Are these 4 stocks key Value buys – WBC, LNK, TAH, MFG?

Stocks’ Details

Westpac Banking Corporation

Introduced Mobile Cheque facility- Product Innovation:Westpac Banking Corporation (ASX: WBC) has recently introduced mobile cheque deposit facility in a bid to streamline cheque processing services wherein eligible depositors are allowing to capture the photo of their cheque of both the sides and then deposit via the mobile banking app from their smartphone. Importantly, it takes usually three business days for clearing and settlement process. The objective of this facility is to provide convenience to their customers. In our view, this facility will support to strengthen its balance sheet. Net interest margin came in at 2.17% in 1HFY18 which is above the Industry median of 1.96%. However, the bank has seen a moderate downfall in the deposit growth of 2.0% which is in-line with the Industry average of 2.2%. Its earnings retention has been improving from 0.19x as at June 2017 to 0.24x as at June 2018, while it is still below the industry median (1.0x). Its efficiency ratio, which measures the cost to the bank of each unit of revenue, has been maintained in the range of 42% to 43.5% over the past few years while the industry average touches the figure of 53.9%; and as lower values are considered to be better because it signifies that the bank’s earnings is more than their spending, thus, Westpac seems to be in a decent position despite many challenges at hand. Recently, the company declared distribution payment of AUD 1.19370000 with the distribution base rate of 1.9400 % for WBCPG - CAP NOTE 3-BBSW+4.90% PERP NON-CUM RED T-12-21 payable on December 31, 2018 with the record date on December 21, 2018.


Net Interest Margin Movement (Source: Company Reports)

Meanwhile, the stock has reflected the challenging environment for the Bank generating negative YTD return of 13.70%. Additionally, Relative Strength Index (RSI) is placed near to the oversold zone and could gain recovery from the latest fall in near term. At the backdrop of rise in mortgage cost and settling down the dispute, WBC is in the better spot for future growth as it focuses on their core operation underpinned by introducing new facilities into the banking channel. Based on aforesaid fact and current trading level, we maintain our “Buy” recommendation on the stock at the current market price of $26.980.
 

Link Administration Holdings Limited

Robust Performance in FY18: Link Administration Holdings Limited (ASX: LNK) had a good FY18 with higher revenue and net profit attributable to the shareholders. The company recorded the revenue of $1198.4 Mn, an increase of 54% over the prior year. It was mainly driven by strong organic and inorganic growth across the region during the same period. Operating EBITDA for the company came in at $335.3 Mn, an increase of 53% from FY17 number of $219.0 Mn. However, for FY18, operating EBITDA margin was down by 12 bps to 28.0% on YoY basis because of the moderate rise in operating expenses during the period. Statutory NPAT of the group substantially increased by 68% and amounted to $143.2 Mn in FY18 against FY17 at the back of strong operating EBITDA result and lower effective tax rate. Based on solid performance, the Board of Directors declared a fully franked final dividend of 13.5 cents per share for its shareholders and this was slated for payment on October 10, 2018. This summarized a total dividend payment of 20.5 cents per share for the full year, representing 46.4% growth on FY2017. As of now, the group focuses on its earnings momentum through ongoing disciplined cost management strategy.


FY18 P&L Statement (Source: Company Reports)

Meanwhile, the resistance can be seen around $8.003 while support is noted around $6.763. There has been some contraction in the latest trading session. The stock has fallen 13.62% in last six months and was down about 2.37% in the past one month as at October 09, 2018. Trading at $ 7.430, and price to earnings ratio of 25.90x, the stock is a watch for a better buying opportunity with additional growth catalysts being looked to be falling in place while pricing issues prevails.
 

Tabcorp Holdings Limited

Well Positioned for growth:Tabcorp Holdings Limited (ASX: TAH) is an Australian gambling entertainment company with the market capitalization of circa $9.57 Bn as of October 10, 2018. It has three core business segments i.e., Wagering and Media, Lotteries and Keno, and Gaming Services which operate through retail, digital, and sky platform across the region. The objective of the group is to support a racing industry which would be the pride of the nation. On the financial front, the group has recorded EBITDA growth at CAGR of ~12.6 percent over the five years. Resultantly, the EBITDA margin came in at 22.96% on a 5-year average basis (FY14-18) and the group is targeting to improve EBITDA growth in FY19 on the back of topline growth supported by new product innovation and acquisitions. However, for FY18, EBITDA margin was down by 270 bps to 20.4% on YoY basis due to the rise of operating cost. Moreover, the group has completed the combination with Tatts Group and the integration is on track. As a result, the company delivered $8 Mn in FY 18, and the decisions are taken to underpin $50 Mn in FY19 and the target is at least $130 Mn in FY21. As of now, the group focuses on to deliver the substantial value for shareholders, customers, the racing industry and venue partners. For that, the group increased digitalization across the company, launched new products and implemented new licenses. In our view, the group is well positioned for profitable growth and sustainable returns to its shareholders.


Synergies & Business Improvements (Source: Company Reports)

Meanwhile, the share price has risen 10.47% in the past six months and traded close to 52-week lower level of $4.16. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $4.76, considering aforesaid facts and upward momentum at current juncture as per RSI indicator.
 

Magellan Financial Group Limited

Trading at Higher Level:Magellan Financial Group Limited (ASX: MFG) is a mid-cap company with the market capitalization of circa $5.03 Bn as of October 10, 2018. At the end of September 2018, MFG reported total Funds Under management (FUM) of $74,545 million compared to $74,612 million in the previous month ended 31 August 2018. As per the report, the company has a net inflow of $86 million in September 2018, which included net retail inflows of $60 million and institutional inflows of $26 million. From the analysis standpoint, FUM decreased by around -$67 million on month-on-month (M-o-M) basis, driven by market movements or performance. Besides this, the company has a price-to-book value ratio of 8.01x, and this may look to be on a higher side while comparing with the industry standard at 2.89x and represent overvalued stock at the current juncture. Further, the company has a price-to-earnings ratio of 23.27x. It has posted a return on equity (RoE) of 39.7 percent, return on invested capital (RoIC) of 39.8 percent and has current ratio 5.51x in FY18. Over the last five years, the company’s revenue and PAT have grown at a CAGR of 31.9 percent and 26.4 percent, respectively.


Total Shareholder Return Model (Source: Company Reports)

Meanwhile, the stock price has risen 19.79 percent in the past three months as of October 9, 2018 and traded at the higher level. Considering strong performance, combined with MFG’s distribution capabilities, and current trading level, we maintain our “Hold” recommendation on the stock at the current market price of $28.200.
 

WBC LNK TAH MFG Dividend Per Share Comparison (Source: Thomson Reuters)
 

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