Coca-Cola Amatil Ltd

CCL Details
·         Pricing pressure to continue:Coca-Cola Amatil Ltd (ASX: CCL) stock shed about 3.8% on May 18, 2017 owing to weakening sentiments. The group had reported that its Australian Beverages segment EBIT declined due to volume and pricing pressure led by increasing competition in FY16. Further, group underlying NPAT was also stated to come under pressure in H1FY17, while being broadly in line with FY16. Further, CCL anticipates that from 2017, franking will be lower than current levels, while targeting medium-term dividend payout ratio will be over 80%. Importantly in the recent update of post Easter holiday period, the company announced that the trading in Australian beverages for the year has been weaker than last year with all channels experiencing volume and price pressure due to competition and category trends. Further, initiatives, which include strategies to address the structural changes in the market, and rebalance portfolio are expected to take more time to gain traction. On the other hand, CCL’s buy-back program is moving on track.

·         Recommendation: The stock has declined by 14.3% in the last one month (as of May 17, 2017) owing to intensifying competition in the industry. We give a “Hold” recommendation on the stock at the current price of $ 9.26

James Hardie Industries Plc

JHX Details
·         Despite modest growth, margins are witnessing pressure:James Hardie Industries Plc (ASX: JHX) stock plunged 7.8% on May 18, 2017 while the group reported its Q4FY17 results wherein net sales for the quarter and full year grew by 13% year on year (yoy) and 11% yoy to US$494.3 million, US$1,921.6 million, respectively. The sales were favorably impacted by higher sales volumes in the North America Fiber Cement segment and higher sales volumes and a higher average net sales price in the International Fiber Cement segment. The company reported a net profit of $276.5 million for the full year against $244.4 million in FY16 led by $38.6 million boost on reduced compensation payouts, while Q4FY17 net profit rose nearly 55% to $44.5 million from $28.8 million in Q4FY16. On the other hand, the group adjusted net operating profit declined by 6% yoy to US$54.6 million in the quarter while it de-grew by 2% yoy at US$248.6 million for the full year. Gross profit for Q4FY17 stood at US$160.8 million flat yoy while it grew by 7% yoy to US$674.7 million for the full year. Gross profit margin for the full year and Q4FY17 declined 4.2% and 1.5% to 32.5%, 35.1%, respectively. Further, the increased manufacturing capacity with the addition of four new brownfield lines, have led to challenges for North America manufacturing network as it accelerated commissioning of new capacity while overall performance of the network lagged fiscal year 2016 performance. Further, increased manufacturing costs along with increased investment in marketing development programs, in both the quarter and full year, impacted EBIT. The company expects modest market growth and more prolonged recovery of the U.S. housing market to continue into fiscal year 2018 and reiterated a forecast from February that its North America Fiber Cement segment expects earnings before interest and tax (EBIT) margin of 20%-25%.
 

Financial summary FY17 (Source: Company reports)
 
·         Recommendation:With challenges related to soft operating margins and increasing costs, we believe that the stock is “Expensive” at the current price of $ 19.90

Galaxy Resources Ltd

GXY Details
·         Extended fall over security consolidation: Galaxy Resources Ltd (ASX: GXY) extended the losses on May 18, 2017 as it further declined 5.4% at the back of announcement on security consolidation (every 5 pre-consolidated securities to be consolidated into 1). The group’s shareholders were also considering grant of options to Directors at the Annual General Meeting on May 18, 2017 (exercise price, if approved, of $0.556). The group has otherwise updated about commencement of a drilling campaign and pit optimisation review aimed at supporting an updated Life of Mine (“LOM”) plan at Mt Cattlin. A total of 32,100m of development, grade control and exploration drilling is planned at Mt Cattlin. Further, staged drilling is expected to expand Mt Cattlin Recoverable Resource (from 12Mt to 15Mt) and Reserve withresults expected Q3, 2017 onwards. The group is also having development work progressing at its Sal de Vida Project. At James Bay Project, development work continues with comprehensive diamond drill program to upgrade existing Resource to Reserves.

·         Recommendation: We maintain a “Buy” recommendation at the current price of $ 0.43

Netcomm Wireless Ltd

NTC Details
·         Ramp up in fixed wireless coverage: NetComm Wireless Ltd (ASX: NTC) witnessed a stock slip of 4.2% on May 18, 2017 owing to volatile scenario. The group is continuously investing to target Tier 1 clients and was awarded with three major contracts from reputed customers. Further, the group expects the ramp up of the US fixed wireless by next fiscal year while nbn FTTC ramp up is expected in first half of FY18. Fixed Wireless coverage enhanced 144k premises from 31 December 2015 to be at 485k premises as at 23 March 2017 while the Fixed Wireless take up rate surged from 24.3% at 31 December 2015 to 34.9% at 23 March 2017.

·         Recommendation: NTC stock has fallen 14% over the past three months (as at May 17, 2017), despite the ongoing developments in its fixed wireless segment. We give a “Buy” recommendation on the stock at the current price of $ 1.46

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