Are these 4 Stocks having potential for value and growth – FXL, QAN, NEC, BAP?

Stocks’ Details (financial data as at FY18; dividend yield as per ASX current levels)

Flexigroup Limited

FY19 Cash NPAT Guidance to be in the range of $95 Mn-$100 Mn:Flexigroup Limited (ASX: FXL) is a small-cap company with the market capitalization of circa $681.18 Mn as of October 03, 2018. It has recently released its full-year results wherein group cash NPAT decreased by 5.0 percent in FY18 and amounted $88.2 Mn as compared to the prior year, which is broadly in line with the guidance range of $85 million to $90 million. The statutory profit after tax turnaround to negative $10.3 million in FY18 as compared to the profit of $87.4 million in FY17. This negative change in profit resulted from one-off transactions i.e., accounting for goodwill impairment, intangible assets write-off and customer remediation on legacy consumer lease product over the past 12 months. However, the company has recorded 5% growth in total customer’s number to above 1 million and 8% growth in retail partners. The group volume for FY18 grew 17% to $2.3 billion while closing receivables were up 10% to $2.38 billion. The company focuses on digital acceptance, resulting to which 60% of all contracts were settled digitally end to end. Based on the strategic investment in the FY18 financial period, the group provided FY19 Cash NPAT guidance of $95-$100 million which represents 8-13% Cash NPAT growth on a Y-o-Y basis. Moreover, the company has decided the distribution of 3.85 cents with record date on 7 September 2018 and payable date on 12 October 2018. This dividend is in line within the Group’s stated payout ratio of 30-40% of Cash NPAT. As of 30 June 2018, the company has drawn & undrawn debt facilities of $128 Mn with a gearing ratio of 36%, signifying the considerable decline. As of June 30, 2017, it was 53%. We expect that the company is well positioned to grow further at the back of robust growth momentum of its overall business (including Certegy, Cards, and Irish business) for FY19. However, AU Consumer Lease volume growth is expected to be flat as channel disruption in the first half is likely following the removal of the FlexiRent product.


FY18 Financial Performance (Source: Company Reports)

Commonwealth Bank of Australia and its related bodies ceased to be the substantial holder of the Group since 26 September 2018. Meanwhile, the share price has fallen 16.51 per cent in the past three months as at October 02, 2018 and traded close to the average of 52 week high and low prices. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $1.85, considering the trading level and aforesaid facts.
 

Qantas Airways Limited

Strategic Agreement with Cathay Pacific – Support topline growth: Qantas Airways Limited (ASX: QAN) has updated the market about the progress on several transactions under its ongoing buy-back event. The group indicated to buy back shares with an aggregate total consideration of $332 million. As of now, the group has bought back a total of 1,48,32,043 shares via on-market trade. Recently, Cathay Pacific and Qantas customers were considered under a new codeshare agreement that leverages the strengths of each carrier’s regional networks and provides more options for the customers traveling between Australia and Asia. The objective of this deal is to emphasize footprints in Asia region and increase opportunities for both airlines customers in term of earning frequent flyer points through their respective loyalty programmes. On the financial front, the Company has achieved a four-year compound annual growth (CAGR) in revenue and operating income of 2.6% and 14.5% respectively to FY18 while PAT recorded CAGR growth of 20.7 percent over the same period. Moreover, for FY18, the company delivered a 14% rise in the underlying PBT to $1,604 Mn, and 18% rise in the underlying earnings per share to 64 cents against the prior year. This was mainly supported by the combination of Qantas and Jetstar’s network, schedule and product strengths in the key markets, and supported by capacity discipline driving higher seat factors and higher unit revenue. The management expects that the group is on track to achieve $500-600 million of EBIT by 2022 through the coalition growth and development and scaling one new business.


Operating Segment (Source: Company Reports)

Meanwhile, the share price has fallen 8.44% in the past three months (as at October 02, 2018) and trades at reasonable PE level of 10.07x. Based on foregoing, we maintain our “Buy” recommendation on the stock at the current market price of $ 5.70.
 

Nine Entertainment Co. Holdings Limited

Traded at Higher level:Nine Entertainment Co. Holdings Limited (ASX: NEC) reported stellar performance in FY18 wherein Revenue, EBITDA, PAT grew by +6%, +25%, +27% to $1,318 Mn, $257 Mn, and $157 Mn, respectively on over the prior year backed by consistently improved share in the Free-To-Air (FTA) market. On the margin front, Gross margin and EBITDA margin expanded by 930 bps and 200 bps to 19.6% and 16.8%, respectively in FY18 against the previous year while Net margin turned around to positive of 15.8% from the negative net margin of  16.4% in FY17. However, for FY19, the EBITDA is expected to be somewhere in the range of $280 Mn to $300 Mn based on the market growth of 1%. On the other hand, the company entered into a Scheme Implementation Agreement to merge with Fairfax Media for the purpose of strengthening its current market position in the media industry. Through this deal, the combined business will expand its advertising reach and ability to offer innovative solutions in the market. It is expected that the synergistic deal will be complete before the end of CY18 and could deliver at least $50 Mn in annualised pro-forma cost synergies realisable in the next two years.


Time line to Nine- Fairfax merger completion (Source: Company Reports)

Macquarie Group Limited and its related bodies ceased to be a substantial holder of Nine Entertainment Co. Holdings Limited since September 25, 2018. Moreover, one of its substantial holders, National Australia Bank Limited and its associated entities changed its holding from 5.157% of interest to 6.650% of voting power. Meanwhile, the share price has fallen 9.80 percent in the past six months as of October 02, 2018 and is inching close to the 52-week high level. The current level depicts a 17.1% discount to a 12-month high of $2.665 against the 71.3% premium to a 12-month low of $1.29. Based on the trading level, we maintain our “Expensive” recommendation on the stock at the current market price of $2.210.
 

Bapcor Limited

Decent Outlook Ahead: Bapcor Limited (ASX: BAP) posted strong FY18 results with total revenue from continuing operation coming in 22% higher at $ 1,236.7 Mn compared to the prior year. It was primarily driven by the strong same-store sales growth across all segments during the same period. EBITDA-proforma grew by 27.7% to $150 million in FY18 from $117.4 million in the previous year. Net Profit After Tax (NPAT) – Proforma stood $86.5 Mn in FY18, exhibiting growth of 31.6 percent on a Y-o-Y basis. At 30 June 2018, the Group had a cash reserve of $40.15 Mn compared to a cash balance of $39.75 Mn at 30 June 2017. Further, the Board of Directors declared a fully franked second half ordinary dividend of 8.5 cents per share (cps) and it was paid on September 27, 2018 to its shareholders. This summarized a total dividend payment of 15.5 cents per share for the full year, representing a 19.2% rise over the previous year. Additionally, for FY 19, BAP expects EBITDA around $170 Mn and increased NPAT in the range of 9% to 14% over the FY18.


FY18 Financial Performance (Source: Company Reports)

Meanwhile, the share price has risen 35.3% in the past six months (as of October 02, 2018) and traded close to higher level. Looking ahead at the growth potentiality in the auto ancillary business market, we maintain our “Hold” recommendation on the stock at the current market price of $ 7.610.
 

Free Cash Flow per Share (Source: Thomson Reuters)
 

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