5 stocks with value - Retail Food Group, National Australia Bank, Rio Tinto, Santos and Beach Energy

Retail Food Group Limited

RFG Details
 
·         Accounting changes and non-core expense hurt the stock sentiment: Retail Food Group Limited (ASX: RFG) stock lost over 34% in the last six months (as of July 20^th, 2017). The group’s new accounting standards which were effective from 1 July 2019 could have an impact on overall results. Further, the advances made by RFG to the Michel’s Patisserie and Pizza Capers Marketing Funds has been reassessed, leading to a c.$22m non-cash write-down being recorded on FY17 Results (as a non-core expense).
 
·         Domestic franchising performance to be in line with FY16: The group expects a decent underlying NPAT growth of c.15% in fiscal year of 2017 as compared to the prior corresponding period (PCP). Underlying Earnings per Share (EPS) for FY17 is forecasted to rise by c.8% against PCP, while dividend would also enhance in FY17. Organic growth would be ongoing for their International operations in FY17, despite the impact of timing in connection with the conversion of major new Master Franchise Agreement (MFA) opportunity which would be finished in FY18. The group is negotiating with several licensing matters which would maintain their international MFA growth while their licensed territories would rise from 46 to 80 in less than three years, which comprises Gloria Jean’s Coffees MFA grant for the United Kingdom in second half of 2017. The group finished acquiring Hudson Pacific Corporation in first half of 2017, to enhance their foodservice distribution capability on the Eastern Seaboard. Overall the group expects their domestic franchising to be in line with FY16, as better performance at Brand Systems would offset the Michel’s Patisserie pressure. Even for FY18, RFG see their organic growth to continue, given the decent performance across its International, Commercial and Coffee & Allied Beverages divisions. Trading at an outstanding dividend yield of 6.7% and a lower P/E, we give a “Buy” recommendation on the stock at the current price of $4.21

 
RFG Daily chart; (Source: Thomson Reuters) 

National Australia Bank Ltd

NAB Details
 
·         APRA’s reasonable 2020 CET1 target reiterated the confidence on the stock: APRA advised that the bank’s Common Equity Tier 1 (CET1) ratio need to reach at least 10.5% by January 2020. However, the bank is on track to achieve this target with their CET1 ratio already reaching 10.1% on an APRA basis, as of March 31^st, 2017. Moreover, the bank declared a $1.1997 distribution amount, while the reasonable APRA’s target wiped off the concerns over the bank’s ability to pay dividends. NAB is offloading 55% interest in its complementary asset consulting business (JANA) to the JANA senior management team. The bank recently launched a new product to enable Australians manage their superannuation in the lead up to and during retirement. NAB stock has a solid dividend yield of 6.5% and we give a “Buy” on the stock at the current price of $30.79


NAB Daily chart; (Source: Thomson Reuters)

Rio Tinto Limited

RIO Details
 
·         Better than expected second quarter performance: Rio Tinto Limited (ASX:RIO) reported Pilbara iron ore shipments of 77.7 million tons in the second quarter of 2017 (100 per cent basis), which is a decrease of 6% as compared to the prior corresponding period. This decline was mainly on the back of accelerated rail track maintenance. The group expects Iron ore shipments to be around 330 million tons for FY17 which is lower end to their earlier forecasts of 330 to 340 million tons. On the other hand, the group reported a solid bauxite production of 12.9 million tons, an increase of 7% as compared to the prior corresponding period (pcp) boosted by Weipa and Gove production. Despite Mined copper production recovery from last quarter, it fell 6% as compared to the pcp on the back of ongoing ramp up in Escondida after the labor strike.  Titanium dioxide slag production enhanced 34% from pcp showing improving market demand. The group chose Yancoal Australia as its preferred buyer of Coal & Allied, as they enhanced their offer from $2.69 billion, and expects to finish the sale by the third quarter of 2017.
 

Second quarter of 2017 performance (Source: Company reports) 
 
·         RIO stock posted a 9.5% rise in the last three months and has a 3.5% dividend yield.We recommend a “Buy” on the stock at the current price of $64.38
 

RIO Daily chart; (Source: Thomson Reuters) 

Santos Ltd

STO Details
                    
·         Ongoing cost control focus and positive guidance: Santos Ltd (ASX: STO) stock rallied over 8.2% on July 20^th, 2017 after the group’s strong second quarter performance. Santos controlled their net debt position by US$600 million to US$2.9 billion as compared to 2016 year end and expects a free cash flow breakeven for 2017 which currently reached US$33 per barrel from US$47 per barrel at the beginning of 2016.  Further, it has been focusing to control costs while building a strong asset portfolio which could generate a major free cash flow despite the volatile oil price environment. The group’s second quarter production fell 1% to 14.7 mmboe against the last quarter but this was in line with estimates. Sales volumes enhanced 16% to 21.5 mmboe as compared to first quarter of 2017 while sales revenues rose 12% to US$769 million driven by better LNG prices and the timing of liftings. As a result Santos enhanced the production and sales volume for 2017 to 57-60 mmboe and 75-80 mmboe respectively. Meanwhile, Santos also enhanced their drilling activity in Cooper Basin as well as across its GLNG acreage and accordingly expects further wells to improve their gas production in the coming years.
 

Santos comparative performance (Source: Company reports)
 
·         The group also implemented several term gas sales into the east coast domestic market during the second quarter. The stock has corrected over 26% in the last three months (as of July 20^th, 2017) and trading at lucrative levels. We give a “Buy” on the stock at the current price of $3.27
 

STO Daily chart; (Source: Thomson Reuters) 

Beach Energy Ltd

 
BPT Details
 
·         Positive drilling results: Beach Energy Ltd (ASX: BPT) stock rallied over 9.5% in the last five days (as of July 20^th, 2017) and we believe the bullish momentum in the stock would continue. The group’s Western Flank Oil - ex PEL 92 project (wherein they have 75% stake along with their partner, Cooper Energy who has 25% stake) finished the five-well oil development and appraisal program in the Callawonga Field. Final wells including Callawonga-15, -16 and -17, were drilled in June 2017 and were cased and suspended as potential producers. If successful, all five wells would come online in the second quarter of 2018. As per their Western Flank Oil – ex PEL 91 progress, the two-well oil appraisal campaign started in the Chiton Field, located over two kilometers south of the Bauer Field. The first well of the campaign, Chiton-4, was plugged and abandoned as there was no commercial pay. But as at 30 June 2017, the group reported a well stock of seven drilled and uncompleted oil wells in ex PEL 91. Western Flank Oil – PEL 182 project (with Beach have 43% stake along with Senex who has 57%) finished three-well oil exploration program, while the campaign encouraged for planned testing of the Birkhead Formation in FY18.

 
Western Flank Oil – ex PEL 92 project highlights (Source: Company reports) 
 
·         We believe investors can leverage the subdued levels of BPT stock which lost over 18.6% in the last six months (as of July 20^th, 2017). We give a “Buy” recommendation on this 2.4% dividend yield stock at the current price of $0.65
 

BPT Daily chart; (Source: Thomson Reuters)

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