National Australia Bank Limited

NAB Details

Agreement to Sell MLC Wealth: National Australia Bank Limited (ASX: NAB) provides banking, financial and related services. The market capitalisation of the bank stood at $58.99 billion as on 31^st August 2020. Recently, the bank announced that it has reached a Sale and Purchase Agreement with IOOF Holdings Ltd for selling 100% of MLC Wealth for a purchase price of $1,440 million. This purchase price reflects a multiple of 17.3x MLC’s cash earnings of around $83 million. NAB is also likely to receive around $220 million of surplus cash from MLC in the form of a pre-completion dividend. This divestment is likely to allow NAB to prioritise investment and focus on executing its refreshed strategy of delivering simpler, more streamlined products and processes. On 21^st August 2020, the bank announced that it has issued US$1,500,000,000 subordinated notes due 2030 with respect to its US$100,000,000,000 global medium-term note program.

Q3 FY20 Results: During Q3 FY20, NAB reported an unaudited statutory net profit of $1.50 billion and cash earnings of $1.55 billion. NAB added that the Q3 results were impacted by the current operating environment, volatile markets, subdued credit demand, low-interest rates, cost pressures and declining assets quality.

Financial Metrics (Source: Company Reports)

Future Focus: The bank is positioning its business for a return to growth post COVID-19. NAB is also focused on maximizing organic capital generation.

Key Risks: The bank’s business is exposed to strategic risk, which is associated with the inability of the group to execute its chosen strategy effectively or in a timely manner. In addition, NAB is sensitive to credit risk, which arises from its lending activities as well as markets and trading activities.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As on 30^th June 2020, CET1 ratio of the group stood at 11.6% against 10.4% of March 2020. At the end of the quarter, liquidity coverage and a net stable funding ratio of the bank stood at 132% and 120%, respectively. On the technical analysis front, the stock of the company has an immediate support level of ~A$16.578 and a resistance level of ~A$20.875. We have valued the stock using the price to book value multiple based illustrative relative valuation method and have arrived at a target price of low double digit-upside (in percentage terms). Therefore, considering the future focus, sale of MLC Wealth, decent liquidity and decent deposit inflow, we give a “Buy” recommendation on the stock at the current market price of $17.930 per share on 31^st August 2020.

NAB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Telstra Corporation Limited

TLS Details

Growing Customer Base: Telstra Corporation Limited (ASX: TLS) is engaged in the provisioning of telecommunication and information services. The market capitalisation of the company stood at ~$34.49 billion as on 31^st August 2020. Despite the competitive and challenging market, the company continued to grow its customer base in FY20. The multi-brand strategy of the company continued to generate subscriber growth, mainly in the mobile segment where, the company added 240,000 retail postpaid handheld mobile services, including 154,000 from Belong. During FY20, the company reported underlying EBITDA of $7.4 billion, reflecting a fall of 9.7%. Total income and NPAT for the period went down by 5.9% and 14.4% to $26.2 billion and $1.8 billion, respectively on a reported basis.  The company declared fully franked final dividend of 8 cps, comprising a final ordinary dividend of 5 cps and a final special dividend of 3 cps. This took the total dividend for FY20 to 16 cps. TLS will pay the final dividend on 24^th September 2020.

Key Financials (Source: Company Reports)

Guidance: For FY21, the company is expecting to report total income in the range of $23.2 to $25.1 billion, and underlying EBITDA of between $6.5 to $7.0 billion. The company is scheduled to conduct its Annual Shareholders Meeting on 12^th October 2020.

Key Risks:  The company’s business is sensitive to material business risk, which includes privacy and cyber security risk as well as the rising competition from its peers. Moreover, TLS is also sensitive to financial risks such as interest rate risk, foreign currency risk, credit risk and liquidity risk.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During FY20, the company returned $1.9 billion to shareholders. The company has invested and would continue to invest, for long-term returns and opportunities. On the technical analysis front, the stock of the company has an immediate support level of ~A$2.837 and a resistance level of ~A$3.868. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Vocus Group Ltd (ASX: VOC), Uniti Group Ltd (ASX: UWL), and Service Stream Ltd (ASX: SSM) and arrived at a target price of low double-digit upside (in percentage terms). Thus, considering the growing customer base, guidance for FY21, and investments for future growth, we give a “Buy” recommendation to the stock at the current market price of $2.890 per share, down by 0.345% on 31^st August 2020.

TLS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

IGO Limited

IGO Details

Decent Growth in Financial Results: IGO Limited (ASX: IGO) is a nickel, gold, copper-zinc-silver mining, development and exploration company. The market capitalisation of the company stood at $2.63 billion as on 31^st August 2020. For FY20, the company reported revenue and other income of $892 million, reflecting a rise of 13% on previous year, driven by the increased revenue from the sale of nickel and copper concentrates from Nova and gold bullion from Tropicana. The company recorded an underlying EBITDA of $460 million and a net profit after tax (NPAT) of $155 million. FY20 proved as a second consecutive year of record revenue and underlying EBITDA. The Board of the company has resolved to pay an unfranked final dividend of $0.05 per share on 25^th September 2020. This brought the full-year 2020 dividend to $0.11 per share. The ex-date for the said dividend is 10^th September 2020. The nickel production for the year stood at 30,436t and production at nova operation for all metals was above its guidance

Key Financials (Source: Company Reports)

Production Guidance: For FY21, the company is expecting production of Nickel in concentrate in the range of 27,000 to 29,000t and Copper in concentrate of between 11,000 to 12,500t at Nova operation. The gold production at Tropicana is expected of between 380 to 430koz. The company is likely to conduct its Annual Shareholders Meeting on 18^th November 2020.

