Williams Landing, Jackson Green and St A due to an industry-wide peak in construction activity in that state and it is anticipated that these stages will make some remarkable profit contributions and will have a material impact on the FY18 result. The stock prices have been falling since the start of the year and slipped by 3.28 per cent in last one month. We give a “Hold” recommendation at the current market price of $6 (up 1.7% on June 15, 2018) by looking at the Australian housing sector landscape which is supported by low-interest rates and the continuing population growth.


Pre-sales contribution (Source: Company Reports)
 

Xero Limited (ASX: XRO)

Scalable growth - Xero Limited is a software as a service (SaaS) company. The Company is engaged in the provision of a platform for online accounting and business services to small businesses and their advisors. The Company issued15,000 Ordinary Shares upon exercise of vested options granted under an employee share scheme and the exercise price for the options was NZ$17.51 per option. After 12 years of strategic investment into the business model, the group has delivered its first positive annual EBITDA for FY18 of the order of $26.0 million as compared to ($28.6) million loss in FY17 and has grown well in FY18 with the addition of 351,000 subscribers. Despite the strategic investment to expand the business across all verticals, the group has succeeded in keeping net-debt-to-equity ratio below 1x. It is expanding globally and is working to rewire the global economy, connecting millions of businesses to their banks, advisors and each other. International investment loss was reduced even with investments in new geographies such as South East Asia. It is expecting to reduce its cash flow in FY19 as compared to FY18 and is managing the business to cash flow break-even within its current cash balance (without drawing on its debt facility) through operational efficiencies. The stock price has been moving in an upward direction for one year and was up by 12.30 per cent in last one month.  The Group is well poised to leverage its leading position in the international market at the back of a diversified growth profile. We maintain our “Hold” recommendation at the current market price of $45.78 as this software Company is disrupting the SME accounting space over the past decade.


Trend of Gross Profit as a percentage of revenue (Source: Company Reports)
 

Bapcor Limited (ASX: BAP)

Strong Revenue and EBITDA Growth - Bapcor Limited, formerly Burson Group Limited, is a provider of automotive aftermarket parts, accessories, automotive equipment and services, and motor vehicle servicing. The group has been successful in growing its profit margins with a boost from store expansion and gaining more footprint across the globe. Out of the total contribution from all the segments, 50 per cent contribution is from its trade that is focussed on supplying parts professionals to the workshops in Australia & New Zealand and 20 per cent contribution is from its Retail and Services as it supplies independent parts, accessories & 4WD and is bringing automotive aftermarket parts to Asia.Further, Paradice Investment Management Pty Ltd became the substantial holder of the Group since 14 May 2018 by holding 5.439 per cent of the voting power. Group’s statutory revenue and net profit after tax for H1 FY18 increased by 41.6 per cent and 72.2 per cent, respectively compared to H1 FY17. Earnings per share for H1 FY18 was 14.61 cents per share, up 37.3 per cent as compared to H1 FY17.The Group may face few challenges with the entry of Amazon into the Australian online market place, however, its fundamentals still remain robust. The stock price has been moving in an upward direction and was up by 8.07 per cent in last one month. The ROE improved from 5.5 per cent in December 2016 to 6.9 per cent in December 2017. On the other hand, ROIC decreased from 4.5 per cent in December 2016 to 3.9 per cent in December 2017 and Debt-Equity Ratio increased from 0.03 per cent in December 2016 to 0.66 per cent in December 2017. In view of these changes and group’s fundamentals, we give a “Hold” recommendation at the current market price of $6.84.

EPS Growth Trend (Source: Company Reports)
 
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