Stocks’ Details

Australia And New Zealand Banking Group Limited

ANZ NZ’s Cash NPAT Rose 18%: Australia and New Zealand Banking Group Limited (ASX: ANZ) released their results for half-year ended March 2019. ANZ New Zealand posted a statutory net profit after taxation (or NPAT) of NZ$929 million in 1HFY19 which implies a fall of 4% on corresponding half in the financial year 2018. Its cash NPAT amounted to NZ$1,114 million which reflects a rise of 18% because of one-off transactions which included the unloading of life insurance company named OnePath Life (NZ) Limited and 25% share in Paymark Limited. However, ANZ’s statutory profit after tax amounted to $3.17 billion which implies a fall of 5% on prior comparable period. Its cash profit for the continuing operations stood at $3.56 billion implying a rise of 2%. The common equity tier 1 capital ratio of ANZ rose to 11.5% reflecting a rise of 45 bps. The Board of Directors declared a fully franked interim dividend of 80 cents per share which will be paid on July 01, 2019 with the record date of May 13, 2019. 

1HFY19 Group Financial Information (Source: Company Reports)

ANZ’s balance sheet was strong and it had wrapped up the buyback amounting to $3 billion. The bank’s funding and liquidity position were robust as its liquidity coverage ratio was 137% and net stable funding ratio stood at 115%.

What To Expect From ANZ: Even though the performance of ANZ was strong in the half-year to March 2019, there are headwinds which are facing the sector and the bank is taking appropriate action. The bank stated that retail banking in Australia is expected to be pressured for foreseeable future because of subdued credit growth, strong competition as well as higher compliance costs impacting the earnings. However, the bank is positive on the institutional banking front. There are expectations that institutional banking is in the position to provide positive earnings diversification which would be partially offsetting the headwinds in other parts of the group.

Stock Recommendation: The stock of ANZ had posted the return of 6% in the span of the previous 6 months while, in the time frame of the previous three months, the return stood at 6.75%. The bank’s annual dividend yield stood at 5.88% which can be considered at respectable levels. Based on the decent fundamentals, we maintain our “Buy” rating on the stock at the current market price of A$27.950 per share (up 2.757% on 1 May 2019).


 
ANZ Daily Chart (Source: Thomson Reuters)
 

Reliance Worldwide Corporation Limited

John Guest Supported RWC’s Net Sales, Reported EBITDA: Reliance Worldwide Corporation Limited (ASX: RWC) witnessed net sales amounting to $544.2 million in half-year ended December 2018 reflecting 50.1% increase on the comparative period. Its reported EBITDA amounted to $120.7 million which implies a rise of 52.3% on the comparative period. The increases demonstrate the inclusion of John Guest for the entire period.

Key Metrics for six months to December 2018 (Source: Company Reports)

What To Expect From RWC: Reliance Worldwide Corporation Limited is having a positive outlook for 2H FY 2019. There are expectations that there would be an acceleration in John Guest growth in 2H FY 2019 and production costs are expected to be reduced because of processing of lower cost copper (brass bar). Additionally, the company is expected to make deployments towards long term growth opportunities. Also, the business’ fundamentals are strong.

Stock Recommendation: The stock of RWC has delivered the return of 5.63% in the span of previous three months while, in the time frame of previous one month, the return stood at 12.96%. From the valuation perspective, the company’s stock seems to be slightly undervalued as its P/B ratio stood at 2.82x which is lower than the peer mean of 3.26x. Based on the foregoing,we uphold our “Buy” rating on the stock at the current market price of A$4.780 per share (down 2.049% on 1 May 2019).


RWC Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation

Improved Credit Quality: Westpac Banking Corporation (ASX: WBC) updated on accounting provisions for remediation associated with authorised representatives in relation to certain ongoing advice service fees. As per the available information, the company said that its cash earnings in the first half of 2019 will be reduced by $357 million for accounting provisions associated with this matter.


