Commonwealth Bank of Australia

CBA Details

Trading at Lower PE Level: Commonwealth Bank of Australia (ASX: CBA) is a large-cap company with the market capitalization of circa $131.81 Bn as of July 31, 2018. The group delivered robust financial performance for the five years and recorded NPAT CAGR growth of 6.2 per cent during FY13-17. Based on the past five-year average, the group has generated net interest margin of 2.11% which is above the Industry Median (1.87%), representing a better profit generation ability in term of retail banking. Its pre-tax RoE stood at 10.8% in 1HFY18 which is higher than the peer group (7.7%), representing the group efficiency to generate higher profit with the shareholders invested capital. Moreover, the Group has the strong balance sheet which provides the strong foundation to support customers and ensures to deliver returns for shareholders throughout the economic cycle.


Long-Term Strategic Outcomes (Source: Company Reports)

On the other hand, the group has taken several steps to rebuild its reputation in the market after found guilty in relation to non-compliance of its anti-money laundering and counter-terrorism financing (AML/CTF) activity over the decades. These steps are: demerging its wealth management and mortgage broking businesses, top management structural changes, paused all new account openings, etc. Meanwhile, the stock price was up by 4.29% in the past three months as at July 30, 2018 and is trading at a low PE level (13.04x) among its peer group. We believe that investors can leverage the subdued levels of this stock, as an entry opportunity. We give a “Buy” recommendation on the stock at the current market price of $74.79, by looking at long-term strategic fit and transformation initiatives.
 

CBA Daily Chart (Source: Thomson Reuters)
 

Cann Group Limited

CAN Details

Quarterly Activity Update (30 June 2018): The company released its Quarterly report for the quarter ended 30 June 2018 wherein the group had total cash of $82.469 Mn and is actively involved in the new research and medicinal cannabis licences and permits which allow the group to continue to scale its business in 2018. During the quarter, the company has signed a head of agreement with Australia Pacific Airports (Melbourne) Pty Ltd (APAM) and secured the site of CAN’s proposed Stage 3 medicinal cannabis cultivation and GMP manufacturing facility. The relationship can be of support from export purposes. CAN’s total investment for the project is estimated at circa $100 Mn.


Growth Strategy (Source: Company Reports)

Besides this, the group also announced that it had relocated its corporate headquarters to be within the Walter and Eliza Hall Institute of Medical Research at La Trobe, enabling them to continue its rapid expansion. Meanwhile, the share price tumbled 21.79 per cent in the past three months (as at July 30, 2018) and trading at a reasonable price level. Hence, we give a “Buy” recommendation on the stock at the current market price of $2.780, considering synergy benefits in near-term coupled with a healthy balance sheet and decent outlook of medical cannabis sector.
 

CAN Daily Chart (Source: Thomson Reuters)
 

Magellan Global Trust

MGG details

Decent return since Inception: Magellan Global Trust (ASX: MGG) disclosed its weekly NAV per unit of Magellan Global Trust and recorded the same at $1.6549 as at July 27, 2018. The group recorded a return after fees of 11.4% from inception on 18 October 2017 to 30 June 2018. The stocks that contributed the most to the portfolio’s return included HCA Healthcare (+1.6% of the total portfolio return), Facebook (+1.4%), Apple (+1.3%), Mastercard (+1.3%) and Lowe’s (+1.3%). Hence, we expect that the Magellan Global Trust’s portfolio of 21 high-quality businesses will generate a satisfactory return over the medium to long term. On the other hand, MGG disclosed to ASX that one of its directors, Hamish Douglass had an Indirect Interests in the Company and acquired 263,944 Units via Distribution reinvestment plan at an issue price of $1.5852 per Unit. Moreover, John Eales who had a Direct and indirect interest in the company, had acquired 3,527 units through Distribution Reinvestment Plan.

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Performance of the Magellan Global Fund as at 30 June 2018 (Source: Company Reports)

Meanwhile, the stock climbed up 7.05 per cent in the past three months but down by 1.54 per cent in the past one week as at July 30, 2018. Looking at decent investment portfolio performance and consistent returns, we maintain our “Buy” recommendation on the stock at the current market price of $ 1.585.
 

