Westpac Banking Corporation

WBC Details

Significant Rise in NPAT: Westpac Banking Corporation (ASX: WBC) provides banking, financial and related services. The market capitalisation of the bank stood at $62.55 Bn as on 3^rd September 2020. During Q3 FY20, the bank reported unaudited net profit after tax amounting to $1,115 million, reflecting a significant rise from 1H FY20 quarterly average. Cash earnings for the period amounted to $1,318 million. Net interest margin for the period stood at 2.05% as compared to 2.16% in 1H FY20. This was impacted by lower interest rates, higher liquids, and competition. The bank reported a rise in risk-weighted assets (RWA) to $450.6 billion largely due to higher credit risk RWA from the deterioration in credit quality and overlays. The bank has decided not to pay a dividend for 1H FY20. However, it will reassess dividend payment at FY20 results.

Key Financials (Source: Company Reports)

Outlook: For Q4 FY20, the bank is planning to complete its review of specialist businesses. In addition, the bank will be focused on the valuation of the Life Insurance business, which includes potentially higher COVID-19 related claims, higher reinsurance costs and lower discount rates.

Key Risks: As of now, the major risk with the bank includes the impact of the COVID-19 pandemic, which is highly uncertain. In addition, the bank is also sensitive to AUSTRAC and other financial crime matters. 

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

P/BV Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The bank possesses a strong balance sheet with CET1 (Level 2) capital ratio at 10.8x. As on 30^th June 2020, the bank reported a liquidity coverage ratio and a net stable funding ratio of 146% and 116%, respectively. On the technical analysis front, the stock of the company has a support level of ~A$16.265 and a resistance level of ~A$18.444. The stock of WBC has corrected 25.31% in the past six months, and as a result, the stock is trading towards its 52-low levels of $13.470. We have valued the stock using the price to book value multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Therefore, considering the healthy balance sheet, strong funding and liquidity position, rise in earnings, and reassessment of dividend, we give a “Buy” recommendation on the stock at the current market price of $17.600 per share, up by 1.617% on 3^rd September 2020.

WBC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Lendlease Group

LLC Details

A Look at FY20 Results: Lendlease Group (ASX: LLC) is an international property and investments group having core expertise in shaping cities and creating strong and connected communities. The market capitalisation of the company stood at $8.34 Bn as on 3^rd September 2020. Recently, the company advised the market that it is planning to purchase around 2,400,000 Lendlease securities on market for funding employee awards. The purchase of securities has been commenced on 2^nd September 2020 and is likely to be completed prior to 16 September 2020. During FY20, the company managed to secure two major urbanisation projects having an estimated end development value of $37 billion. In addition, the company listed the Lendlease Global Commercial REIT in Singapore. From core business, the company recorded a profit after tax amounting to $96 million, while the non-core business posted a loss after tax of $406 million, which includes $368 million in exit costs. 

The company declared a final distribution of 3.3 cents per security from trust earnings; this took full-year distributions to 33.3 cents per security. LLC will pay the final distribution on 15^th September 2020. The company has a distribution policy of 40%-60% of earnings, and the company has maintained this policy in the past years (2016 -2020)

Financial Performance (Source: Company Reports)

Key Strategies: The strategy of the group revolves around creating value through the best urban precincts in key global gateway cities. Despite the uncertain impact of COVID-19 pandemic, LLC entered FY21 in a strong financial position. The company has scheduled to conduct its Annual Shareholders Meeting on 19^th November 2020.

Key Risks: The company’s business is sensitive to the failure in the execution of strategy or projects, which affects its ability to match its corporate objectives. LLC’s business is also sensitive to global and local events or shifts in government policy in the regions in which it operates. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The company closed the FY20 with a strong financial position comprising gearing of 5.7% and liquidity of $5.8 billion. LLC added that the available liquidity is likely to support the company in taking the benefits of new investment opportunities. Debt to equity of the company stood at 0.60x in 1H FY20 as compared to the industry median of 0.84x. On the technical analysis front, the stock of the company has a support level of ~A$10.734 and a resistance level of ~A$13.685. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Stockland Corporation Ltd (ASX: SGP), Vicinity Centres (ASX: VCX), GPT Group (ASX: GPT), to name few, and arrived at a target price of low double-digit upside (in percentage terms). Hence, considering the decent performance in FY20, strong financial position and ample liquidity, we give a “Buy” recommendation on the stock at the current market price of $12.500 per share, up by 3.135% on 3^rd September 2020.

LLC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

SkyCity Entertainment Group Limited

SKC Details

Strong Performance in Domestic Business: SkyCity Entertainment Group Limited (ASX: SKC) is in the gaming entertainment business. The market capitalisation of the company stood at $1.76 Bn as on 3^rd September 2020. During FY20, the company experienced strong performance and anticipates the same trend to continue in FY21. On like-for-like basis, the company reported a rise of 5% in local EBITDA for 8 months ended 29 February 2020. For FY20, the company reported normalised EBITDA and NPAT of $200.7 million and $66.3 million, respectively. The company added that FY20 results were impacted by NZICC fire and Covid-19. The company experienced a weaker volume in its international business due to the impact of Covid-19 on visitation from Asia from January 2020 and international border closures. SKC has decided not to pay a final dividend for FY20. However, it has paid an interim dividend of 10 cents per share. At the current market price dated 3^rd September 2020, the annual dividend yield of the company stood at 8.19%, which is higher than the industry median (Consumer Cyclicals) of 2.9% on TTM basis.

Key Financial Performance (Source: Company Reports)

What to Expect: For FY21, the company expects to report normalised EBITDA to be above FY20 by assuming no adverse change to the current COVID-19 outlook in New Zealand and South Australia. In addition, the business goals of the company revolve around improving its operating performance and optimising its existing portfolio. The company is likely to conduct its Annual Shareholders Meeting on 16^th October 2020.

Key Risks:  The company is exposed to material risk, which arises from economic and business volatility. In addition, the business is also sensitive to customer and innovation risk, technology risk and development and project risk. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: During FY20, the company raised $230 million via fully underwritten institutional placement and share purchase plan. SKC secured additional facilities of $160 million from the existing banking group. The company is well placed to raise additional debt capital if required in the future. Gross margin and EBITDA margin of the company stood at 91.3% and 24.3% in 1H FY20 as compared to the industry median of 53.2% and 16.8%, respectively. On the technical analysis front, the stock of the company has a support level of ~A$2.137 and a resistance level of ~A$3.877. We have valued the stock using the P/E multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Star Entertainment Group Ltd (ASX: SGR), Crown Resorts Ltd (ASX: CWN), Tabcorp Holdings Ltd (ASX: TAH), to name few, and arrived at a target price of low double-digit upside (in percentage terms). Therefore, considering the outlook for FY21, decent funding position, growth in key margins and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.480 per share, up by 7.359% on 3^rd September 2020.

SKC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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