Stocks’ Details

Link Administration Holdings Limited

Growth Strategy And Earnings Diversification Supported Half-year Results: Link Administration Holdings Limited (ASX: LNK) is a leading administrator of financial ownership data. The company in its recent announcement communicated that it has entered into a binding agreement to sell the major of its CPCS business, a part of LAS, to Apex for a cash fee, debt free consideration of £240 million. Link Group will use the net cash proceeds to reduce its debt. LNK recorded strong results and reported revenue at $714.4 million and statutory NPAT at $186.8 million in 1H FY19.

What To Expect From LNK: The company’s management had stated that Link Group is well represented in the number of European jurisdictions, including over 700 people in Dublin. Brexit would be providing challenges as well as opportunities.The company has a strong balance sheet and is well positioned for further growth.


Key Financial Highlights for 1H FY19 (Source: Company Reports)

Stock Recommendation:Net profit margin for 1H FY19 comes in at 26.1% which is higher than the industry median of 24.7%. Pretax ROE at 13.4% for 1H FY19 is above the industry median of 12.8%.

At the current market price of $7.420, the stock is trading at P/E multiple of 14.690x with the market capitalization at ~$3.96 billion. Annual dividend for the stock stands at 2.9%.

Looking at the price performance, stock has underperformed with absolute negative return of 13.74% in the last 1-year whereas stock has risen 10.60% on YTD basis which implies that the stock is quite volatile. The stock is trading below the average of 52 week high and low prices of $7.625 and did not break below its support level of $6.91 in the recent past. Hence, considering the decent performance in 1H FY19 and volatility in the stock, we have a wait and watch view on the stock at the current market price of $7.420 (up 0.135% on 10 April 2019).

Metcash Limited

MTS Witnessed Rise in Revenues: Metcash Limited (ASX: MTS) is an Australian leading wholesale distribution and marketing company with revenue over $14 billion in financial year 2018. MTS caters to three segments- Food, Liquor, Hardware.  

Reported revenue (ex. Charge-through sales) for 1H FY19 saw a hike of 2.2% to $6.2 billion as compared to $ 6.1 billion in the same period last year. Including charge-through sales, Group revenue increased 2.3% and stood at $7.2bn while, in 1H18 it was $7.0bn, with sales growth in all Pillars.


1H FY 2019 Financial Metrics (Source: Company Reports)

Net debt at the end of the half amounted to $85.2m as compared to Net cash of $42.8m in FY 2018. The higher debt is mainly because of the purchase of $150 million of Metcash shares in August 2018 via off-market buy-back.

The company has adopted strategy for next 5-years for revenue growth and cost control by improving infrastructure, cost structure with focusing on independent retailer network. Metcash will also identify opportunities for vertical integration in future.

What To Expect From MTS: Management expects that Food market condition will remain competitive for second half of FY19 which might have an adverse impact on the food pillar of the business. The company anticipates that EBIT for 2H19 might be impacted by ~$8m of incremental investment by the Supermarkets business in growth opportunities. The investment is likely to contribute to bottom-line beyond FY19.The Liquor pillar remains focused towards building and improving the quality of its IBA network.

Stock Recommendation: Stock is trading at Price to book multiple of 2.0x as compared to its industry median of 2.3x. Annual dividend yield for the stock is at 5.21% with a market capitalisation of ~$2.35 billion. Stock has given return of 8.82% on YTD basis and -16.99% on 1-year basis reflecting that the stock is volatile. Based on the foregoing and current trading level, we give a “Speculative Buy” recommendation on the stock at current market price of $2.630 per share (up, 1.544% on April 10, 2019).
 

Qantas Airways Limited

Buy-back Event Update: Qantas Airways Limited (ASX: QAN) operates international and domestic air transportation. During 1HFY19, on-market share buy-back of $332 million was completed by the company. It bought 57.9 million shares at an average price of $5.73. The company, in February 2019, announced another on-market share buy-back of upto $305 million.  As of now, the group has bought back a total of 1,65,13,749 shares via on-market trade for the total consideration of A$9,24,34,993.03. Following this, the remaining consideration to be paid for shares under the buy-back is $212,565,006.97. 


Summary of Capital Return, Dividend and Buy-back for last few Half-years (Source: Company Reports)

“Group Domestic” witnessed a good set of numbers in 1HFY19 as a result of dual brand strategy between Qantas and Jetstar. The company’s statutory profit before tax stood at $735 million which reflects a decline by $105 million from 1H FY 18 on the back of transformation costs of $45 million which was excluded in underlying PBT.

Net debt for 1H FY19 at $5.2 billion on balance sheet remains at the lower end of the targeted range at $5.2 billion-$6.5 billion.ROIC (Return on Invested Capital) for the Group came in at 19.3% in 1HFY19, slightly lower as compared to 20.7% in 1H FY18.

Stock Recommendation: From the valuation perspective, we compare the EV/EBITDA multiples of stock (at 3.8x) with the industry median (at 4.8x) on TTM basis and find QAN attractive at current levels.

At CMP of $5.740, the stock is trading at P/E multiple of 10.980x with a market capitalization at ~$9.23 billion and annual dividend yield at 3.85%.Over the past 6-months, the company’s stock has given the return of 4.20%. Hence, considering the above-mentioned parameters, we maintain our “Buy” recommendation on the stock at the current market price of $5.740 per share (up 0.525% on 10 April 2019).


 
Comparative Price Chart (Source: Thomson Reuters)  

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