Stocks’ Details
 

Boral Limited

 
Strong EBITDA margins: Boral Ltd (ASX: BLD) stated its guidance for FY 2019 and expects the EBITDA for Boral Australia to grow by a high single-digit excluding their property business. As the company has started to gain footprints in North America due to the acquisition of headwaters, hence a 20% EBITDA growth is expected from that market post the sale of its block business. This guidance is on the premise that the forecasted growth in RHS&B would be around 8%, Non-residential demand would gain traction & increase by 10% steering over the impacts of softening housing construction market & a favourable weather conditions across its key markets. For the Q1 2019, the Boral Australia’s Infra and commercial activity showed robust signs however there was moderation in the residential segments. As regards Boral North America, there were significant delays in construction activity due to very heavy rainfall leading to project delays. Fly ash volumes remain low as a result of the earlier sale of the Texas facility, however, the acquisition of headwaters is delivering the synergies as expected & the US $ 25Mn is expected in synergies for the FY 2019. The company has clocked an EBITDA of $1,056 Mn for the FY18, up by 47% on Y-o-Y basis. This was on the back of a full 12 months contribution from headwaters and strong growth from Boral Australia. The NPAT also saw a rise of 47% to reach $514 Mn. This growth was on account of the full recovery of cost increases through regular price increases. Based on performance, the company has declared a full year 50% franked dividend of 26.5cps which is up by 10% on a Y-O-Y basis. This represents a payout of 66% which is in line with the company’s dividend policy.
 
 

Segmental Revenues (Source: Company Reports)
 
From the analysis standpoints, the Company is trading at EV/Sales (TTM) multiple of 1.40 times which is below the industry median, showing that the company is trading at a cheap valuation. Also, the company’s dividend yield ratio is 5.15% which is decent enough & above the Industry standards. Hence these parameters suggest that the stock is trading cheap at the current market price. The stock price has fallen substantially over the past three months by 19.78% as on 28 November 2018 hence posing an attractive opportunity for the investors eyeing for regular income in the form of dividends. Hence considering strong EBITDA growth and robust dividend pay-outs, we reiterate our “Buy” recommendation on the stock at the current market price of $5.260.
 
 

BHP Billiton Limited

 
Strong balance sheet and pay-out ratio dividend underpin financial flexibility: BHP Billiton Ltd (ASX: BHP) has confirmed identification of the new iron oxide copper-gold mineralized system. The laboratory results have shown mineralization intercepts ranging from 0.5 % to 6% copper with associated gold, uranium & silver metals. Since the exploration is still at a nascent stage, the company is still evaluating the obtained results and planning further drilling in early 2019. The company is also heavily committed upon improving its capital allocation and thus briefed that it the net debt in the range of US $10-15 Bn and maintaining the Dividend payout ratio of at least 50% going further as it’s an important component of TSR. In line with this, the company has a staggered maturity profile which provides it added flexibility & aids in maintaining a positive asset-liability gap across the periods.

The revenues for the FY 2018 came in at US$43.6 Bn a growth of 21 % on a Y-o-Y basis. This growth was achieved on the back of higher average realized prices across most commodities. The underlying EBITDA was at US$23.2 Bn exhibiting a growth of 20% on a Y-o-Y basis. This was on account of robust operating performance at Escondida and western Australia Iron ore. These operations lead to a productivity gain of US$ 374Mn.

Going forth, we believe that the company is committed to enhancing total shareholder return (TSR) which is clear enough from the recent developments in the “Capital Allocation briefing” & the sale of its non-continuing operation of the On-shore US shale assets for US$10.5 Bn, the proceeds of which will be returned to the shareholders in the form of a buyback and special dividend as a part of the firm’s “Shareholder return program”.

(Source: Company Reports)
 
On the analysis front, the company has provided a dividend yield (TTM) of 6.9% vis-à-vis the industry average of ~3.7%, moreover the company has a strong balance sheet which is evidenced by the strong cashflows and a Net Debt/ EBITDA (FY 2018) ratio of 0.61 times which was 2.28 times for the FY 2016 exhibiting a fall at a CAGR of 48.27% p.a. signifying that the firm has been successful enough in decreasing its debt burden over the period. Considering the strong balance sheet & stable dividend pay-out, we reiterate our “Hold” recommendation on the stock at the current market price of $30.980 as the stock is trading slightly below the average of 52 week high and low prices.
 
 

Magellan Financial Group Limited

 
 
Constant Growth in FUM to drive revenues: Magellan Financial Group Ltd (ASX: MFG) as at 31 October 2018, had funds under management amounting to $72,981 Mn, of which $19,725 Mn is from retail investors and the rest from the institutional investor. The application of the same represents that the company has more than 72% exposure towards global equities.

The company has posted strong numbers for the year ended June 30, 2018 exhibited by a 29% growth in the average funds under management which stood at $59 Bn for the 12 months to June 30, 2018. This growth in FUM was driven by the robust investment performance of $ 8.5 Bn, net inflows post distributions of $4.4 Bn and $6.3 Bn from the acquisition of Airlie. The revenues for the FY 2018 came in at $452.6 Mn scaling a rise of 34% on a Y-O-Y basis. This was mainly driven on the back of management fees revenues on account of the growth in FUM and performance fees. PAT has shown a rise of 8% and stood at $211.8 Mn. This was due to a stellar investment portfolio performance in global equities & infrastructure projects segments. The cost to income ratio was recorded at 25% in comparison with 26.8% for the PCP, on account of the efficient conduct of operations.

