Stocks’ Details

Qantas Airways Limited (ASX: QAN)

International market strength - Qantas Airways is Australia’s largest airline, providing domestic and regional flights in Australia and New Zealand, as well as international passenger and freight services to and from Australia. Recently, Sydney Airport with Qantas decided to undertake a trial of facial recognition technology. So, with this security system passengers will be able to go through most stages of the airport using only their face as a means of identification which will be cutting down their time of standing in the queue and will lead to better customer experience. Meanwhile, Qantasrecorded strong performance in its trading update for the third quarter of FY18 and confirmed that they are on track to record underlying profit before tax for the full-year.


Group’s Operating Margin Performance (Source: Company Reports)

Moreover, the ongoing transformation along with capacity and revenue management strategy will support to mitigate the impact of higher fuel costs going forward and the Company expects to achieve a full year underlying profit before tax between $1.55 billion and $1.60 billion. The domestic business has been performing well and will benefit the stock in the long run. Meanwhile,Belinda Jane Hutchinson, one of its directors acquired 16,200 ordinary shares at a consideration of $6.1700 per ordinary share from the market. Further, the Company’s chairman Leigh Clifford will step down from the national carrier in October 2018, after 11 years in the role and Richard Goyder, will assume the role of Qantas Chairman following the AGM on 26 October. The stock price was up by 7.21 per cent in last three months as on 11 July 2018 and was up by 0.92 per cent as on 12 July 2018. We recommend to “Buy” the stock at the current market price of $6.60 by looking at the Company’s successful flyer program and positive sentiments in the market.
 

Brambles Limited (ASX:BXB)

Marginal Improvement in EPS over time - Brambles Limited is a supply-chain logistics company and is engaged in the provision of reusable pallets, crates and containers. While Bramble’s 1H FY18 sale performance was in line with guidance of mid-single digit growth, it achieved a constant-currency growth of 5 per cent that was primarily driven by strong volume growth in North America, Europe and in Latin America and also by ongoing expansion in IFCO RPC businesses. The Company issued 8,355 ordinary fully paid shares in pursuant to the terms of the various Brambles Employee Share Plans. One of its directors, Graham Andrew Chipchase acquired 49 ordinary shares from the market under the Brambles Limited MyShare Plan.


Net Debt/EBITDA Ratio Trend (Source: Company Reports)

It is worth noting that the Company is facing input cost pressure and is struggling to pass the same to its customers. On the other hand, EPS has only grown slightly over a period of 10 years to 2018 while dividends paid have only been around $3. Meanwhile, Commonwealth Bank of Australia changed its substantial holding from 6.71 per cent to 4.92 per cent since 9 July 2018. Since one year the stock price was falling (down by 2.75 as on 11 July 2018) but started recovering from last one month. The price moved up by 0.87 per cent as on 12 July 2018. The stock looks “Expensive” at the current market price of $9.28 looking at the above details.
 

Cimic Group Limited (ASX:CIM)

Increase in Debt- CIMIC Group Limited is an international contractor and contract miner and  provides construction, mining, mineral processing, engineering, concessions, and operation and maintenance services to the infrastructure, resources and property markets. Recently, it was announced that CIMIC Group’s global mining services provider, Thiess will continue its long-term relationship with OZ Minerals under a new A$112 million contract to provide stockpile rehandle services at Prominent Hill, near Coober Pedy, South Australia and was awarded a new A$480 million contract by QCoal to continue operations at the QCoal Northern Hub located in Queensland’s Bowen Basin, Australia. Lately S&P revised their global rating for the Group from negative to stable.


Revenue and PBT Performance (Source: Company Reports)

The Group reported an increase of 7 per cent in revenue in 1QFY18 on a year on year basis, with solid contribution from  all core businesses with an increase of 7.8 per cent, 7.3 per cent and of 5.3 per cent in EBIT, PBT and NPAT margin respectively. The Group’s sound balance sheet provides flexibility to pursue strategic growth initiatives, capital allocation opportunities and to sustain shareholder returns. Percentage of debt in capital structure increased from 12 per cent in June 2017 to 15 per cent in December 2017.Meanwhile, the group released its FY 18 NPAT guidance which will be in the range of $720m-$780m that is up by 3-11 per cent on prior year but is subject to market conditions. The stock is trading at a higher level and looks “Expensive” at the current market price of $42.40.
 

