Stocks’ Details

Insurance Australia Group Limited (ASX: IAG)

Simplification Program on track: IAG is the parent company of a general insurance group (the Group) with controlled operations in Australia, New Zealand, Thailand, Vietnam and Indonesia. It is a digitally-enabled insurer that is customer-led and data-driven. It reduces organisational complexity by consolidating technology platforms, harmonising products, simplifying processes and systems, and executing the technology strategy. It leverages operational partners to optimise the operating model and drive scale economies across the value chain. It is on track to achieve a 10 per cent reduction in cost run by FY19. The Gross benefit run rate was recorded by more than $100 million at the end of 1HFY18.


Company’s Business Model (Source: Company Reports)

Simplification benefits will largely run their course by FY20/FY21. IAG’s strategy ensures that it is a successful and a sustainable Company and the initiatives which it takes are grouped under three broad strategic priorities which include customer, simplification and agility. It is progressing well on its technology strategy, with half of its business already on the claims platform which is provided by Guidewire and all its claims will be transitioned by 2019. It upgraded the guidance for the current year for insurance margin that is from 15.5 per cent to 17.5 per cent and is confident enough to achieve its 10 per cent compound EPS growth target over the next three years or so. Further, IAG maintains a high dividend (60-80% of cash earnings pay-out). The stock price has risen in the last one year by 28 per cent and the same was up by 3.3 per cent in past one week, so we give a “Hold” recommendation at the current market price of $ 7.810.

Transurban Group (ASX: TCL)

Improvement in Average Daily Traffic: Transurban released its March quarter 2018 update. During the period, Average Daily Traffic (ADT) increased by 2.7%, with growth across all Australian markets. Traffic growth for the quarter was impacted by the timing of the Easter holiday period. Transurban’s development projects continued to progress throughout the quarter. In addition, Transurban reached an agreement in March to acquire the A25 in Montreal for C$840 million. The acquisition will provide an access to a second North American market with a growing population. The Group will assume responsibility for the management and operations of the A25 after the financial close, which is targeted for Q4 FY18, dependent on Investment Canada Act approval. Whilst continuing to grow the business through development, TCL is also focused on enhancing customer experience, engaging with local communities and maintaining its commitment to safety and sustainability.


Traffic Performance (Source: Company Reports)

Construction commenced on the West Gate Tunnel Project in January 2018 and this asset is expected to open to traffic in 2022 and will deliver a much-needed alternative to the West Gate Bridge. The Monash Freeway Upgrade is on schedule for completion this year, with all major resurfacing works now complete. The stock price was down by 6.4 per cent in the past six months but in the past one month the stock price recovered by 3 per cent. We give a “Buy” recommendation at the current price of $11.540 by looking at the overall performance, project pipeline and the focus of thistoll road company on improving its customer experience.

Woodside Petroleum Limited (ASX:WPL)

Signed MOU for the supply of domestic gas: Recently, Woodside entered into a non-binding memorandum of understanding (MOU) with Perdaman Chemicals and Fertilisers Pty Ltd (‘Perdaman’) for the supply of natural gas.Under the terms of the MOU, Woodside will supply approximately 125 terajoules per day of domestic gas for use in Perdaman’s proposed 2 million tonnes per annum urea plant on the Burrup Peninsula. Natural gas will be supplied from Woodside’s portfolio of domestic gas underpinned by the proposed Scarborough development. Supply will commence from the early 2020s for a period of between 20 and 25 years. The Board finds that MOU is a further demonstration of Woodside’s commitment to finding innovative ways to power the Pilbara and support local manufacturing and exports for WA. 


Revenue Performance (Source: Company Reports)

Its Burrup Hub projects can support the economic diversification of the region in the years ahead and ensures that it is positioned to meet long-term global LNG demand. Woodside is also committed to working with the State Government to deliver local jobs. Moreover, 2017 was a good year for Woodside, as the oil price rallied, profits grew, and the company positioned itself for growth. Profit increased by 18% to more than $1 billion. In 2018, the Company expects production costs to be impacted by a full-year of production from Wheatstone Train 1 and the start-up of Train 2, together with maintenance work to be undertaken on the Vincent FPSO as part of the Greater Enfield Project. The stock price has increased in the past one month by 8.5 per cent and it is expected that the group will benefit from the favourable oil price scenario. The group is also seen to deliver improved dividends in the past one year (with dividend pay-out ratio maintained at 80%) post a period of lull as seen in 2016. We give a “Buy” recommendation at the current market price of $ 32.170.

BHP Billiton Limited (ASX: BHP)

Major Projects under development on track: Recently, the 12^th Federal Court in Brazil approved an additional 66 days for Samarco Mineração S.A. (Samarco), Vale S.A. (Vale), BHP Billiton Brasil Ltda (BHP Brasil) and the Federal Prosecutors continued their discussions on the negotiation of the framework for the settlement of the Public Civil Claims related to the Samarco dam failure. The extension will end on 25 June 2018. Until that time, the interim security arrangements and the current suspension of legal proceedings will remain in place. Meanwhile, BHP released its nine months update on its operations and disclosed that Iron Ore production guidance was reduced to between 272 and 274 Mt (100% basis) reflecting car dumper reliability issues. Antamina copper production increased by 10 per cent to 105 kt and zinc production increased 43 per cent to 84 kt due to higher head grades as mining continued through a zinc-rich ore zone consistent with the mine plan.


Production Update (Source: Company Reports)

Copper production guidance for the 2018 financial year has increased to approximately 135 kt from approximately 125 kt and zinc production guidance to approximately 110 kt from approximately 100 kt. BHP has 4 major projects under development in Petroleum, Copper and Potash, with a combined budget of US$7.5 billion over the life of the projects. All projects remain on time and on budget. With the base metal prices and oil prices pushing up, BHP is expected to increase its dividend yield over a couple of years. The stock price has shown an upward trend in the last one year by 30 per cent and we recommend to “Hold” the stock at the current market price of $ 31.030.

Scentre Group (ASX: SCG)

Improvement in Sales Portfolio: SCG released its first-quarter update for FY 18 and reported thatall active developments were progressing well. The Group delivered a development target return of more than 7 per cent yield and Internal Rate of Return of more than 15 per cent. It successfully opened the $80 million (SCG share: $40m) of the redevelopment of Westfield Plenty Valley in March 2018, 100% leased and commenced the NZ$790 million (SCG share: NZ$400m) of the redevelopment of Westfield Newmarket in 2018.  The Total specialty in-store sales were up 2.0% for the quarter and 1.4% for the year while majors in-store sales were up 0.8% for the quarter and 0.3% for the year. Total stable portfolio sales were up 1.1% for the quarter and 1.1% for the year.


Speciality Stores Sales Performance (Source: Company Reports)

The Group confirmed its guidance for full-year growth in funds from operations (FFO) of approximately 4% and confirmed the distribution guidance of 22.16 cents per security. The Group has worked hard in the past few years to establish a workplace culture that is meaningful and productive, and it has been rewarded with achieving a level of staff engagement and this has put Scentre in the top 2% of companies globally. While the stock price witnessed a downward trend for past one year (9.2 per cent) but the stock witnessed some recovery by about 3.4 per cent in the past one month. After looking at the overall performance and the current landscape, we give a “Buy” recommendation on the stock at the current market price of $ 3.950.
 

Comparative Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.