Incitec Pivot Limited

New Issuance of Performance Rights by IPL: Incitec Pivot Limited (ASX: IPL) has an engagement in the manufacturing and distribution of industrial explosives, industrial chemicals, and fertilizers. The Company recently announced the issuance of 72,302 performance rights (unquoted) effective from May 24, 2019. In its H1FY19 report, it highlighted that its statutory NPAT was reported at $42 Mn as compared to $8 Mn in H1FY18. Its earnings before interest and tax (EBIT) (excluding Individually Material Items (IMI)) was reported at $119 Mn as compared to $240 Mn in H1FY18, after $141 Mn of non-recurring events. 

The non-recurring events included $60m associated with third party Queensland rail outage following major flooding, impacting production at Phosphate Hill; $16m from third party gas pipeline rupture in US North West, impacting gas costs and production rates at St Helens; and $65m from unplanned outages at Waggaman and Phosphate Hill. On Safety terms, total recordable injury frequency rate was recorded at 0.78 in H1FY19 from 0.93 as on September 30, 2018.

The Company reported Earnings per share excluding IMIs at 2.6 cps in H1FY19 as compared to 8.8 cps in H1FY18. The Board of Directors declared an interim dividend (unfranked) of 1.3 cps, representing a payout ratio of 50% of NPAT.The record date and payment date has been set as on June 5, 2019, and July 1, 2019, respectively.


H1FY19 Financial Metrics (Source: Company Reports)

What to expect: The full-period FY19 EBIT is expected to be in the range of $370 Mn and $415 Mn (after $209 Mn impact from non-recurring events). Key assumptions include normal weather conditions and no further major manufacturing outage.

Stock Recommendation:Meanwhile, the share price of the company has fallen 3.50% in the past three months as at 30 May 2019 and is trading close to the 52-week low price of $3.030 with PE multiple of 22.59x, and a dividend yield of 2.27%. From the analysis standpoint, its gross margin for H1FY19 stands at 53.7%, which is better than the industry median of 30.9%, displaying a better position to address its operating expenses. Moreover, the company turnaround a positive ROE of 0.9% in 1HFY19 from the negative ROE of 1.9% a year ago (this excluded a tax-related benefit in a year ago period).EBITDA margin and Net margin for 1HFY19 stood at 15.2% and 2.4%, respectively, which can consider at a decent level as compared to the concerned industry. Hence, considering the decent financials in 1HFY19 along with a lower debt-to-equity ratio of 0.55x, turnaround positive RoE in 1HFY19, we give a “Buy” recommendation on the stock at the current market price of $3.280 per share (down 0.906% on 31 May 2019).
 

Premier Investments Limited

Decent Performance in 1HFY19: Premier Investments Limited (ASX: PMV) operates a number of specialty retail fashion chains within the specialty retail fashion markets in Australia, New Zealand, Asia, and Europe. The Company recently announced a change in the director’s interest where Mr. Mark Mcinnes- Executive Director, acquired 245,300 ordinary shares and offloaded 4,700 lapsed performance rights in his direct capacity and taking the final holdings to 732,100 ordinary shares, and 250,000 performance rights.

In its H1FY19 report, PMV highlighted that its net profit after tax increased by 13% pcp to $88.8 Mn in H1FY19. Its total sales increased by 8% pcp to $680.2 Mn, majorly due to strong sales growth in Apparel brands.

PMV’s online sales increased by 35.2% pcp to $75.7 Mn in H1FY19.Its gross margin was reported at 63% for the first half which was delivered through effective implementation of the key gross margin strategies that include key long-term foreign currency hedging policies allowing for long-term merchandise planning, direct sourcing initiatives continuing to deliver benefits from new and existing suppliers, sourcing from new geographies, investing in better merchants and delivering better product, and ongoing focus on disciplined execution of markdown management.

At the end of the half year period, PMV’s balance sheet included free cash on hand of $183.2 Mn, its investment in Myer Holdings Limited valued at $34.9 Mn (current market value of $50.4 Mn) plus its equity accounted investment in Breville at $238.9 Mn (current market value of $602.6 Mn).The Board of Directors declared (fully franked) interim ordinary dividend of 33 cps with the record date and payment date of May 31, 2019 and June 14, 2019, respectively. The current market values are based on Breville Group Limited share price of $16.51 and Myer Holdings Limited share price of $0.57 on 20 March 2019.


H1FY19 Financial Metrics (Source: Company Reports)

What To Expect:Peter Alexander’s strategic 2020 Growth Plan of delivering in excess of $250 million in annual sales by FY20 is well ahead of plan.The brand has opened 26 new stores over the past 18 months and therefore remains well ahead of its planned 40 new store openings between FY18 and FY20. Peter Alexander has confirmed four new stores to open in H2FY19.

Stock Recommendation:The stock of Premier Investments Limited had delivered a decent return of 3.04% in the span of the previous three months while, on the YTD basis, the returns stood at 19.83%. On the other hand, itsgross margin, EBITDA margin, and net margin for H1FY19 stand at 63.1%, 18.9%, and 13% which are better than the industry median of 23.3%, 8.9%, and 5.3%, respectively, implying a decent fundamental for the company. Its current ratio for H1FY19 stands at 2.49x, which is better than the industry median of 1.55x, showing a better liquidity position to address its short-term obligations. Its RoE and ROIC increased by 70 bps and 60bps to 6.5% and 5.5%, respectively in 1HFY19 over the prior year. Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $17.260 per share (down 0.116% on May 31, 2019).
 

Transurban Group

Average Daily Traffic Increased by 2.3% in March’19 Quarter: Integrated transport company, Transurban Group (ASX: TCL) has an engagement in development, operation, maintenance, and financing of toll road assets as well as management of the associated customer and government relationships. The Company recently announced dividend/distribution (six months ending June 30, 2019) of AUD 0.3000, with the record date and payment date of June 28, 2019 and August 9, 2019, respectively.

The Directors have determined that the Distribution Reinvestment Plan (DRP) pricing period in relation to this distribution will be the period of 10 trading days, commencing July 4, 2019. In another update, TCL announced that its finance arm has priced €600 million of senior secured 10-year notes under its Euro Medium Term Note Programme.

The Notes will rank equally with Transurban’s existing senior secured debt facilities and will mature in May 2029. It received strong support from its Eurobond investors, and continue to see this market as an attractive source of funding to support its development pipeline and capital management strategy.


March 19 Quarter Traffic Performance (Source: Company Reports)

During the March 2019 Quarter, Average Daily Traffic (ADT) increased by 2.3%. Maximum ADT change was observed for Melbourne by 3.1% to 856,000 transactions.


 H1FY19 P&L Statement (Source: Company Reports)

What To Expect: TCL’s FY19 distribution guidance has been reaffirmed at 59.0 cps. Mid-single digit distribution percentage growth has been re-affirmed for FY20.Around five projects are expected to complete by FY21, and a further four projects are expected to complete by FY24, supporting ongoing distribution growth. TCL’s focus would be to deliver committed projects; maximise the performance of operations; and enhance customer and community offerings.

Stock Recommendation: Its EBITDA margin for H1FY19 stands at 46.7%, which is better than the industry median of 46.4%. Its ROE and ROIC for H1FY19 stand at 1.7% and 0.6%, respectively. Meanwhile, the stock has gained a decent return of 9.52% and 20.19% in the past three months and six months, respectively and is trading slightly towards the 52-week high price of $14.08 with higher PE multiple of 116.02x. Based on the foregoing, we recommend a “Hold” rating on the stock at the current market price of $13.930 per share (up 1.753% on May 31, 2019).  

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