REA Group Limited
REA Group Limited (ASX: REA) has plunged over 17.3% in the month of May partly attributed to the lower than expected results by its major shareholder News Corporation (which has 61.6% interest in REA Group).
However, News Corporation’s Digital Real Estate Services segment revenue delivered 48% increase in revenues in year over year terms to $141 million, partly driven by $34 million by REA Group and $107 million by Move (in which REA group investedand $231 million). Moreover, for the nine months ended on 31
st March 2015, REA Group‘s revenue increased by 21% to $384 million, as compared to the corresponding period in last year, which we believe is a decent performance.The group has also improved its earnings per share by 34% to 71.8 cents as compared to 53.7 cents in the prior year’s corresponding period.
REA Group’s realestate.com.au is a market leader in Australia, holding 92.8% of all residential property listings nationwide, as compared to its nearest competitor which has just 67.3%. The site has successfully attracted unique audience of 4.0 million during March 2015, which is more than 1.5 million as compared to the firm’s closest competitor’s customer base. The group’s presence in mobile sites is also growing. REA group’s total average monthly visits across Australian main sites, mobile sites and apps is 44.6 million which is way higher than its immediate competitor’s figure of 20.3 million total visits.
.png)
Segment Revenue (Source: Company Reports)
The company is aggressively making investments in other regions like Europe through atHome.lu and immoRegion.fr, China through myfun.com, United States through Move, Inc and in Asia through iProperty Group Ltd (ASX:IPP). REA group has invested over $109 million in iProperty during the first half of 2015. The firm’s Agent Profiles product was successful enough to attract over 3.28 million views since its launch during last year. Recently the company launched utility connections services and Apple Watch app.
With the shares of REA Group consolidating since last four weeks (delivered 0.41% returns) post the heavy slump, we are bullish on the stock at the current levels of $39.55.
G8 Education Ltd
G8 Education Ltd (ASX:GEM) reported outstanding results during 2014, reporting a 79% increase in revenues to $491.3 million and 117% surge in earnings before interest and tax to $107.2 million, as compared to the prior year. Net profit after tax rose 70% yoy to $52.7 million. This increase was driven by the acquisition of 203 childcare centers as compared to 86 centers in 2013 and 33 centers in 2012. The total owned childcare centers soared by 81% to 455 in 2014. The firm also boosted its dividends in 2014 to 24 cents per share, per annum which is paid quarterly. As a result of the group’s strong performance in 2014, the shares of G8 Education hit an all-time high of over $5.63 during September 2014.
.png)
2014 Performance (Source: Company Reports)
On the other hand, the stock has been correcting post its all time high levels, on investors concerns over the firm’s funding capacity of its future announced acquisitions while maintaining increased dividends. As a result, the shares of G8 Education has delivered a negative year to date returns of 21.8% and fell over 13.1% in just last four weeks.
However, G8 Education expects the acquisition to contribute immediately to its EBIT post settlement. The group reported its acquisition plan of 12 centers for $36 million in Febrauary and 8 centers for $12.06 million in June. These transactions will increase the group’s presence to 855 places. The purchase price is estimated to be 4 times the EBIT.
Moreover, the government’s federal budget recently allotted over $3.5 billion to childcare to improve the overall sector’s access and reach. Accordingly, we believe that the company is well positioned to benefit from the government’s initiative. Moreover, as more parents go to work, the firm’s price per child might also lead to additional top line growth, instead of growing just from acquisitions. As a result, we believe that the stock has scope to reach higher levels, from the current price of $3.24.
BHP Billiton Limited
BHP Billiton Limited (ASX: BHP) has been improving its production by over 2.5 times from 2007. Despite the falling demand, the company has given a production guidance of 250Mt for FY15, as compared to 225Mt in FY14. Moreover, the firm has the potential of generating 270Mt production without additional investments. BHP Billiton was also successful enough to decrease its unit cost of production, which reduced by 29% to US$20.35/wmt for the half year ended on December 2014, as compared to US$28.80/wmt in in the corresponding period of 2013. The group expects to achieve its unit costs below US$20/t for this year and over US$16/t for next year.