Reliance Worldwide Corporation Limited (ASX:RWC)

Positive Impact of US tariffs on Chinese products - Reliance Worldwide Corporation Limited is an Australia-based company that designs, manufactures and supplies water flow and control products and solutions for use in behind the wall plumbing. With the news that Trump is considering slapping tariffs on a further US$200 billion of Chinese imports and with Reliance having a good market exposure in the US, the group may benefit from the scenario and the impact of the exchange rate and currency translation.


America Segment Results for 1HFY18 (Source: Company Reports)

The Group successfully completed the acquisition of all the issued shares of John Guest Holdings Limited on the terms which were announced on 24 May 2018. The group has significant exposure to the offshore currency, US particularly and growth is expected to be witnessed going forward given the acquisition moves. Earnings in the UK is another catalyst highlighted based on the John Guest acquisition. The stock has been up in one year (68.37 per cent as on 11 July 2018) but started declining in last one month. The stock witnessed a recovery of 1.28 per cent as on 12 July 2018. One can look for a better buying opportunity as the stock looks “Expensive” at the current market price of $5.54 as it is inching towards its 52-week high price.
 

Cleanaway Waste Management Limited (ASX:CWY)

JV for NewResource Recovery Facility - Cleanaway Waste Management Limited, formerly Transpacific Industries Group Ltd., is a waste management company that has now entered into a binding Joint Venture agreement with ResourceCo Holdings Pty Ltd to acquire a 50 per cent interest in ResourceCo’s new Resource Recovery Facility located at Wetherill Park in western Sydney and the purchase price for the 50 per cent interest comprises a $25 million payment at completion plus an earn out of up to a further $25 million payable in two instalments over two years once the Facility generates agreed EBITDA targets.


Financial Performance (Source: Company Reports)

It is expected that the transaction will get over during the first quarter of FY19. The Company has been doing well since it completed the acquisition of Tox Free Solutions business as it is diversifying the Company’s operations and will provide meaningful growth over the coming years, at 26x estimated FY 2019 earnings. The ROE moved from 2.5 per cent in June 2017 to 2.1 per cent in December 2017. The stock looks “Expensive” and can be avoided as of now at the current market price of $1.755.
 

Transurban Group (ASX:TCL)

Improvement in Returns - Transurban Group is engaged in the business of development, operation and maintenance of toll roads. Recently, TCL announced that the Eastern Distributor (ED) has successfully raised $226 million of non-recourse debt via a new bank debt facility with a tenor of 4 years. TCL has a clear strategy to become the partner of choice with governments providing effective and innovative urban road infrastructure and services utilising core capabilities. Itfocuses on Geographic diversification into additional North American market with potential for network expansion and a demonstrated history of market-led negotiations. There were speculations in the market that the Group is fleecing motorists regarding ACCC’s recommended controls on power generators and it is expected that Company will witness some regulatory scrutiny and is also facing risk of suffering a de-rating due to political pressure with the upcoming Victorian elections.


Trend of Average Annual Daily Traffic (Source: Company Reports)

Transurban has been awarded five toll road concessions or upgrades following unsolicited proposals to state governments, in exchange for increase or extension of existing tolls. ROE improved from 2.8 per cent in June 2017 to 7.2 per cent in December 2017 and ROIC improved from 0.6 per cent in June 2017 to 1.7 per cent in December 2017. The stock was down by 0.25 per cent in the past six months and it is worth noting that the stock has been up by 142.23 per cent in last 10 years (as on 11 July 2018). The stock climbed up by 1.09 per cent as on 12 July 2018.  We recommend to “Buy” the stock at the current market price of $12.00 as management is confident that it will continue to maintain resilient performance based on strong fundamentals, network expansion plan, barriers to entry, and disciplined investment approach.

 
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