Key Risks: IGO Limited’s business is sensitive to any change in market supply and demand for products.   In addition, the company is also exposed to economic, environmental, and social sustainability risks.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During FY20, the company reported a record underlying free cash flow of $311 million, which took the cash balance to $510 million. On the technical analysis front, the stock of the company has an immediate support level of ~A$3.948 and a resistance level of ~A$5.741. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Regis Resources Ltd (ASX: RRL), Newcrest Mining Ltd (ASX: NCM), Saracen Mineral Holdings Ltd (ASX: SAR) and arrived at a target price of low double-digit upside (in percentage terms). Therefore, in light of decent performance in FY20, record underlying free cash flow, and production guidance, we give a “Buy” recommendation on the stock at the current market price of $4.430 per share, down by 0.449% on 31^st August 2020.

IGO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Monadelphous Group Limited

MND Details

A Look at FY20 Results: Monadelphous Group Limited (ASX: MND) is involved in the provisioning of engineering services within Australia. The market capitalisation of the company stood at $1.05 billion as on 31^st August 2020. For FY20, the company reported revenue of $1.65 billion, which indicates a significant rise in shutdown and maintenance work in the resources sector, particularly in 1H FY20, as well as the commencement of several large resource construction projects. MND’s Maintenance and Industrial Services division witnessed a rise of 5.1% in annual revenue to $1.05 billion. Net profit after tax for the period amounted to $36.5 million. In addition, the earnings for 2H FY20 were impacted by the disruption caused by COVID-19, and the disappointing levels of profitability in the Water Infrastructure business. During the year, the company managed to secure approximately $1.2 billion of new contracts and extensions, which include numerous strategically important contracts wins for Mondium and its rail infrastructure maintenance services business.

Revenue by Division (Source: Company Reports)

Outlook: The company is optimistic about the long-term outlook for renewable projects. In addition, the company is expecting long term demand for maintenance services to grow. MND is likely to conduct its Annual Shareholders Meeting on 24^th November 2020.

Key Risks: MND is sensitive to the risk associated with the extent and duration of Covid-19 impacts its operational activity and productivity levels. In addition, the company is also exposed to interest rate risk, foreign currency risk, credit risk and liquidity risk.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company declared a fully franked final dividend of 13 cents per share, taking the full-year dividend to 35 cents per share. The company will pay the final dividend on 2^nd October 2020. Despite the recent challenging economic and operating conditions, the company managed to close the year with a strong balance sheet, comprising a cash balance of $208.3 million.  Debt to equity of the company stood at 0.24x in FY20 as compared to the industry median of 0.44x. On the technical analysis front, the stock of the company has a support level of ~A$7.775 and a resistance level of ~A$15.960. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Downer EDI Ltd (ASX: DOW), Aurizon Holdings Ltd (ASX: AZJ), Fletcher Building Ltd (ASX: FBU), etc., and arrived at a target price of low double-digit upside (in percentage terms). Hence, considering a decent pipeline of contracts and robust balance sheet, and long-term outlook of the company, we give a “Buy” recommendation on the stock at the current market price of $11.290 per share, up by 1.62% on 31^st August 2020.

MND Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Altium Limited

ALU Details

Decent Growth in Top-line: Altium Limited (ASX: ALU) is engaged in the development and sales of computer software for the design of electronic products. The market capitalisation of the company stood at $4.7 billion as on 31^st August 2020. During FY20, the company achieved revenue growth of 10% to US$189 million, reflecting solid performances in all core business units and key regions. Profit before tax for the year amounted to US$65 million, up 12% on the previous year. In addition, the company managed to achieve record growth of 17% in the subscription base to 51,006 subscribers. ALU witnessed a rise of 15% in new Altium Designer seats sold to 9,251. The company declared an unfranked final dividend of A$19 cents per share, reflecting a rise of 6%. The record and payment date for the dividend is 4 September 2020 and 24 September 2020, respectively.

Revenue Breakdown (Source: Company Reports)

Long-Term Goal: The long-term goal of the company revolves around achieving 100,000 subscribers and US$500 million in revenue by 2025. In addition, the company is also committed to providing a more stable predictable revenue model as it moves from software to a cloud-based platform.

Key Risks: Altium Limited is exposed to strategic risk, financial risk, and compliance and regulatory risk, which may impact financial performance. Further, the business is also sensitive to market risks, such as foreign exchange risk and interest rate risk.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation Approach (Illustrative)

EV/EBITDA Multiple Based Relative Valuation Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the period of 2016-2020, the company’s revenue has increased at a CAGR of 19%. The company closed the year with a decent cash balance of US$93 million and debt-free position. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and have arrived at a target price offering an upside of high single-digit (in percentage terms). For the said purposes, we have considered WiseTech Global Ltd (ASX: WTC), NEXTDC Ltd (ASX: NXT) Appen Ltd (ASX: APX), etc., as peers. Therefore, considering the decent growth in subscribers and revenue, long-term goal, decent cash balance and debt free position, we give a “Hold” recommendation on the stock at the current market price of $36.540 per share, up by 1.925% on 31^st August 2020.

ALU Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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