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Australia and New Zealand Banking Group Ltd
Meeting expectations and focusing on retail business: Australia and New Zealand Banking Group Ltd (ASX: ANZ) stock lost over 1.2% on October 26, 2017while the group largely met the market expectation for its FY17 result with 18% rise in annual cash profit to $6.94 billion with a constrained top line growth being indicated for FY18. The group’s New Zealand net profit outcome was shying away a little from the expectations with statutory profit surging 15% on a year on year (yoy) basis to NZ$1.78 billion. On the other hand, the group is shifting their capital base to give greater emphasis to the Retail and Commercial businesses in Australia and New Zealand which currently represent 53% of their capital, and rose 44% as compared to two years ago. The group improved their APRA CET1 capital ratio to 10.6%, as compared to 9.6%, and is on track to meet the 2020 capital target. The group decreased their Credit Risk Weighted Assets (CRWA), especially in Asia, while improved their risk adjusted returns in the Institutional business. There has been a drop in expenses related to bad and doubtful debts. Overall, the bank is needed to put some of its gears in place given the competitive environment while it is a solid dividend payer. We give a “Buy” recommendation on the stock at the current price of $ 30.13
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ANZ Performance (Source: Company Reports)
JB Hi-Fi Ltd
Competition remains a concern: At the Annual General Meeting, JB Hi-Fi Limited (ASX: JBH) reiterated that they are on track to reach the upper end of the synergy target of $15 million - $20 million, which is now expected to be fully realized in FY19. On the other hand, the group’s New Zealand total sales fell 0.3% to NZD234.0 million for FY17, with comparable sales falling 8.8%. The sales growth moderated in September and October as the JB Hi-Fi business cycled changes in the timing of key product releases and elevated comparable sales growth in the prior corresponding period. The group forecasted sales of circa $6.8 billion for FY18 (JB Hi-Fi forecast of $4.65 billion and The Good Guys forecast of $2.15 billion). JBH anticipates the market to remain competitive as retailers drive for market share in the lead up to the key Christmas trading period. Moreover, the entry of Amazon remains a threat to the group. We maintain our “Expensive” recommendation on the stock at the current price of $ 23.53
Crown Resorts Ltd
Positive trading update: Crown Resorts Ltd (ASX: CWN) has reported that the revenue from main floor gaming (excluding VIP program play revenue) was marginally up in the period from July 1 to October 22, 2017 across the Australian resorts as compared to the prior corresponding period. Non-gaming revenue with Australian resorts rose over 6% for the aforementioned period. Further, the Melbourne’s main floor gaming revenue enhanced against pcp. For FY17, Crown’s wagering and online social gaming operations generated EBITDA of $14.8 million, against a loss of $5.4 million in the prior corresponding period. Crown Digital also includes Crown’s investment in Chill Gaming, a 50/50 joint venture with the founders of Wymac Gaming Solutions. CWN stock rose over 3.4% in the last five days (as of October 25, 2017) and we believe the momentum would continue. The stock is available at low levels. We give a “Hold” recommendation on the stock at the current price of $ 11.48
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Focus Areas (Source: Company Reports)
Qantas Airways Ltd
Rising fuel costs to impact earnings: Qantas Airways Ltd (ASX: QAN) expects their Underlying Profit Before Tax to be in the range of $900 million to $950 million for the first six months of financial year 2018 as compared to Underlying Profit Before Tax of $852 million in the first half of financial year 2017. For first half of 2018, International capacity is forecasted to rise by around 5% and 3% in the second half on the back of the earlier reported network changes targeting growing Asian markets. On the other hand, the Unit Revenue growth in Domestic is forecasted to slow in the second half of financial year 2018. Moreover, their fuel cost is expected to be $1.55 billion during the first half of 2018 based on current forward prices. As per the current Brent forward market price of A$74 per barrel for the rest of financial year 2018, the group’s full year fuel cost is forecasted to be $3.21 billion against $3.04 billion for financial year 2017, leading to a weaker second half earnings. We maintain our “Expensive” recommendation on the stock at the current price of $ 6.31
Fortescue Metals Group Ltd
Weakness in ore mining and processing: Fortescue Metals Group Ltd (ASX: FMG) reported a decrease in their ore mined by 15% to 45.7 million tonnes during the first quarter of 2018 as compared to fourth quarter of 2017, and 8% against the prior corresponding period. Ore processed lost 9% to 41.7 million tonnes during the first quarter of 2018 against fourth quarter of 2017 and 4% as compared to the first quarter of 2017. The group has now slashed its 2018 price guidance at the back of changing dynamics with respect to China’s steel industry that has widened the ore index price and the price achieved by FMG. The group has now changed the discount guidance to 25% to 30% (with price realisation guidance of 70% to 75% of the Platts 62 CFR Index) against the earlier guidance for a discount of 20% to 25% of the benchmark in 2018. We rate the stock “Expensive” at the current price of $ 4.87
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First quarter of 2018 update (Source: Company Reports)
Blackmores Ltd
Demand continues from Chinese consumers: Blackmores Ltd (ASX: BKL) reported a net sales rise of 9% yoy to $134 million for the first quarter of 2018 while net profit after tax surged 28% on a yoy basis to $15.4 million. The group’s demand continues to grow from Chinese consumers, while direct China sales rose 28%. On the other hand, the group continues to face challenges in Australian retail owing to weak consumer sentiments. Owing to disappointing sales, the group has scrapped its infant formula joint venture business with Bega Cheese. BKL stock surged over 51.6% in the last three months (as of October 25, 2017) and is placed at higher levels. We give an “Expensive” recommendation on the stock at the current price of $ 137.70
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