Qantas Airways Limited

QAN Details

Update on Level of Foreign Relevant Interest: Qantas Airways Limited’s (ASX: QAN) stock climbed up 1.97 per cent on August 16, 2018 following the update on Level of Foreign Relevant Interest in Qantas Shares. As per the releases, foreign investors are permitted to hold relevant interests of not more than 49% of the issued share capital of the group. As at 30 May 2018, foreign investors held relevant interests of 45.57% in the issued share capital of Qantas. Based on the most recent reconciliation program completed on 24 July 2018, the foreign investors held relevant interests in 43.35% of the issued share capital of Qantas. As per the Qantas Constitution, it noted that within 10 days of becoming registered, foreign purchasers are required to notify the Company of their acquisition of relevant interests in the Company shares. On the financial front, RoE and RoCE substantially increased from 9.3 per cent and 3.3 per cent to 16.7 per cent and 5.9 per cent, respectively in 1HFY18 from the previous six months. The quick ratio and current ratio stood at 0.42x and 0.47x, respectively in 1HFY18 which is slightly up from the industry median i.e., 0.35x and 0.38x.


Qantas Loyalty EBIT trend (Source: Company Reports)

AllianceBernstein Australia Limited ceased to be the substantial holder of the Group since 31 July 2018. Meanwhile, the share price has risen 26.63 per cent in the past six months as at August 15, 2018 and traded at reasonable PE level (12.54x) among its peer group. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $6.74, considering sentiments in the market along with decent fundamentals.
 

QAN Daily Chart (Source: Thomson Reuters)
 

Catapult Group International Ltd

CAT Details

Decent Outlook Ahead: Catapult Group International Ltd.’s (ASX: CAT) stock tumbled 4.545 per cent on August 16, 2018 after the release of full-year result for the period ended 30 June 2018 wherein statutory net loss after income tax expense amounted to $ 17.4 Mn in FY18, up from $ 13.6 Mn in FY17 at the back of higher operating expenses and income tax during the same period. However, statutory revenue grew by 26 per cent in FY18 and amounted to $76.8 Mn as compared to the previous year. It was mainly driven by robust performance in the core business. Resultantly, statutory EBITDA increased by 48 per cent in FY18 against FY17. The Core business includes Catapult’s Elite Wearables and Elite Video and accounted for 96 per cent of the group revenue in FY18, contributing (after corporate costs) $0.8 Mn to the group underlying EBITDA in FY18. During the year, the core business won customers in 11 new countries and signed new league-wide deals with UK’s Rugby Football League, Scottish Rugby, and AFL Women’s League. It also launched its new PLAYR product for Prosumer soccer players in June 2018 and received a positive response from the market and generated revenue of $3.4 Mn in FY18, up from $1.0 Mn in FY17. Based on the full-year performance of this product, the management stated that the early sales of this product are in line with the group’s expectation. Therefore, we expect that the group is on track to deliver positive cash flow at the Group level by FY21, as per long-term guidance provided in March 2018.
 

FY18 Financial Highlights (Source: Company Reports)

Moreover, cash and cash equivalent at the end of the year was $ 31.715 Mn against $ 16.686 Mn of the previous year. This improved cash position will help to further business development events. On the stock performance front, the share price has fallen 38.20 per cent in the past six months as at August 15, 2018 and traded at the 52-week lowest level. However, the management believes that the drivers for growth in FY19 entail double-digit percentage growth in ARR, continued momentum in elite video revenue growth, increasing operating leverage in the core business and strong momentum in Prosumer. Hence, we give a “Hold” recommendation on the stock at the current market price of $1.050.


CAT Daily Chart (Source: Thomson Reuters)
 

Stockland Corporation Ltd

SGP Details

Business Restructuring for Future Growth: Stockland Corporation Ltd (ASX: SGP) announced changes to its Executive Committee and the integration of its retirement and residential businesses with the objective of improving operational efficiency and position the business for sustainable growth into the future. After the announcement, the share price mounted to 1.179 per cent on August 16, 2018.