The group has also demerged South32 to focus on its core portfolio of over 19 assets. This move has benefited the BHP Billiton shareholders as they got the opportunity to capitalize the profit from both the companies as each eligible BHP Billiton shareholder received a share in South32.
.png)
BHP Billiton Portfolio (Source: Company Reports)
Meanwhile, the shares of BHP Billiton have been under pressure from over a year, positing a negative returns of 27.2% in the last fifty two weeks and slumped over 9.2% during this month alone. With such a heavy correction in the stock, we believe that the current levels offers a great buying opportunity to long term investors given the group’s solid resource position, improved volumes, capacity utilization, attractive valuations (P/E ratio at 10.9) and production efficiencies. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $26.65
Flexigroup Limited
The shares of FlexiGroup Limited (ASX:FXL) have been under pressure since last week, post the announcement of the resignation by the CEO and the Managing Director, Tarek Robbiati in second half of 2015. Looks like the markets did not receive this news well, as the stock slumped over 19.2% in just last four weeks. Robbiati joined the firm in early 2013 and did not even finish two years of service.
Meanwhile, looking at the overall group’s position, the portfolio income witnessed an year over year increase of 15% and 11% during FY 13 and FY 14 respectively, under Tarek Robbiati’s leadership while cash NPAT rose 18% during both FY 13 and FY14 periods. FlexiGroup has built more than 700,000 finance customers, over 12,000 active retailers, as well as around $1.35bn in receivables. The group has built a solid distribution network across multiple domains. Moreover, FlexiGroup has been focusing only on accretive acquisitions, and acquired Telecom Rental New Zealand this year during March quarter.
.png)
FY14 Performance (Source: Company Reports)
Nevertheless, we believe that the firm has the potential to find a solid replacement to lead the group. Moreover, the company has confirmed its guidance of cash operating net profit after tax (NPAT) in the range of $90 and $91 million for the fiscal year of 2015, and dividends are expected to be in the range of 50-60% of cash NPAT. The group has delivered a return on equity of 23%. FlexiGroup’s diversified products base, dividends prospects, lower interest rates and relatively lower P/E ratio of 14.42, make it an attractive stock for investment at the current levels of $2.95
Rio Tinto Limited
The shares of Rio Tinto Limited (ASX: RIO) have been under pressure over the past few months, delivering a negative year to date returns of 9% and fell more than 8% in just last four weeks only. Investors’ concerns over the firm’s potential bottom line decline due to falling iron ore prices have led to the downfall of the stock.
On the other hand, the company has been making efforts to offset this negative impact by improving its cash costs by $750 million and decrease the capital expenditure to less than $7 billion during 2015. The firm intends to maximize cash flows by using inventory draw-down throughout the year. Meanwhile,Rio Tinto intends to maintain its share of production of 43 million tonnes of bauxite, 8 million tonnes of alumina and 3.3 million tonnes of aluminum during 2015. The group estimates to deliver global shipments of over 350 metric tonnes.
Rio Tinto’s portfolio (Source: Company Reports)
Rio Tinto is also taking steps to minimize its risks in loss making projects. The firm has recently supported the decision of not conducting the final feasibility study for ERA’s (Rio Tinto holds 68.4% stake in this firm) Ranger 3 Deeps uranium project. The firm is also offloading some projects to improve its focus on strategic assets. The group has recently finished the sale of its Murowa Diamonds (Rio has 78% interests) and Sengwa Colliery (Rio holds 50% interest) to RioZim Limited. Quite recently, Mick Davis, earlier Xstrata CEO, Mick Davis is also in talks with Rio Tinto, to acquire its coal assets in Australia- Hunter Valley, Bengalla, and Mount Thorley (Rio holds 80% interest in these three coal mines).
Meanwhile, we believe that the potential negative impact caused by the falling iron ore prices have already factored in the stock, and Rio Tinto is now at attractive levels to invest given its long term potential and a possible recovery in iron ore prices. Accordingly, we suggest a “BUY” to Rio Tinto at the current price of $53.01.
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 currently hold positions in: BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.