Stock’s Details

Fortescue Metals Group Limited

Record Quarterly Shipments:Fortescue Metals Group Ltd (ASX: FMG) is engaged in exploration, development, production, processing, and sale of iron ore.

June Quarter Highlights: During the quarter, the company reported quarterly shipments of 46.6 million tonnes. Shipments for FY19 were impacted by Cyclone Veronica. The company shipped total 167.7 million tonnes during the year, which was 1% lower than FY18. Cash production costs for the period stood at US$12.78 per wet metric tonne. Total Recordable Injury Frequency Rate for the quarter was 2.8, representing an improvement of 22% in comparison to 31 March 2019.
Demand for the company’s products in China remained strong during the quarter. In addition, the company has set up a Chinese sales entity to extend its products to Chinese customers directly. Shipments to non-China markets during FY19 were reported at 8% of the total shipments.


Production Summary (Source: Company Reports)

FY20 Guidance: The company expects shipments in FY20 to be in the range of 170 – 175 million tonnes. C1 costs are expected to be between US$13.25 – 13.75/wmt. In addition, the company is eyeing a total dividend pay-out ratio between 50% - 80% of full-year NPAT.

Stock Recommendation: Over a period of 1 year, the stock of the company generated returns of 105.87%. Record quarterly shipments during the June quarter along with a reduction of over 5% in C1 costs, the company reinforced its position as the lowest-cost producer. Moreover, the company is capable of delivering a highly valued product mix to customers in FY20, with its healthy iron ore inventory levels. During 1HFY19, the company had an EBITDA margin of 44.9%, which is higher than the industry median of 34.6%. Net margin stood at 18.2% in 1HFY19, which is higher than the industry median of 13.0%. Currently, the stock is trading slightly towards its 52- week high level of $9.550 with PE multiple of 20.97x. Hence, considering the aforesaid factors and current trading levels, we give a “Hold” recommendation to the stock at a current market price of $8.150, down 1.689% on 29 July 2019.            
 

National Australia Bank Limited

Productivity Benefits to Drive Profit Growth in the Coming period:National Australia Bank Limited (ASX: NAB) is primarily engaged in banking services, credit and access card facilities, leasing, housing, and general finance, etc. The bank recently updated that it became a substantial shareholder of Link Administration Holdings Limited with the voting power of 5.015% since 22 July 2019. The bank also reported that it ceased to be a substantial shareholder of Healius Limited and Nine Entertainment Co. Holdings Limited.

S&P Credit Rating Outlook: S&P recently affirmed the ‘AA-‘ long-term and ‘A-1+’ short-term issuer credit ratings for NAB.

1HFY19 Highlights: During the half-year ended 31 March 2019, the bank generated a statutory net profit of $2,694 million, up 4.3% on the prior corresponding period. Cash earnings for the period were valued at $2,954 million, representing an increase of 7.1% on pcp. The banks CET-1 ratio for the first half was reported at 10.4%, up by 19 bps on pcp. Net operating income during the period was reported at $9,218 million, up 1.4% in comparison to 1HFY18 value of $9,093 million.


Key Financial Indicators (Source: Company Reports)

Outlook: The reduction of dividend for an improved capital generation helped the bank to accommodate the earnings volatility and further regulatory changes.The bank has potential to grow the dividend in the medium term. In addition, productivity benefits will act as a catalyst for underlying profit growth.

Stock Recommendation: The stock generated returns of 6.70% and 10.99% over a period of 1 month and 3 months, respectively. During the half-year ended 31 March 2019, the bank reported growth across all key metrics, including cash earnings, cash ROE, net operating income, and net profit. CET 1 ratio for the bank also increased by 19 bps. Moreover, the bank witnessed an HoH revenue growth of 0.9% in a challenging operating environment. Based on the above factors, we give a “Buy” recommendation on the stock at the current market price of $28.580, up 0.316% on 29 July 2019.

Telstra Corporation Limited

Good Progress on T22 Strategy:Telstra Corporation Limited (ASX: TLS) is engaged in the provision of telecommunications and information services for domestic and international customers.

The company recently announced that it is witnessing good progress in its T22 strategy,that is aimed at enabling the business to take advantage of future opportunities, building on the investment in networks and digitisation announced in 2016. The company expects to make a non-cash impairment and write-down of the value of its legacy IT assets by around $500 million.

1HFY19 Results: During the first half, the company’s total income on a reported basis stood at $13.8 billion, down 4.1% on pcp. EBITDA for the period was reported at $4.3 billion, down 16.4% on the prior corresponding period. NPAT during the period, went down by 27.4%, at $1.2 billion. Excluding the impact of nbn, the company’s underlying business performed well. The company declared a fully franked interim dividend of 8 cents per share, which was paid on 29 March 2019.


Financial Highlights (Source: Company Reports)

FY19 Guidance: The company expects FY19 total income to be in the range of $26.2 billion - $28.1 billion and EBITDA in the range of $8.7 billion - $9.4 billion.The company recently increased the guidance on its restructuring costs by around $200 million owing to forward consultation on proposed job reductions.

Stock Recommendation: The stock of the company generated returns of 44.11% over a period of 1 year. During the first half, the company reported solid performance in customer numbers and share despite intense competition. In addition, strong progress was reported in its T22 strategy. With the growing demand for telco products and services, the company is positive about growth prospects for the future. Moreover, the company is expected to grow further with the onset of 5G technology. In 1HFY19, the company had a gross margin of 65.2%, which is higher than the industry median of 57.5%. The company’s net margin for the period stood at 9.8% against the industry median of 8.9%. As per ASX, the stock is trading towards its 52-week higher level of $3.910 with PE multiple of 14.71x.Given the backdrop of aforesaid factors and looking at the current trading levels, we give a “Hold” recommendation on the stock at the current market price of $3.900, up 1.562% on 29 July 2019.


Comparative Price Chart (Source: Thomson Reuters) 

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