REA Group Ltd

REA Details
Decent Performance in FY18: REA Group Ltd (ASX: REA) is a large-cap company with the market capitalization of circa $ 11.46 Bn as of September 07, 2018. Recently, the company disclosed the market that one of its directors, Tracey Fellows who had a Direct interest in the company, had acquired 16,474 ordinary shares through the REA Long-Term Incentive Plan. Moreover, Pinnacle Investment Management Group Limited has recently become the substantial shareholder in the company with the voting power of 5.21%. On the financial front, the company reported FY18 revenue at $807.7 Mn, an increase of 20% from the prior year revenue of $671.2 Mn. The topline growth has translated to a significant profit uplift with positive and increasing margins and positive cash flow through the year. Importantly, this has resulted in an uplift in earning per share to 212.5 cents in FY18 over the prior year.


FY18 Financial Highlights (Source: Company Reports)

Meanwhile, the stock has risen 13.89 percent in the past six months as on September 06, 2018 and traded at PE of 45.34x, and has strength in fundamentals. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $ 87.41 despite lower real estate volumes.
 

REA Daily Chart (Source: Thomson Reuters)
 

Boral Limited

BLD Details

Robust Performance in FY18: Boral Limited (ASX: BLD) has recently reported a 47% increase in net profit after tax before amortization and significant items to $514 million for the year ended 30 June 2018. It was mainly driven by the significant growth from Boral North America with a full year contribution from the acquired Headwaters businesses, together with higher earnings from Boral Australia and a solid result from the USG Boral joint venture. Based on the performance, the Board of Directors declared fully franked final dividend of 14.0 cents per share which will be paid on October 02, 2018. This summarized a total dividend payment of 26.5 cents per share for the full year, representing dividend rise of 10% over the prior year. We expect that the company will be poised to grow further at the back of optimizing its networks and increase volumes in Australian east coast markets, where demand is very strong, and continue to focus on full cost recovery through price and strengthening margins through improvement programs.


FY18 Financial Highlights (Source: Company Reports)

Meanwhile, the share has risen 8.92% in the past three months as at September 06, 2018 and traded above the 52-week low level of $6.170. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $6.950 as the group expects that the growth momentum will continue across all business segments in FY19, including a significant lift in earnings from Boral North America.
 

BLD Daily Chart (Source: Thomson Reuters)
 

Harvey Norman Holdings Limited

HVN Details

Entitlement Offer: Harvey Norman Holdings Limited (ASX: HVN) has recently announced 1 for 17 pro-rata renounceable entitlement offer of new fully paid ordinary shares in the company to raise approximately $163.85 million (before costs). The offer price is $2.50 per New Share. The objective of this entitlement Offer is to reduce the amount of HVN consolidated entity debt. The entitlement Offer will be opened on 14 September 2018 and closes to 15 October 2018, for which the eligible retail shareholders may subscribe for 1 New Share for every 17 fully paid ordinary share at an offer price of $2.50 per New Share. The entitlement offer will not be underwritten. Moreover, the eligible Shareholders may also apply for additional New Shares in excess of their Entitlement at the same issue price of $2.50 per New Share (Top-Up Shares) under the Top-Up Facility.

On the other hand, FY18 adjusted NPAT of $377 Mn is a decline of 3.5% on PCP basis. It was mainly impacted by the reduction of the net property revaluation increment by $56.41 Mn in FY18 and the first-time recognition of impairment losses totalling to $49.44 Mn relating to the Coomboona Joint Venture. Aside from a strategic position for FY19, no meaningful earnings outlook has been provided by the management. Hence, we maintain our “Expensive” recommendation on the stock at the current market price of 3.480 (down by 3.33% in the past one week).
 

HVN Daily Chart (Source: Thomson Reuters)
 

Wesfarmers Limited

WES Details

Subdued Performance in FY18: Wesfarmers Limited (ASX: WES) delivered subdued full-year results wherein net profit after tax (NPAT) declined by 58.3% and amounted to $ 1,197 Mn in FY18 over the last year. The reported profit includes a loss from discontinued operations of $1,407 million, which reflects the trading results and significant items for the Bunnings United Kingdom and Ireland (BUKI) and Curragh, which were divested during the financial year. Resultantly, RoE came in at 11.2% in FY18 which is moderately down from the previous year (11.8%). Based on the performance, the Board of Directors declared a fully-franked final ordinary dividend of $1.20 per share, bringing the full-year ordinary dividend to $2.23 per share, in line with the prior year and consistent with Wesfarmers’ policy of distributing franking credits to shareholders. The final ordinary dividend will be paid on 27 September 2018 with record date of 21 August 2018.

On the other hand, the group has agreed to sell its 13.2% indirect interest in Quadrant Energy Holdings to Santos for net proceeds of US$170 Mn. In addition, the transaction provides the Company with a contingent value right in relation to the recent Dorado-1 oil discovery that was announced by Quadrant's JV partner, Carnarvon Petroleum, and a royalty over Quadrant's tenements in WA Bedout Basin. On successful completion of the transaction, the Company expects to report a pre-tax profit on the sale of US$98 Mn. Meanwhile, the share price has risen 23.39% in the past six months as at September 06, 2018 and traded at higher PE level of 48.15x. Based on foregoing, we maintain our “Expensive” recommendation on the stock at the current market price of $ 51.390 while the spin off of certain assets is being watched.
 

WES Daily Chart (Source: Thomson Reuters)
 

Nick Scali Limited

NCK Details

Decent Performance in FY18: Nick Scali Limited (ASX: NCK) delivered decent full-year results wherein revenues from ordinary activities grew by 7.7 percent and amounted to $250.8 Mn in FY18 over the last year. It was mainly driven by the full year sales from 4 stores opened in FY17 and part contribution of 6 stores opened in FY18. Reflecting this top line growth, the group’s gross margin increased by 20 bps to 62.7% for the year, on the back of efficiencies from supplier consolidation and volume growth. Operating expenses as a percentage of sales continue to decrease from 38.9% to 38.1% in FY18 over the prior year, due to the ability of the company to leverage sales growth through the existing distribution network. Net Profit after Tax (NPAT) stood at $41.0 Mn in FY18, exhibiting growth of 10.1 percent on a Y-o-Y basis. Based on strong earnings, the Board of Directors declared a fully franked final dividend of 24.0 cents per share, bringing the total dividend for FY18 to 40.0 cps, up 17.6 percent as compared to the prior year and it will be payable on October 24, 2018 with the record date of October 03, 2018.


FY18 Financial Summary (Source: Company Reports)

Meanwhile, the share price has risen 6.46 per cent in the past one month as at September 06, 2018 and trades close to 52-week high level ($7.340). Based on the foregoing and trading level, we maintain our “Expensive” recommendation on the stock at the current market price of $6.400 in view of housing slowdown and sale of stake from key personnel from the management.
 

NCK Daily Chart (Source: Thomson Reuters)

 
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