7 Picks for November - TCL, MFG, PGC, CGL, CAN, CGF, EVN

Transurban Group

TCL Details

Long-term Growth Driver Intact:Transurban Group (ASX: TCL) provided a September quarter update wherein the Company reached financial close on the acquisition of an additional 8.24% interest in the M5 West Motorway in Sydney, taking its total equity interest to 58.24%. Further, the company has agreed to acquire an additional 7.15% interest in the M5 West Motorway, which will take its total equity ownership to 65.39%. For that, the company successfully raised $4.8 billion of equity to fund the acquisition of a 25.5% stake in WestConnex with $4.2 billion from a fully underwritten accelerated pro-rata entitlement offer and rest $600 million of securities being placed to Transurban’s consortium partners. During the period, Average Daily Traffic (ADT) increased by 3.3%, with growth across all markets. In our view, WestConnex will drive revenue growth for TCL in the future on the back of rising traffic volume from M4 west, and M5 West and East while cost might be moderate.


WestConnex Cash Flow Progressively Building (Source: Company Reports)

From the valuation front, the company has a price-to-earnings ratio of 49.74x. It has posted a return on equity (RoE) of 10.1% and has debt-to-equity ratio of 2.75x in FY18. Over the last five years, the company’s revenue and PAT have grown at a CAGR of 30.1 percent and 14.5 percent, respectively. Going forward, it is expected to uplift growth momentum from FY19E onwards at the back of full contribution from A25 and toll revenue growth. Meanwhile, the share price has fallen 1.98% in the past three months as at October 30, 2018 and traded at below the four-year average P/E of around 75x. The price is trading in a broad consolidation range of $10.620 to $12.906 and the MACD (Moving Average Convergence Divergence) indicator suggests that the price movement is more inclined to move higher, representing bullish momentum. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $11.340 while the market is under a volatile scenario.


 
TCL Daily Chart (Source: Thomson Reuters)
 

Magellan Financial Group Limited

MFG Details

Expecting Decent Shareholder’s Returns in Years to Come: Magellan Financial Group Limited (ASX: MFG) is a mid-cap fund management company with the market capitalization of circa $4.58 Bn as of October 31, 2018. Recently, Brett Peter Cairns who had a Direct and Indirect interest in the company, had acquired 10,000 fully paid ordinary shares at the price of 24.995 per share via on-market trade. It was observed that the company’s revenue and PAT have grown at a CAGR of 32.2 percent and 26.4 percent, respectively during FY14-18. Based on strong financials and decent outlook, the group has revised the dividend payout ratio in the range of 90%-95% of the fund management business net profit after tax from the prior payout of 75-80%. Valuation-wise MFG looks impressive with Net Margin at 46.8% in FY18 which is above the industry median of 30.1%. Return to the shareholders has also been good with ROE coming in at 39.7%.


Total Dividend Paid and Payout Ratio Trend (Source: Company Reports)

The stock has had a decent run on the bourses, generating six months return of 10.66%. After breaching the support level of $24.708 a couple of weeks before, the stock has moved higher. On the daily chart of MFG, the MACD (Moving Average Convergence Divergence) and Relative Strength Index (RSI) indicator have been applied by taking into account the default values. After careful observation, it was noticed that MACD and RSI line are in upward directions representing a bullish momentum. Going forward, MFG looks committed to generate good returns on their investment and also pay shareholders a part of their profits consistently. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $26.64.  


 
MFG Daily Chart (Source: Thomson Reuters)
 

Paragon Care Limited

PGC Details

Synergistic Acquisition strengthens Paragon’s platform: Paragon Care Limited (ASX: PGC) posted FY18 revenues and EBITDA of $136.7 Mn and $18.2 Mn, respectively. Moreover, the company has consistently achieved higher Net Margins over the past five years. For FY18, the net margin came in at 8.0% compared to the industry average of 3.2%. Over the period, the company has also generated a significant return for the shareholders with ROE at 8.7% and has a debt-to-equity ratio of 0.62x against the industry average of 0.40x. Recently, the company has entered in the acquisition of Total Communications (Australia) Pty Ltd for cash consideration of $27.5 Mn for the purpose of strengthening the Paragon’s service offerings which in turn can boost topline growth in years to come.


FY18 acquisitions significantly strengthen Paragon’s platform (Source: Company Reports)

Meanwhile, the stock has delivered a negative year to date return of 12.52% and traded at reasonable PE level of 12.96x. As per the daily chart, we observe that MACD (Moving Average Convergence Divergence) line has crossed the signal line indicating price to be bullish in nature. The recent fall might have come on the account of profit booking, but the stock held its support of $0.681. Based on foregoing and current trading level, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $0.690.


