Stocks’ Details

Nearmap Ltd

Rise in Annualised Contract Value: Nearmap Ltd (ASX: NEA) is engaged in the provisioning of geospatial map technology for businesses, enterprises and government customers. The market capitalisation of the company stood at $766.92 Mn as on 3^rd February 2020. The company recently announced that it has decreased its restricted stock units (RSU) on the issue by 22,052. As per the release, RSU’s has been issued to employees with respect to its long-term incentive plan and lapsed unvested on cessation of employment. The company would be releasing its 1H FY20 results on 19^th February 2020. Notably, for the period ended 31^st December 2019 (1H FY20), the company experienced a rise of 23% in annualised contract value, which amounted to $96.6 Mn.


Annualised Contract Value (Source: Company Reports)

Revised Guidance for ACV: For FY20, the company is expecting ACV in the ambit of $102 Mn-$110 Mn as compared to the previous guidance range of $116Mn-$120 Mn. The company is optimistic that it would continue to deliver ACV growth of 20%-40%.

Valuation Methodology: EV/Sales Based Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months.
 
Stock Recommendation: As at 31^st December 2019, the cash balance of the group stood at $50 Mn. Current ratio of the company stood at 1.63x in FY19 as compared to the 0.72x in FY18. We have valued the stock using EV/Sales based relative valuation approach, and for the purpose, we have taken peers such as ELMO Software Ltd (ASX: ELO), NEXTDC Ltd (ASX: NXT), Catapult Group International Ltd (ASX: CAT), etc., and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, considering the decent growth in ACV and rise in liquidity position, we give a “Buy” recommendation on the stock at the current market price of $1.740 per share, up 2.665% on 3^rd February 2020.

 
NEA Daily Technical Chart (Source: Thomson Reuters)
 

Qantas Airways Limited

 
Increase in Membership a Key Catalysts: Qantas Airways Limited (ASX: QAN) is engaged in the operation of international and domestic air transportation services. The market capitalisation of the company stood at $9.56 Bn as on 3^rd February 2020.
 
The company recently announced that AXA SA, AllianceBernstein Australia Limited has ceased to become a substantial holder in the company, effective from 29^th January 2020. In another update, the company announced that Debra Joan Smith has resigned from the role of Company Secretary, which became effective on 20^th December 2019. The following picture depicts an idea of membership growth on a year over year basis:
 

Consistent Membership Growth (Source: Company Reports)
What to Expect: It was mentioned that the capacity of the group is anticipated to witness a rise in the range of 0.5% to 1.0% in the 1H FY20, with increases in domestic and international flying. The company is positioned to deliver higher domestic operating margins.
 
Valuation Methodology: EV/Sales Based Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months.
 
Stock Recommendation: The company is focused on generating margin expansion, mainly via cost reduction initiatives. Also, the company is making higher investments to drive improved customer experiences. We have valued the stock using EV/Sales based relative valuation approach, and for the purpose, we have taken peers such as Sydney Airport Holdings Pty Ltd (ASX: SYD), Virgin Australia Holdings Ltd (ASX: VAH), and Air New Zealand Ltd (ASX: AIZ), and arrived at a target price, which is offering an upside of mid-single-digit (in percentage terms). Thus, in the light of the company’s focus on margin expansion and decent outlook, we maintain a “Hold” rating on the stock at the current market price of $6.370 per share, down 0.624% on 3^rd February 2020.
 
 
QAN Daily Technical Chart (Source: Thomson Reuters)
 

Wesfarmers Limited

 
Update on Mt Holland Lithium Project:Wesfarmers Limited (ASX: WES) is primarily involved in the retailing of home improvement and outdoor living products as well as the supply of building materials. The market capitalisation of the company stood at $51.26 Bn as on 3^rd February 2020. The company recently notified the market with an update on Mt Holland lithium project. It added that a final investment decision (FID) on the project has been deferred in order to allow additional actions to enhance the long-term value of the project, post completion of the definitive feasibility study. As per the key personnel of the company, the project is anticipated to contribute an important role in the global lithium hydroxide market with an attractive long-term outlook. On 19^th February 2020, the company would release its 1H FY20 results. The below picture provides a financial overview of the company for FY19:


Financial Overview (Source: Company Reports)
 
Retail Division- Well Placed: The company stated that its retail divisions are placed well within their respective markets, and the company would continue to invest higher in these offers in order to deliver greater value, quality and convenience to the customers. The company would continue to build on its unique capabilities and platforms in order to take advantage of growth opportunities within its existing businesses, which includes acquired investments along with other value-accretive transaction.
 
Valuation Methodology: P/E based Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation:Wesfarmers would be maintaining its disciplined approach for capital allocation. The company would pursue growth opportunities, which is likely to deliver value to shareholders, going forward. As per ASX, the stock of WES is trading closer to its 52-week high level of $45.530. We have valued the stock using P/E based relative valuation approach, and for the purpose, we have taken peers such as Coles Group Ltd (ASX: COL), Woolworths Group Ltd (ASX: WOW), and Coca-Cola Amatil Ltd (ASX: CCL),and arrived at a target price, which is offering correction of lower single-digit (in percentage terms). Hence, considering the current trading levels and expected correction in valuation, we have a watch stance on the stock at the current market price of $45.090 per share, down 0.265% on 3^rd February 2020.

