Stocks’ Details
 

Transurban Group

Raising Funds to Refinance Bank Facilities:Transurban Group (ASX: TCL) operates toll roads in Melbourne, Sydney and Brisbane, as well as in Greater Washington, United States, and Montreal, Canada. Besides this, TCL is also involved in the research of new vehicle and road safety technology. On 25 March 2020, the company announced that its Hills M2 asset has reached contractual close to raise $815 million of non-recourse debt which will increase the Group’s weighted average maturity (8.4 years at December 2019). It will also help the company in refinancing existing bank facilities due to mature in December 2020 and November 2022, respectively. 

Decent H1FY20 Performance:In the first half of FY20, the company reported a statutory profit of $162 million with average daily traffic growth of 2.3%. If compared to the previous corresponding period (pcp), the proportional toll revenue and proportional EBITDA grew by 8.6% and 9.5%, respectively. For H1FY20, the company paid a distribution of 31.0 cents per security. 


Proportional Results (Source: Company Reports)

What to expect: For FY20, the company expects to pay a distribution of 62.0 cents per security. In Australia, the company is expected to open two tunnels in Sydney in mid-2020. Further, NorthConnex – a vital missing link in Sydney’s orbital network – also expected to open in mid-2020.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

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

Stock Recommendation: In H1FY20, the company has maintained a gross margin of 60.70% and net margin of 7.6%, both of which are higher than the margins reported in pcp, demonstrating the company’s increasing profitability. We have valued the stock using EV/EBITDA valuation approach and have arrived at a target upside of lower double-digit upside (in percentage terms). Hence, considering the aforesaid facts, decent FY20 performance and improving profitability margins, we give a “Buy” recommendation on the stock at a current market price of $12.150, up by 2.618% on 30 March 2020. 
 

Qube Holdings Limited

Qube to remain operational throughout pandemic:  Qube Holdings Limited (ASX: QUB) is an integrated provider of import and export logistics services with a market capitalisation of ~$3.53 billion as at 30 March 2020. The company recently assured its Customers and Stakeholders that it intends to remain operational throughout the COVID-19 pandemic. The company has identified business critical processes within numerous operations and is managing any issues as they arise during the current pandemic. Recently, Perpetual Limited reduced its shareholding in the company to 6.32% from 7.38%.

Decent H1FY20 Performance:Despite economic headwinds in the first half of FY20, the company’s underlying revenue grew by 12.9% to $970.1 million and underlying NPATA grew by 5.1% to $76.3 million, as compared to pcp, reflecting Qube’s diversified earnings base. In the same time span, the Underlying earnings per share (pre-amortisation) increased by 4.4% to 4.7 cents per share and interim dividend increased by 3.6% to 2.9 cents per share, fully franked.
 


What to expect:As per the company’s update release on 25 february 2020, Qube expects some weakness in its second half underlying earnings due to bushfires, adverse weather events across the country in early calendar 2020, as well as the coronavirus. However, the company believes that it is well placed to continue to deliver sustainable, long-term earnings growth from its strategic assets and strong market positions.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

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

Stock Recommendation: In the past three months, the company’s stock has corrected by 34.83% and is currently near to its 52 weeks low price of $1.700. We have valued the stock using EV/EBITDA multiple based relative valuation method and arrived at a target upside of lower double-digit upside (in percentage terms). Considering, the company’s recent withdrawal of FY20 guidance, decent H1FY20 performance, current trading levels and outlook, we suggest our investors to keep an eye on the stock and have a watch rating to the stock at a current market price of $2.250, up by 3.687% on 30 March 2020. 

Downer EDI Limited

Withdrawal of FY20 Guidance: Downer EDI Limited (ASX: DOW) is a leading provider of integrated services in Australia and New Zealand which designs, builds and sustains assets, infrastructure and facilities. On 19 March 2020, the company withdrew its earnings guidance for FY20 due to the uncertainty around COVID-19 virus. Later on 24 March 2020, the company announced that it will defer payment of its interim dividend until September 2020. The company’s financial results for the first half of FY20 are depicted in below table-


Half Year Results Snapshot (Source: Company Reports)

Strong Balance Sheet:In the recent updates, the company has assured that it has a strong balance sheet with significant available liquidity and comfortable headroom in its bank covenants.

What to expect:The services of the company are expected to remain strong as the Group’s business is predominantly government and critical infrastructure. The company has assured that it is well placed to settle its $50 million of debt in the next 12 months using existing, committed facilities.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA Multiple Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation:DOW stock is trading near to its 52-week low of $2.585, providing a decent opportunity for accumulation. In H1FY20, the company maintained a gross margin of 43.50%, which is higher than the industry median of 37.7%. Considering the company’s strong balance sheet, decent outlook, and current trading levels, we have valued the stock using EV/EBITDA valuation approach and have arrived at a target upside of lower double-digit upside (in percentage terms). Therefore, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.850, up by 1.064% on 30 March 2020. 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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