 
PGC Daily Chart (Source: Thomson Reuters)
 

The Citadel Group Limited

CGL Details

Well Positioned to Grow Further:The Citadel Group Limited (ASX: CGL) is an information technology company which earned $108.5 million of revenues in FY 2018. With the operational success received in FY 2018, the company is a great position to increase its revenue and earnings. Further, the company is planning to double the level of R&D investments in business-critical software and digital solutions to drive long-term growth. To complement the organic growth strategy of the company, Citadel is planning to take advantage of M&A opportunities. In the last six months, the share price of Citadel Group increased by 37 percent as on 30 October 2018, and traded at a PE level of 22.310x. Based on foregoing and aggressive investment strategy towards R&D, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $8.500, up 3.4% on October 31, 2018.


 
CGL Daily Chart (Source: Thomson Reuters)
 

Cann Group Limited

CAN Details

Project Tullamarine to Support CAN Growth Initiatives: Cann Group Limited (ASX: CAN) has been witnessing strong progress with regards to the expansion capabilities and the company is optimistic about the “Project Tullamarine.” The company is through with the first design phase. Moreover, it is also planning to increase the workforce and the management believes that it would commence recruiting staff in Q2 2019.


CAN’s Project Tullamarine (Source: Company Reports)

The management of Cann Group Limited is expected to go ahead in the commissioning phase in Q4 2019 and in Q3 2020 it plans to start operating at the full capacity. The management of Cann Group is optimistic about the long-term growth prospects of the broader cannabis market. CAN has been entering into several partnerships which could help it in achieving the long-term growth initiatives. The cannabis market globally is expected to clock at US$100 billion by 2025. The long-term growth would be supported by the legalization concept. On the technical front, the Exponential moving average or EMA has been applied on the daily chart of Cann Group Limited and default values have been considered. As per the observation, the company’s stock price is about to cross the EMA and after the crossover we expect it to move upward. Therefore, we maintain our “Speculative Buy” rating on the stock at the current market price of $2.500.


  
CAN Daily Chart (Source: Thomson Reuters)
 

Challenger Ltd

CGF Details

Expanding Distribution Reach- Key Driver of Business Momentum: Challenger Ltd (ASX: CGF) intends to expand distribution reach of its annuities through the relationship with many big annuities’ companies. Earlier, the group launched challenger annuities on the AMP and BT platform. Currently, the group is working with HUB24 and Netwealth platform to make the annuities on respective platform. When done, the group will reach 70% of advisors through their platform relationships. For FY 2019, Challenger Ltd is targeting growth in normalized net profit before tax of between 8% and 12% on FY 2018 and the company is focusing on attaining 18% pre-tax normalized return on equity. Meanwhile, the share price has fallen 15.05% in the past three months as at October 30, 2018 and traded at a lower level with PE multiple of 19.44x. Further, we expect that the distribution expansion will support the growth momentum in years ahead. Hence, we give a “Buy” recommendation on the stock at the current price of $10.260.


 
CGF Daily Chart (Source: Thomson Reuters)
 

Evolution Mining Limited

EVN Details

Cowal Received regulatory Approval for GRE46 Decline: Evolution Mining Limited (ASX: EVN) is a leading Australian gold miner which has produced 801,187 ounces of gold in FY 2018 and generated record net mine cash flow of A$539.9 million in the same period. For the next three years, the company is expecting to produce more than 700,000 ounces of gold while the sustaining costs are expected to remain relatively flat throughout these years which will help the company’s business to prosper even in weaker gold price environment. The capital expenditure of the company is expected to remain high in FY 2019 and further, it is expected to decline from FY 2020 onwards. Recently, EVN’s Cowal Gold Operation in NSW received the regulatory approval from the NSW Department of Planning and Environment (DP&E) to initiate the construction of the Galway-Regal-E46 (GRE46) exploration decline which was an important step to achieve the company’s objective of increasing Cowal’s production rate to over 300,000 ounces per annum on a sustainable basis.



FY19 Guidance and Three-Year Production Outlook to FY21 (Source: Company Reports)

Meanwhile, the share has risen 7.34% in the past three months as at October 30, 2018 and traded at reasonable PE multiple of 19.720x. Given the backdrop of maintaining production guidance more than 700,000 ounces Gold to FY21E and positive drilling results wherein the group is excited about the potential to add significant underground resources of high-grade material over the long strike length, we maintain our “Buy” recommendation on the stock at the current market price of $2.980.


 
EVN Daily Chart (Source: Thomson Reuters)
  

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.