Mineral Resources Limited

Subdued performance in 1HFY19 but expect decent earnings in long run: Mineral Resources Limited (ASX: MIN) is a mid-cap company with the market capitalization of circa $3.17 Bn as on February 22, 2019. The group has recently announced subdued performance for the half year ended 31 December 2018 wherein revenue was down by 35 per cent and amounted to $554.7 Mn in 1HFY19 over the prior corresponding period. Moreover, the company recorded a reported EBITDA of $72.0 Mn for the first half of the year 2019 from the prior corresponding year. Revenue and EBITDA were mainly impacted by delaying the completion of Koolyanobbing acquisition, taken decision to cease Wodgina lithium Direct Shipping Ore (DSO) sales in favour of extracting higher value via spodumene concentrate in future periods, reduction in average realised price for Iron Valley iron ore products, and increased logistics & shipping costs mainly due to higher prevailing fuel costs.NPAT stood at $13 Mn in 1HFY19, displaying downfall of 92 percent on a PCP basis. Resultantly, the Board of Director declared a fully franked interim dividend of 13 cents per share, down 48 percent as compared to the prior corresponding period and it will be payable on April 17, 2019 with the record date of March 18, 2019. However, as per the management, the performance of 1HFY19 was broadly in-line as the group was majorly involved in the strategic investments for several growth projects in the long run. This programme of investment will continue into H2 FY19 as the company completes major projects at Wodgina and Mt. Marion. At the end of the period, MRL had cash and undrawn cash debt facilities of $251 Mn.


1HFY19 Financial Summary (Source: Company Reports)

The company expects to deliver the forecast EBITDA based on the assumptions (including commodity pricing) made at the time of its guidance at the AGM in November 2018 of between $280 Mn to $320 Mn. The Company's mining services division guidance has been affirmed to contribute at least $240 Mn of EBITDA. Some of its pipeline projects are Bulk Ore Shuttle System, Marillana & Kumina Iron Ore Projects, McIntosh Graphite Project, and Carbon Fibre & Synthetic Graphite Projects.

Meanwhile, the share price has generated a positive YTD return of 12.10%. In the past 3 months, the stock has risen 6.41% and trading at a higher PE level of 25.72x. Its net margin stood at 2.4% in 1HFY19 which is below the industry mean of 13.8% because of higher capital expenditure incurred during the period. Further, the company is expected to continue its investments in capex in the second half as well. Thus, it is early to say that the expected H2 FY19 earnings would be better than the first half. Hence given the mix of scenario, we have a watch view on the stock at the current market price of $16.77 (down -0.416% on 22 February 2019), and we should wait for some more catalysts which can support the share price movement.
 

Wesfarmers Limited

Decent 1HFY19 Results and announced special dividend of $1.0: Wesfarmers Limited (ASX: WES) has recently delivered decent 2019 half-year results wherein revenue from continuing operation grew by 4.2 percent and amounted to $14,388 Mn in 1HFY19 over the prior corresponding period. NPAT from continuing operation stood at $1,080 Mn in 1HFY19, showing a decent rise of 10.4% on PCP basis. Further, the company reported a net profit after tax of $4,538 Mn for the combined operation (continued & discontinued) for H1 FY2019. Its discontinued operations such as demerger of Coles and disposals of Bengalla, Auto Service, Quadrant Energy, and Kmart Tyre helped it to report additional gains for the half-year. On the balance sheet front, the net financial debt was significantly reduced from $3,864 Mn to $324 Mn in 1HFY19 from the prior corresponding period because of the demerger of Coles and net proceeds on disposals. Based on decent performance in 1HFY19, the Board of Director declared a fully franked interim dividend of 100 cents per share and fully franked special dividend of 100 cents per share.  This summarized a total dividend payment of 200 cents per share for the period of six months and it will be payable on April 10, 2019 with the record date of February 27, 2019. This fully-franked special dividend was declared due to the successful completion of actions taken to reposition the Group’s portfolio.

The credit for H1 FY 2019 good result underpins to continued growth in Bunnings, the Chemicals, Energy, and Fertilisers, and Officeworks business. The company's retail businesses delivered an online sales growth of 34 % and expected further improvements in their respective e-commerce capabilities. In our view, the group remains well-positioned for growth over the long run. Actions taken to reposition the portfolio have significantly strengthened the balance sheet and placed the Group in a strong position to deliver improved shareholder returns.


Financial Summary (Source: Company Reports)

As per the industry outlook, the decline in residential housing conditions and an increase in the cost of living pressures have contributed to slowness in retail spending growth; thus consumers remain cautious and value conscious. In spite of this, the company expects a continuation in its investments in its retail division to offer its customer better experience, value, convenience and quality which includes improvisation in its digital offer to meet the changing expectations of customers and to create a platform for rising addressable markets while enhancing operating efficiencies.

As per company reports, international commodity prices, competitive factors, exchange rates, and seasonal outcomes will continue to affect the performance of its industrial businesses. However, the company has positive expectations for its short-term outlook, and at the same time, it anticipates its earnings over the medium term to get affected by the abundant supply of explosive grade ammonium nitrate in the Western Australian market.

Meanwhile, the share price has generated a positive YTD return of 11.47% and trading slightly towards the 52-week higher level of $37.694 with low PE multiple of 7.20x. Given the backdrop of a mixed scenario and current trading level, it is better if one can wait and watch the stock for further correction at the current price level of $35.17 (up 0.572% on 22 February 2019).

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