Going further, the most important factors that are slated to fuel further growth shall still remain intact in the form of- strong client base, focuses on to achieve revenue growth in the range of 7-9 % on an average basis over the medium to long-term on existing FUM’s and the dividend yield that is delivered to the shareholders.

MFG’s Revenue Growth Drivers (Source: Company Reports)
 
From analysis standpoints, the firm has provided a Dividend yield (TTM) of 5.6% while the median for the Investment banking sector is at 5.3% thus the company yields better dividend on the price paid by shareholders. Also, the stellar outperformance can be seen on the returns aspect where the company has a ROE (FY 2018) of 39.7% as compared to the 9.7% of the concerned industry median for the same period. Meanwhile, the share price has fallen a modest 6.15% in the past three months as at November 28, 2018. Thus, considering a robust Investment portfolio performance, and outperformance on the returns front we maintain our “Buy” recommendation on the stock at the current market price of $26.600.
 

 Scentre Group

 
Market position continues to grow:Scentre Group (ASX: SCG) via its Q3 operational update stated that it has achieved an occupancy of 99.5% across its portfolio with a total lettable area of 3.7 million sq meter which shows that high-quality retail space is in demand. The firm is also holding a strong portfolio in the re-development space where it has successfully opened more than $1Bn worth redevelopment work across 4 Australian states. Distribution for the 1H FY 2018 stood at 11.08cps Mr. Steven Lowy would vacate the office of Director in April 2019 and won’t seek re-election as a director at the ensuing AGM, however, the Lowly family’s group investment in Scentre group would still remain intact going further.
 
On the other hand, the firm posted a Net Operating Income of $984.2 Mn up by 2.5% on PCP for the 1H 2018. This growth was achieved on account of contracted annual rent escalations by an approximate of CPI (Composite Price Index) and an additional 2% above it. The FFO (Funds from operation) which is a key financial metric for this sector grew by 3% to reach $657.2 Mn. This growth was on account of an escalation in the “Total speciality in-store” sale of 2.1% for the first half. Moreover, the firm has been consistent on its group forecasts stating that the FFO growth for the 12 months ending 31 December 2018 would be approximately 4.0%. Also, the distribution for the same period is expected to be 22.16 cents per security, an increase of 2% on a Y-O-Y basis. The company has completed the $ 80 Mn redevelopment of Westfield plenty valley, which is a leisure property and it has been well accepted by the community & hence trading strongly.
 

 SCG’s Future Developments across Australia (Source: Company Reports)
 
Moreover, the company has a dividend yield (TTM) of 5.50% which is at par with industrial median and also the ROE for 1HCY18 came in at 6.4% as compared to 6.9% of the Industry median. Hence, considering the stable real estate markets and constant growth in the funds from operations, we maintain our “Buy” recommendation on the stock at the current market price of $4.010.
 
 
Westpac Banking Corporation
 
Strong asset quality: Westpac Banking Corporation (ASX: WBC) has via its pillar 3 report provided disclosures w.r.t the Australian Prudential Regulatory Authority (APRA) implementation of BASEL III Norms whereby it’s CET1 came in at 10.63% as at 30 September 2018. This was an improvement of 13 bps from the levels at 31 March 2018. The improvement in the capitalization was on account of the increase in cash earnings by 90 bps in the second half of 2018 & conversion of preference shares to common equity. Moreover, the ordinary RWA (Risk-weighted assets) fell slightly. On another release on ASX, the company also announced the successful completion of its “Westpac capital note 6” offer. The margin for the offer has been set at 3.7% p.a. and the offer size has been increased to $1.25Bn. The reinvestment offer & the security holder offer has opened on 20 November 2018 & expected to close on 11 December 2018.
The firm had a mixed FY 2018 performance, cash earnings for the year came in at $ 8,065 Mn up by 3 Mn on a Y-o-Y basis. This was due to the incurrence of litigation and regulatory costs associated with the implementation of the recommendation of the Royal Commission. NPAT was up 1% and reached $8,095 Mn. This marginal growth was due to the fact of higher funding costs, lower mortgage margins, and reduced markets & treasury contribution. However, the balance sheet remained strong with a 6% rise in the Tier 1 capital, also the credit quality remained a strong aspect with stressed assets being only 1.08% of the total committed exposures.
 
 
 
Total Regulatory Capital (Source: Company Reports)
 
From the analysis front, the company has given a dividend yield of 7.15% versus the Industry median of 6.1%. also, the Net Interest margins (FY 2018) were 2.13% as compared to the 1.94% as clocked by industry, which shows that bank has invested its funds more effectively as compared to the industry as whole.Meanwhile, the stock price has fallen 7.04% over the past six months as on 28 November 2018, thus posing an attractive opportunity for the investors to acquire the stock at these levels. Hence considering the strong asset quality across segments and the robust balance sheet, we maintain our “Buy” recommendation on the stock at the current market price of $26.420.


 
 
Stock Price Comparative Chart (Source: Thomson Reuters)
 

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