 
WES Daily Technical Chart (Source: Thomson Reuters)
 

BHP Group Limited

 
Strong Operational Performance: BHP Group Limited (ASX: BHP) is in the exploration, production and processing of minerals. The market capitalisation of the company stood at $116.07 Bn as on 3^rd February 2020. The company recently updated the market with the activities for Q2FY20 and stated that it experienced solid operational performances throughout the portfolio in the 1H FY20, which is offsetting the expected impacts of planned maintenance and natural field decline. With respect to Cooper, the company reported a rise of 7% to 885 kt of total production. Moreover, the company is expecting total copper production in the range of 1,705kt and 1,820 kt.
 

Operational Performance (Source: Company Reports)
 
Guidance for Petroleum production: For FY20, the company is expecting total petroleum production in the vicinity of 110 and 116 MMboe, and volumes are anticipated to be towards the lower end of the guidance.
 
Valuation Methodology: P/E based Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The company has agreed to finance a total of US$793 million in further financial support for the Renova Foundation and Samarco during December 2019.During the span of one month and three months, the stock of BHP has generated returns of 1.23% and 9.60%, respectively. We have valued the stock using P/E based relative valuation approach, and for the purpose, we have taken peers such Fortescue Metals Group Ltd (ASX: FMG), Rio Tinto Ltd (ASX: RIO), South32 Ltd (ASX: S32), etc., and arrived at a target price, which is offering an upside of higher single-digit (in percentage terms). Therefore, considering the returns in the past period, valuation and other factors, we give a “Hold” recommendation on the stock at the current market price of $38.250 per share, down 2.919% on 3^rd February 2020. 

 
BHP Daily Technical Chart (Source: Thomson Reuters)
 

FlexiGroup Limited

 
Secured New Contract: FlexiGroup Limited (ASX: FXL) provides lease and rental financing services and no interest ever payment products. The market capitalisation of the company stood at $828.22 Mn as on 3^rd February 2020. The company recently announced that it has secured a 4-year agreement with its strategic partner, Flight Centre Travel Group Limited to be the exclusive provider of interest-free finance to approved customers. It added that the new 4-year commercial arrangement, which extends to the Flight Centre, Universal Traveller as well as Travel Associates brands in Australia is focused on enhancing the customer experience with the company’s long-term interest free finance product.
 

Group Financial (Source: Company Reports)
 
Future Aspects: As a result of new product launches, audience extension as well as new partnerships, the company anticipates a rise in the volume of at least 15% for FY20. The company also anticipates to balance margin with growth and to maintain a double-digit return on equity.
 
Valuation Methodology: P/CF based Multiple Approach

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: Net margin of the company stood at 12.6% in FY19, reflecting a YoY growth of 14.5%. We have valued the stock using P/CF based relative valuation approach, and for the purpose, we have taken peers such Smartgroup Corporation Ltd (ASX: SIQ), Credit Corp Group Ltd (ASX: CCP) and Eclipx Group Ltd (ASX: ECX) and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Hence, considering the above-mentioned factor and decent outlook, we maintain a “Hold” rating on the stock at the current market price of $1.870 per share, down 10.952% on 3^rd February 2020, taking cues from the released trading update.

 
FXL Daily Technical Chart (Source: Thomson Reuters)
 

Oil Search Limited

 
Decent Growth in Revenue: Oil Search Limited (ASX: OSH) is engaged in the exploration, development and production of oil and gas resources. The market capitalisation of the company stood at $11.04 Bn as on 3^rd February 2020. The company has recently noted that Papua New Guinea’s Prime Minister on 31 January 2020 has stated that negotiations on the P’nyang Gas Agreement have stopped, for allowing the Government to concentrate on developments, which are already in the pipeline. The company added that it respects the PNG Government’s right to set fiscal terms for resources developments in PNG, for ensuring the State, resource owners and the people of Papua New Guinea to receive an appropriate share of value from these projects.
 
On the financial front, the company experienced a rise of 24% in revenue to US$446.7 Mn during Q4 FY19. This reflects the recovery in production, timing of shipments as well as higher realised oil and condensate prices.
 

Key Operational Numbers (Source: Company Reports)
 
Guidance for FY20: For FY19, the company is expecting unit production costs in the range of US$12.00– US$13.00/boe. It is expecting Net financing charges of between US$225 – US$235 million. For FY20, the company is anticipating production cost in the ambit of US$11.0 - US$12.0/boe.
 
Valuation Methodology: EV/Sales Based Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months.
 
Stock Recommendation: At the end of Q4 FY19, the liquidity position of the company stood at US$1.15 billion. This comprises a cash balance of US$396.2 million and US$755.7 million in undrawn credit facilities.  We have valued the stock using EV/Sales based relative valuation approachand arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Hence, considering the decent growth in revenue, guidance for FY20 and decent valuations, we give a “Buy” recommendation on the stock at the current market price of $6.720 per share, down 7.182% as on 3^rd February 2020, due to the update related to P’nyang Gas Agreement.
 
 
OSH Daily Technical Chart (Source: Thomson Reuters)

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