As per the release, the Company's retirement and residential businesses will be combined under the leadership of Mr. Andrew Whitson, currently Group Executive and CEO Residential, who will be turned as Group Executive and CEO, Company Communities. The management expects that these changes will ensure to execute on its community’s strategy by taking advantage of its integrated model and leverage capabilities across the group. Hence, we expect that this business reshaping strategy will further strengthen the group’s communities focus, with a combined development pipeline of over 82,000 residential lots and 3,000 retirement units in key growth corridors across the country.


Diversified Business Model (Source: Company Reports)

Besides this, the group has tightened its earnings guidance to around 6.5% growth in FFO per security for FY18. This equates the top end of its previous guidance range of 5% to 6.5% and reflects continued growth in Stockland’s market-leading residential business, with approximately 6,400 settlements completed in the year to June 2018. Based on this, the Board of Directors reaffirmed the estimated distribution for the six months to 30 June 2018 of 13.5 cents per Ordinary Stapled Security, bringing the total distribution payment for FY18 to 26.5 cps, in line with guidance previously issued by Stockland. It will be paid on 31 August 2018 with the record date of 29 June 2018. Meanwhile, the share price has risen 7.61 per cent in the past six months as at August 15, 2018 and traded close to 52-week high level. Hence, we maintain our “Expensive” recommendation on the stock at the current price of $4.290.
 

SGP Daily Chart (Source: Thomson Reuters)
 

Woolworths Group Limited

WOW Details

Update on ALH Group Review into Responsible Gaming Practices: Woolworths Group Limited’s (ASX: WOW) stock traded flat with an intraday volume of circa 5.6 Mn as on August 16, 2018. The group has recently responded on the investigation on whistle-blower allegations raised against ALH Group venues by Federal MP Andrew Wilkie in February 2018. In response to a Federal investigation, the group has admitted to profiling pokies gamblers and targeting players with free drinks to encourage betting. Further, it stated that the practices identified at a limited number of hotels in Queensland, South Australia, and New South Wales, are at odds with the priorities and values of its customers and the communities where the group operates. In turn to the group response, ALH Group will ban service of free alcoholic drinks in the gaming rooms.  Besides this, the RGCC review highlighted that there was a strong commitment within the ALH Group to responsible gaming as the company knows that there is more to do, and the measures being implemented are aimed at ensuring that the ALH Group remains a leader when it comes to best practice in this space.

In the meantime, RoE stood at 9.2 per cent in 1HFY18 which is higher than the Industry median (i.e., 4.7%). The Quick ratio and Current ratio came at 0.35 and 0.84x, respectively in 1HFY18 which is broadly in line with Industry median. Based on foregoing, we maintain our “Hold” recommendation on the stock at the current market price of $29.700 ahead of its earnings result.
 

WOW Daily Chart (Source: Thomson Reuters)
 

Technology One Limited

TNE Details

Adoption of New Accounting Standard:Technology One Limited (ASX: TNE) has recently announced that the group will change its accounting policies and will adopt IFRS 15 / AASB 15, which will be transitioned to SaaS accounting starting in the Financial Year 2019. With the adoption of a new accounting standard, the SaaS business reporting will become simpler. It is noted that the cash and cash flow does not change with the adoption of these policies and the Company expects a minimal impact on the Profit in FY19. However, the Company will continue to grow NPAT between 10% to 15% pa going forward.  The management has taken a holistic approach and reviewed all its accounting practices, not just IFRS 15 / AASB 15 to ensure that they reflect its fast-growing SaaS business. In doing so, this change will bring the group accounting policies in line with the industry, making it easier to compare its performance with its SaaS peers. Resultantly, the group will become a stronger, simpler and better business and will support the continuing strong growth of its SaaS business in the upcoming years.


Tentative Implication of P&L financials Post Adopting IFRS GAAP (Source: Company Reports)

Moreover, Hyperion Asset Management Limited, a substantial holder of the group changed its holding from 13.07% of interest to 12.02% of the voting power. Meanwhile, the share price climbed up 14.38 per cent in the past one month and traded relatively at a lower PE level (35.33x) as compared to the peer group. Hence, we give a “Buy” recommendation on the stock at the current market price of $ 5.280, considering positive outlook of SaaS business and the group adopting new accounting policy which will provide stronger, simpler and better business going forward.
 

TNE Daily Chart (Source: Thomson Reuters)

 
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