Performance Highlights 2018 (Source: Company Reports)

In 2018, financial performance remained mixed. The reported profit of the bank reached $8,095 million up by 1% in FY18. Moreover, the productivity initiatives generated $304 million in savings, helping to offset volume-related cost growth and the large increase in regulatory-related costs.

The credit quality has continued to be a highlight with the portfolio in good shape. The ratio of stressed assets to total committed exposures has remained near cyclical lows at 1.08%. The Net interest margin was 2.13% in 2018, up by 7 basis points compared to 2017.

The common equity tier 1 capital after deductions increased by 6% over the year with the bank maintaining the tier 1 capital ratio at 10.6% - above APRA’s unquestionably strong benchmark.The liquidity position remained strong with $154 billion in liquid assets providing the Group with significant funding flexibility.

What To Expect Going Forward: The expense control remains an important priority for the Group, however, looking ahead, with its strong positioning, disciplined growth, solid portfolio of businesses, and good progress on the strategic priorities, the bank believes that it is well position to continue delivering sustainable outcomes for the shareholders and customers.

With strong fundamentals including robust balance sheet, lower stressed assets to total committed exposures, and key liquidity ratios (i.e. the Liquidity Coverage Ratio and Net Stable Funding Ratio) being well ahead of the benchmark, and strong credit quality we believe the bank is poised for decent performance going forward.

It has generated a YTD return of 12.38%. Moreover, the current PE ratio for the stock is trading at 12.23x as compared to a peer median of 13.11x, showing undervalued position at the current market prices. Hence, considering the above factors we give a “Buy” recommendation on the stock at CMP of $28.140 (up 2.29% May 01, 2019).


WBC Daily Chart (Source: Thomson Reuters)
 

Qantas Airways Limited

Strong Earnings Quality: Qantas Airways Limited (ASX: QAN) provides services related to the passenger and freight air transportation globally and in Australia. The company has made an announcement related to its ongoing on-market buy-back event involving a total consideration of up to $305 million which would be acquired under the buyback. The remaining consideration to be paid for shares under the buy-back is up to $152,044,411.40. Till date, the company has bought back 27,209,771 shares at a consideration of $152,955,58.6.

Moreover, the current Chief Financial Officer, Tino La Spina, will become Chief Executive Officer of Qantas International. Vanessa Hudson, who has currently held a position of the Group’s Chief Customer Officer, will move to the role of Chief Financial Officer. The changes will take effect from 1 October 2019.


1H FY 2019 Group Revenue (Source: Company Reports)

The group domestic recorded a profit, up 1 per cent to $659 million, driven by higher earnings from both Qantas and Jetstar.

The revenue of Qantas International increased to $3.7 billion, up by ~7 per cent. The EBIT, however, declined to $90 million (a decrease of 60%) mainly because of the rapid rise in fuel costs.

Expected strong second half: The group is in a better position to post a strong second half performance and to completely recover its increased fuel cost by the end of this financial year. Forward bookings are up by 6.8% as at 31 December 2018, which includes the impact of Easter falling in Q4, reducing RASK growth for Q3. The company is flexible to respond to market conditions. From the valuation standpoint, it has a lower than industry EV/EBITDA multiple as it reported a multiple of 3.9x as compared to the industry median of 4.9x. This represents that the stock is undervalued at the current juncture. Hence, considering the robust fundamentals of the company, along with decent outlook, we reiterate our “Buy” recommendation on the stock at the current market price of $5.700 per share (up 1.604% on 1 May 2019).


QAN Daily Chart (Source: Thomson Reuters)
 

Naos Small Cap Opportunities Company Limited

Buy-Back Updates: Naos Small Cap Opportunities Company Limited (ASX: NSC) had a pre-tax net trading assets (NTA) of $0.75 per share as at 31 March 2019. The company had ten long positions which formed part of its portfolio. The company’s weighted average market capitalization of the investments stood at $182.5 Million. For the month of March, the company’s portfolio increased by +1.14% and outperformed the Benchmark S&P/ASX Small Ordinaries Accumulation Index by about 1.26%. At the end of March, the company announced its intention to commence an on-market buy-back of up to 10% of its ordinary shares on issue. As the buy-back of shares at a discount is accretive to Net Tangible Assets per share, the Board considers this to be an effective use of the Company’s capital and in the interests of all shareholders. Till date, the company has bought back 575,000 shares at a consideration of $350,747.83. The company is yet to buy back 16,324,580 shares.
 

