Stocks’ Details

DuluxGroup Limited (ASX: DLX)

Increase in net debt and impact on Operating cash flow: Home improvement materials company released its half-yearly report ending on 31 March 2018 and indicated an increase of 4.2 per cent in Revenue ($918.1 million) and 5.3 per cent in Business EBIT ($126.8 million). All segments achieved revenue growth, led by a strong performance from Dulux ANZ (+5.7%). On the other hand, operating cash flow was $36.9 million, a decrease of 25.8%, due to higher tax payments and due to impacts associated with the sale of China and Glen Waverley. The Board announced an interim dividend of 14.0 cents per share, fully franked, an increase of 7.7% on the prior corresponding period (pcp). The Corporate result for the half includes the profit from the sale of the Glen Waverley site ($6.1 million), partially offset by $2.0 million of Merrifield factory start-up costs and $1.2 million of other one-off expenses. There was an increase in net debt due to investment in the new paint factory. Net Debt as in September 2017 was A$375.7 million as compared to A$409.1 million in March 2018. The Group result also included solid earnings growth in Selleys & Parchem ANZ, B&D Group and Lincoln Sentry, which collectively grew profit by 6.5 per cent.
 

Capital Management Performance (Source: Company Reports)

Net Debt to EBITDA was 1.4x, consistent with September 2017. Excluding these impacts, the underlying Corporate result was in line with expectations. In the second half, the Group expects overall market growth, driven by renovation and repair, and commercial segments. The Merrifield factory will complete its ramp-up to full production during the half and raw material costs are expected to continue to increase well above inflation rates, driven by titanium dioxide and latex. Full year EBIT margins are expected to be in line with FY17. Directors expect to maintain a dividend pay-out ratio on NPAT before non-recurring items of at least 70% on a full year basis. The Group announced that Chairman Peter Kirby will retire from the Board, effectively from 30 June 2018. He will be succeeded on the same date by Company’s non-executive director Graeme Liebelt. In last one year, the share price climbed up by 17.69 per cent and was up by 10.12 per cent in last three months. This was followed by a drop of 2.2 per cent on 17 May 2018. The stock looks “Expensive” at the current market price of $7.87, given the trading levels and many catalysts already factored in the price.
 

Villa World Limited (ASX: VLW)

Significant Portfolio Growth: With some positive catalysts, Villa World expects to exceed its sales target of 1400 lots while the average sales rate has increased to 141 sales per month in 2H18. The Group lately announced a decent operational update for Third Quarter of 2018 with Flagship project releases contributing to a strong third quarter sales result (1,281 sales to the end of April 2018). The Company is targeting FY18 NPAT of $41.6 million, and will closely monitor sales conversion, as well as product delivery and land title registration towards the end of 2H18 and will provide further update if necessary. The Company continues to target FY18 dividend of at least 18.5 cps fully franked (1H18 figure of 8 cps; 2H18 expected dividend of at least 10.5 cps). Sales in the Victorian market continue to be strong, having come off the peak of late calendar year 2017.


Revenue and NPAT Performance (Source: Company Reports)

The Company is continuing its strong track record in Melbourne’s greenfield corridors. The Queensland market remains strong with several flagship projects providing significant exposure in a market with expected growth potential. On the Gold Coast, Arundel Springs has recorded strong sales across four stages. The first town homes overlooking the central park are to be released in the first half of FY19. Villa World completed house and land packages have been well received by the market since display openings, but softening market conditions might impact the Company’s growth in the New South Wales market. The stock was down by 3.14 per cent in last six months, followed by a rise of 1.65 per cent in last one month. We give a “Hold” recommendation at the current market price of $2.49.
 

WAM Research Limited (ASX: WAX)

Investing in undervalued international growth companies: The Group aims to leverage from global opportunities that navigate through the peak in the growth cycle with rising interest rates and volatility. The investment strategy is that it screens the investment universe for value and growth and then one will rate the investment on Qualitative and on Quantitative aspects like by forecasting EPS growth. WAX purely looks at the quality of the underlying business rather than trying to find any value arbitrage like some of the other WAM LICs.Recently, WAM group exceeded the $16.5 million minimum offer proceeds in its strictly limited $550 million initial public offer (IPO) capital raising, which opened on 2 May 2018. The group achieved investment portfolio performance of 18 per cent per annum, by outperforming the index performance by 9.0 per cent since the change in investment strategy, i.e., 2010. Increased volatility and mispricing opportunities provide a fertile ground for investing. Owing to the prevailing volatility, the group underperformed the S&P/ASX All Ordinaries Accumulation Index by 3 per cent in April. Since inception, WAM Research has paid 89.9 cents per share in fully franked dividends to shareholders. The share price has not moved much since the start of the year (down 1.97 per cent), however, the group still aims to provide consistent returns through dividends and other efforts. We give a “Speculative Buy” recommendation at the current market price of $1.480.
 

Money3 Corporation Limited (ASX: MNY)

Revenue continues to grow with further growth expected in H2: Money3 is a national credit provider committed to servicing the needs of customers who cannot access funding from traditional lenders. The Company recently announced that it has drawn down the second $50 million tranche of funding under its finance facility with FCCD (Australia) Pty Ltd, an entity within the Fortress Investment Group. The drawdown paid the existing $30 million bond facility that was going to mature on 15 May 2018. The Group issued 534,720 shares at an issue price of $1.296056 each share. The Board ofDirectors declared an increased interim dividend of 4.5 cents per share which was up by 80 per cent on a year on year basis and will be paid on 21 May 2018. Revenue was up by 16.8 per cent and amounted to $60.4 million in 1HFY18 from $51.7 million in 1HFY17 on the back of product mix growth.


Dividend Yield Performance (Source: Company Reports)

Money3 continues to experience strong growth and demand for its secured automotive loan products. There is significant scope for Money3 to grow its market share of the second-hand automotive finance market into the future and expects to take 3 per cent market share in the coming 12 months. The Directors also increased the guidance for FY2018 Net Profit After Tax to a range of $30- 31million. The Gross loan book continues to grow in line with expectations and the Group expects to continue a solid return in the second half of the financial year. Importantly, the strength of its secured automotive lending is now clearly visible in the results. The share price was up by 23.75 per cent in one year and was up by 8.82 per cent in three months. The stock was up by 2.78 per cent in last five days. On the basis of overall performance, we give a “Hold” recommendation at the current market price of $1.865.
 

Collins Foods Limited (ASX: CKF)

Continuing to build on growth platform: Collins Foods is a large scale fast food franchisee that runs a lot of KFCs around Australia. The market was concerned on a recent move by one of its DirectorNewman Manion, having an indirect interest in the Company disposing of 21,819 shares. Then, Kevin Perkins has decided to retire from his executive role of managing the Sizzler business but will remain on the Board as a non-executive director and substantial shareholder of the Company. On the other hand, the Company has recently expanded its share in the European market as Europe has a larger population than Australia which will help the Company to grow. It has also started opening Taco Bells in Australia. Expansion in Asia region with increased store counts over the period, is expected to boost growth in years to come. The Group declared a fully franked dividend of 8.0 cents per ordinary share (HY17: 8.0 cps). It completed remodelling of its 6 models and acquired 5 out of 28 restaurants from Yum. In Australia, KFC focuses on increasing systematisation by aligning and upgrading all operating systems to ensure unified, high-quality customer experience amongst Collins Foods’ KFC restaurants. The share price was down by 5.15 per cent in last six months, followed by a rise of 2.4 per cent in last one month. We give a “Buy” recommendation at the current market price of $5.55 by looking at the future prospects.

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