Stocks’ Details

Downer EDI Limited

1HFY20 Revenue up by 3.3% on PCP:Downer EDI Limited (ASX: DOW) is engaged in designing infrastructure and facilities. The company provides integrated services across Australia and New Zealand. DOW recently updated the market that Sumitomo Mitsui Trust Holdings, Inc, is now a substantial shareholder of the company with a voting power of 5.08%.

Interim Results for the Period Ended 31^st December 2019: During the six months period, the company reported total revenue amounting to $6.8 billion, representing growth of 3.3% on prior corresponding period. The company reported strong performance across the Road Services business in its key markets, increased contribution from transport projects, along with a positive contribution from the Rollingstock Services business. EBITA for the period stood at $214.8 million, down 19.9% on pcp. Statutory net profit after tax came in at $91.4 million, down 35.4% on the prior corresponding period. Decline in earnings and profit came in a result of challenges across the Engineering, Construction & Maintenance (EC&M) service line.


Financial Performance (Source: Company Reports)

Guidance:In FY20, the company expects NPATA of ~$300 million before minority interests.

Valuation Methodology: EV/EBITDA Based Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company delivered negative returns of 22.86% over a period of 1 month and is currently trading very close to its 52-week low level of $6.450. The company has a strong pipeline of opportunities and has reported a rise in its work-in-hand for 1HFY20. We have valued the stock using EV/EBITDA based relative valuation method and for the purpose, have taken the peer group - CIMIC Group Ltd (ASX: CIM), Boral Ltd (ASX: BLD) and Fletcher Building Ltd (ASX: FBU). As a result, we have arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $6.540, down 4.526% on 24^th February 2020.
 

Qantas Airways Limited

Decent Performance on International Front:Qantas Airways Limited (ASX: QAN) operates international and domestic air transportation services. The company recently announced about the off-market buyback of 1,490,793,082 shares, pursuant to the ongoing capital management.

First Half Performance: During the six months ended 31^st December 2019, the company reported strong earnings, with statutory profit before tax amounting to $648 million and statutory earnings per share amounting to 28.8 cents. Statutory EPS went up by 3.2% in comparison to the prior corresponding period. Net free cash flow at the end of the period amounted to $213 million. While the company witnessed demand weakness on the domestic front, passenger revenue in the international business outweighed the negatives during the period.


Key Performance Measures (Source: Company Reports)

Outlook: The current Coronavirus epidemic is expected to have a negative EBIT impact between $100 million - $150 million in 2HFY20. The above estimation involves a bunch of assumptions including, reduced earnings from domestic terminals, decline in group capacity, fall in fuel costs, etc.

Valuation Methodology: EV/EBITDA Based Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: The stock of the company generated positive returns of 12.63% over a period of 6 months and is currently approaching the mid-point of its 52-week trading range of $5.185 - $7.460. In 1HFY20, the company delivered a strong result backed by capacity discipline, ongoing transformation and increase in market share. We have valued the stock using EV/EBITDA based relative valuation method and arrived at a target price with an upside of higher single-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $6.020, down 7.527% on 24^th February 2020.
 

Reliance Worldwide Corporation Limited

Strong Operational Performance:Reliance Worldwide Corporation Limited (ASX: RWC) provides branded water flow, control and monitoring products and solutions for the plumbing and heating industry.

1HFY20 Results: During the first half ended 31^st December 2019, the company reported net sales amounting to $569 million, representing growth of 5% on the prior corresponding period. The company reported a substantial increase in cash flow from operations at $112.8 million, up 163% on prior corresponding period. Reported NPAT came in at $50.1 million. During the half, the company declared an interim dividend amounting to 4.5 cents per share, up 13% on pcp. Results were impacted by a weaker half reported in EMEA and Asia Pacific.


Cash Flow and Returns (Source: Company Reports)

Guidance: Adjusted NPAT for FY20 is expected in the range of $140 million - $150 million, subject to external factors, including coronavirus and the impact of Brexit.The above guidance was a revision to the previous guidance of $150 million - $165 million. During the second half, the company expects strong sales performance in the Americas and EMEA, along with flat external sales in APAC.

Valuation Methodology: EV/EBITDA Based Valuation

EV/EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of the company generated positive returns of 6.65% and 18.32% over a period of 1 month and 3 months, respectively. During 1HFY20, the company reported strong operational performance. By the end of FY20, the company expects to realise synergies of over $30 million p.a. on a run rate basis, from the John Guest acquisition. We have valued the stock using EV/EBITDA based relative valuation method and for the purpose, have taken the peer group - Adelaide Brighton Ltd (ASX: ABC), James Hardie Industries PLC (ASX: JHX) and GUD Holdings Ltd (ASX: GUD). As a result, we have arrived at a target price with an upside of higher single-digit (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $3.420, down 26.452% on 24^th February 2020, on account of the release of 1HFY20 results.

Aeris Environmental Limited

Strong Cash Receipts in Q2FY20:Aeris Environmental Limited (ASX: AEI) develops and markets proprietary, environment-friendly technology. The company has been actively engaged in providing the support required to fight the current outbreak of Coronavirus and has recently received approval from the Singapore National Environmental Agency (NEA) for the use of its proprietary high-grade disinfectant with residual, Aeris Active, as a general product in disinfecting the COVID-19 Virus. As a result, the company is focused on increasing the production and redirecting its manufacturing capacity to multiple Australian manufacturing sites.

Quarterly Highlights: During the quarter ended 31^st December 2019, the company reported sales revenue amounting to $1.1 million, with first half revenue totalling to over $3.2 million. In addition, the company has reported purchase orders, commitments and revenue for the third quarter amounting to over $5.0 million. During the quarter, the company reported cash receipts of $1.29 million. The company witnessed good growth in its key markets, including the USA, China, South East Asia and Australia. Cash outflows for the coming quarter have been estimated at $1.76 million.


Cash Outflows for 3QFY20 (Source: Company Reports)

Stock Recommendation: The stock of the company generated whopping returns of 100% over a period of 1 month and is currently inclined towards its 52-week high level of $0.725.The company performed decently in Q2FY20, reporting growth across key markets and increased demand for disinfectants due to the recent epidemic. The company is optimistic about the future and has its eyes on the North American summer sales season, which involves a significant investment. Considering the backdrop of the above factors, we have a watch stance on the stock at the current market price of $0.500, down 13.793% on 24^th February 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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