Investment Portfolio Performance (Source: Company Reports)

Going forward, the company believe that there are several significant catalysts within the NSC portfolio over the coming 6- 12 months. In the meantime, the stock exhibited volatile performance with negative returns of 3.20% and 9.70% over the past one month and three months, respectively. However, with the stock currently trading near its 52-week low gives an opportunity to the investors to make an entry at a lower level. Thus, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.605 per share.


NSC Daily Chart (Source: Thomson Reuters)
 

Bellamy’s Australia Limited

Stock Gained ~28% in the Last 3-months: Bellamy’s Australia Limited (ASX: BAL) reported that the ViPlus Dairy’s formula-series registration amendment has been approved by SAMR, but Bellamy’s organic formula-series application is pending. On 23 April 2019, SAMR approved a label and artwork change to the existing registered ViPlus Dairy’s bovine formula-series. 


Group 1H19 financial performance compared to 1H18 (Source: Company Reports)

The company reported normalised revenue of ~$130 million and EBITDA of $26 million in the first half of 2019 (1HFY19).Decrease in EBITDA exhibited the net impact of lower revenue and an improved gross margin. The revenue however was impacted by several factors previously flagged to the market, including delayed SAMR registration, a planned reduction in trade inventory prior to the rebrand, and observed slowdown in category performance.

Moreover, the company’s strong balance sheet was maintained with the group cash increasing to $95 million, with no debts and continued access to a $40 million working capital debt facility.

Revenue & EBITDA Guidance: The company expects the revenue for FY19 to be within a range of $275-300 million, allowing for slower trading prior to the rebrand and during the lunar new year holiday with an expected return to stronger performance from March. Normalised EBITDA for the group is expected to be within a range of 18-22% of revenue, reflecting lower forecast revenue and increased investment in marketing and the China team over the coming period.

The stock exhibited highly volatile performance with a negative return of 6.26% in the last one month to gain of 28.49% in the last three months. Hence, considering the financials and growth prospects of the business along with current trading level, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $10.820 per share (up 0.371% as on 01 May 2019).


BAL Daily Chart (Source: Thomson Reuters)
 

Paradigm Biopharmaceuticals Limited

Strong Growth Seen in Revenues in 1H FY19: Paradigm Biopharmaceuticals Limited (ASX: PAR) recently reported about its successful phase 2b randomised double?blind placebo?controlled multi?centre clinical trial (n=112) which treated participants with knee osteoarthritis (OA) and concurrent bone marrow lesions (BML) with injectable Pentosan Polysulfate Sodium (iPPS).


Key Parameters 1HFY19 (Source: Company Reports)

The revenue of the company grew by 25.99% to $28,140 for 1H FY19 over the prior corresponding period. The net loss for the period grew by 23.14% on the prior corresponding period to $4,400,269 for 1H FY19 primarily driven by R&D expenses.

What to Expect From PAR: The company is confident of a single successful Phase 2/3 clinical trial enabling the iPPS to be registered as a treatment for certain MPS indications. MPS is categorized as an Orphan Indication/Designation in the US and Europe. It opens up the opportunity to serve a US$ 1.4 billion per annum market which immediately needs new cost-effective treatments.
 
Meanwhile, the stock price has a significant YTD return of 51.83% and a returnof 69.35% over the past six months and is currently trading slightly towards the 52 weeks high price of $2.149. On the analytical front, the current ratio substantially increased from 3.97x in 1HFY18 to 9.20x in 1HFY19, exhibiting decent liquidity of the firm to meet its obligation in the short run. Based on the foregoing and current trading level, we have a “Speculative Buy” recommendation on the stock at the current market price of $1.500 per share (down 0.332% on 1 May 2019).


PAR Daily Chart (Source: Thomson Reuters)

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