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Commonwealth Bank of Australia
Offloaded life insurance businessesto uplift CET1 ratio: Commonwealth Bank of Australia (ASX: CBA) is undertaking a strategic review (including the consideration of an IPO) of its global asset management business, Colonial First State Global Asset Management (“CFSGAM”) that has A$219 billion in Assets under Management. The group is also selling their life insurance businesses in Australia and New Zealand to AIA Group Limited for $3.8 billion. With this move, customers would benefit from AIA’s high-quality product offerings, innovation, global scale and specialization advantages. This would also lead to a major uplift for CBA with pro forma CET1 ratio improving over 70 basis points. On the other hand, the group has faced a public inquiry into its governance and culture which is the second regulatory probe post their massive breaches of money-laundering rules. CBA stock lost over 9.6% in the last six months (as of September 20, 2017) and we believe the pressure in the stock would continue in the coming months. We rate the stock to be “Expensive” at the current price of $ 76.07
BHP Billiton Ltd
Building a solid pipeline: With continuing efforts, BHP Billiton Ltd (ASX: BHP) has been able to cut their unit costs across the firm by more than 40 per cent. This initiative has placed them in a cost competitive position and could bear the volatility in the commodity prices. The group is also building a solid pipeline of potential growth projects especially in conventional oil, copper and coal. Their Mad Dog Phase 2 project has the potential capacity to produce up to 140,000 gross barrels of crude oil per day. The group is also forecasting an incremental production from their Spence Growth Option in the first 10 years of operation, which is 185 ktpa of payable copper in concentrate and 4 ktpa of payable molybdenum, with first production scheduled for the 2021 financial year. BHP is also pursuing one of the best undeveloped potash resources in the world in Jansen in Canada. Meanwhile, the group got positive drilling results at Wildling in the US Gulf of Mexico post the discovery of oil in multiple horizons. Recently, the stock seemed to have faced challenges owing to iron ore prices while the project prospects look decent. Trading at a healthy dividend yield, we maintain a “Hold” on the stock at the current price of $ 25.99
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Company Overview (Source: Company reports)
National Australia Bank Ltd
Improving asset quality: National Australia Bank Ltd (ASX: NAB) controlled their Bad and doubtful debt charges (B&DDs) by 12% to $173 million during the third quarter of 2017, showing their better asset quality trends and non-repeat of the collective provision overlay for commercial real estate raised in the March 2017 half year. Their ratio of 90+ days past due (DPD) and gross impaired assets (GIAs) to gross loans and advances (GLAs) of 0.80% fell by 5 basis points (bps) from March 2017 showing better conditions for New Zealand dairy customers. The group’s revenue rose 2%, driven by better lending and Group net interest margin (NIM) which offset decrease in Markets and Treasury income. The group’s better NIM shows loan repricing and better funding conditions. Common Equity Tier 1 (CET1) ratio reached 9.7%, against 10.1% in March 2017 showing the impact of the interim 2017 dividend and 17 bps for higher risk weights on the back of earlier advised mortgage model changes. Their Leverage ratio reached 5.3% on an APRA basis while Liquidity coverage ratio (LCR) quarterly average reached 127%. The group declared a distribution amount of $0.8569 payable on December 20, 2017. NAB generates an outstanding dividend yield and we give a “Buy” on the stock at the current price of $ 31.00
Scentre Group
Increasing funds from operations: Scentre Group (ASX: SCG) stock corrected over 14.5% this year to date (as of September 20, 2017) placing the stock at attractive levels. The group delivered Funds from Operations of $638 million in the first half of 2017, which represents 12.01 cents per security, rising 3.5%, and a distribution of 10.86 cents per security, which is an increase of 2%. The group now expects an FFO growth of over 4.25% for the 12 months ending 31 December 2017 and expects a distribution growth of 2% to 21.73 cents per security. The group lined up $900 million in developments with their share being $625 million and forecasts total returns of more than 15%. SCG operates interests in 39 Westfield shopping centers, which comprise 16 of the top 25 performing centers in Australia with assets under management of $47.4 billion. We give a “Buy” on the stock at the current price of $ 3.93
CSL Ltd
USFDA approval for Privigen: CSL Ltd (ASX: CSL) got the U.S. Food and Drug Administration (FDA) approval for their Behring’s Privigen [Immune Globulin Intravenous (Human), 10% Liquid] for treating adults with chronic inflammatory demyelinating polyneuropathy (CIDP) to enhance neuromuscular disability. This is a major milestone for the group who is building a leading neurology franchise. CSL had reported for about 7.7% growth in FY17 NPAT and has risen about 5.6% in last one month (as at September 20, 2017). On the other hand, the shares of CSL are currently trading at an unreasonable P/E.We rate “Expensive” on the stock at the current price of $ 132.81
REA Group Ltd
Ongoing visits growth: REA Group Ltd (ASX: REA) has continued to witness strong visits growth across their domestic as well as international operations. Average monthly visits to realestate.com.au surged 13% on a year-over-year basis to over 51.7 million for the year ended June 30, 2017. Realestate.com.au app showed a solid rise of 52% in total application launches for the same period against the earlier year. The group holds 87% interest in iProperty Group Ltd, which is a major property portal across Malaysia and Indonesia and has major portals in Hong Kong, Thailand and Singapore. Their visits in the Malaysian portal enhanced 38% while application visits in Indonesia surged 94% during the year ended June 30, 2017 against the prior year as per Google Analytics. The Group’s Chinese site myfun.com, supports their businesses in other geographic markets by showcasing residential property listings to Chinese buyers and investors, and delivers leads to agents. REA Group acquired over 15% interest in Elara Technologies in January 2017 who is a leading online real estate services provider in India which owns and operates PropTiger.com, Housing.com and Makaan.com. Given the group’s solid domestic presence, and expanding international presence, we put a “Hold” on the stock at the current price of $ 67.57
Ramsay Health Care Ltd
Enhancing asset position: Ramsay Health Care Ltd (ASX: RHC) stock lost over 18% in the last four weeks (as of September 20, 2017) impacted by unsuccessful expansion efforts in China. On the other hand, the overall performance of the group is good, wherein their net asset position surged 15.3% which is largely attributable to their present year’s profit after tax of $489 million less dividends paid to Ramsay shareholders of $265 million. There are few projects under construction that are worth $385 million and due to be finished in the next two years. The group’s expansion efforts comprise St Andrew’s Private Hospital in Ipswich, Albert Road Clinic in Melbourne, Warners Bay Private Hospital in Newcastle and the new Northside Clinic in Sydney. The new Croydon Day Surgery in the UK has been said to be opened in September 2018. We give a “Hold” on the stock at the current price of $ 61.40
Transurban Group
Rising toll revenue: Transurban Group (ASX: TCL) witnessed a stock price plunge of 2.1% on September 21, 2017 as it went out of favor. The speculation that the group aims to acquire WestConnex, which is said to be a complex and a risky deal, is again doing the rounds. However, limited information is available on this front. Meanwhile, the group has delivered a better toll revenue rise by 11.4% to $2,083 million for the fiscal year of 2017. The group’s profit from ordinary activities after tax enhanced 850.0% from $22 million to $209 million while profit from ordinary activities after tax excluding significant items surged 41.2% to $209 million. The stock delivered over 14.6% returns in this year to date (as of September 20, 2017) and has a decent dividend yield. We give a “Buy” recommendation on the stock at the current price of $ 11.75
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Projects by region (Source: Company reports)
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