MGG Daily Chart (Source: Thomson Reuters)
 

Gold Road Resources Limited

GOR Details

Update on Gruyere Gold Project:  Gold Road Resources Limited (ASX: GOR) reported the independent third-party review of the Definitive Estimate for the Gruyere Gold Project. The group has spent $79.2 Mn on the development of the Gruyere Project (100% basis) and $4 Mn was spent on exploration (Gold Road’s respective share). The review process with an independent third party confirmed that the forecasted first gold remains on scheduled for the June 2019 quarter and it is in line with the previous guidance. According to the release, the group estimated share to date of agreed scope changes and force majeure costs is $15 Mn (50% basis). The group expects to fund a total share of the Final Forecast Capital cost (FFC) of $284 Mn, showing 8% rise in the budget. It will be funded from its existing cash and working capital facilities. As of 27 July 2018, overall Project engineering and construction was completed around 94% and 61%, respectively with 39% completion of EPC construction (process plant and associated infrastructure). In May 2018, the group announced it had achieved financial close of the finance facilities including a $100 Mn Revolving Corporate Facility, a $50 million Working Capital Facility and a Gold Hedging Arrangement with a syndicate comprising ING Bank Australia, National Australia Bank, and Societe Generale (Hong Kong). As at 30 June 2018, the Company had 877,498,274 ordinary fully paid shares and 5,865,995 performance rights granted with various vesting and expiration dates. As at 30 June 2018, the Company had cash, term deposits and current receivables of $163.9 Mn. Moreover, the company enjoys virtual debt-free status along with decent cash & cash equivalent reserve. The current ratio and quick ratio stood at 13.97x for both in 1HFY18, representing adequate liquidity to fulfill any shortcoming liability in near future. Based on foregoing and working towards completing its drilling and exploration target, we maintain our “Buy” recommendation on the stock at the current market price of $ 0.675, given the low trading levels.
 

GOR Daily Chart (Source: Thomson Reuters)
 

QBE Insurance Group Limited

QBE Details

Positive Outlook: QBE Insurance Group Limited (ASX: QBE) reported an investment ratio of 5.3% in FY17 which is in-line with the previous year. Loss ratio stood at 70.9% in FY17 which is higher than the previous year, reflecting a healthy position of the company. Moreover, the group still targets the combined operating ratio in the range of 95.0 per cent - 97.5 per cent in 2018 and investment return in the range of 2.5 per cent - 3.0 per cent given the various initiatives undertaken by the group. Besides this, the group witnessed a premium rate strength of over 4% (excluding CTP) in the first quarter of 2018, driven by Australia & New Zealand Operations, as well as from the positive rate movements in North America and Europe. The stock declined by 6.90 per cent in past six months (as at 30 July 2018) and by 0.198 per cent as on 31 July 2018. We recommend to “Buy” the stock at the current market price of $10.100 (near to its 52-week low price, that is $9.280) by looking at the group’s potential with upcoming reporting season updates and positive outlook of the insurance sector ahead.
 

QBE Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation

WBC Details

Better outlook and changes to Board: Westpac Banking Corporation’s (ASX: WBC) stock edged up slightly on July 31, 2018. The group has been consistently increasing the value that it delivers to its customers and shareholders over the long-term and even reported a profit of $4,198 million (reflecting a growth of 7 per cent over 1HFY17) for 1HFY18 (ended March 2018). WBC’s CET-1 ratio of 10.5 per cent was also found to be in line with APRA’s ‘unquestionably strong’ benchmark. Opportunities from housing cycle may support the performance while the bank expects cost growth for FY18 to be in the range of 2-3 per cent. Particularly, the housing market may have cooled for now at the back of recent prices and credit growth, but construction activity can be of some support. Meanwhile, Ms. Anita Fung is joining the Board as an independent Non-executive Director, who also became a Member of the Board Risk & Compliance Committee upon her appointment, as well as a Member of Westpac’s Asia Advisory Board. The group is thus building a strong exposure in wholesale and retail banking in the Asia-Pacific region through such company level changes. On the other hand, BT Financial Group (BT) is a wholly owned subsidiary of the group and has recently taken three new initiatives i.e., significant pricing changes to its BT Panorama, launching of a ‘compact’ BT Panorama menu, and BT Open Services to assist advisers and dealers in a cost-effective way. The stock is expected to witness growth which leads to the positive sentiments in the market. Hence, we maintain our “Buy” recommendation at the current market price of $29.46.
 

WBC Daily Chart (Source: Thomson Reuters)

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