Stocks’ Details

Suncorp Group Limited

Decent Outlook: Suncorp Group Limited’s (ASX: SUN) stock edged down 0.399 per cent on August 07, 2018 as it seems to be overbought on ASX trading platform. However, the group reported NPAT degrowth of 15.83 per cent and amounted to $452 Mn in 1HFY18 against the prior corresponding period. Revenue from the ordinary activities contracted to 10.16 per cent to $ 7,841 Mn in 1HFY18. As a result, Diluted EPS was also down by 17.3 per cent and recorded at 34.66 cents per share against the prior corresponding period. Recently, the group welcomed Brisbane City Council’s Flood Resilient Homes Program to help homeowners better to protect themselves and their properties from flooding. It confirmed that it will reward mitigation methods, through its award-winning Cyclone Resilience Benefit and will evaluate home improvements under the Flood Resilient Homes Program and adjust insurance premiums accordingly after consultation with the homeowners. The group is expected to deliver better 2H results in view of reinsurance protections.


1HFY18 Financial Highlights (Source: Company Reports)

In the meantime, the Vanguard Group, Inc., became the substantial holder of the group by holding 5.002 per cent voting rights. Meanwhile, the share price rose by 13.35 per cent in the past six months as at August 06, 2018 and currently trading close to 52-week high. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $14.970, considering decent fundamentals and maintaining a dividend payout ratio of 60% - 80% of cash earnings and return surplus capital to shareholders. 

Oz Minerals Limited

Drilling Update: Oz Minerals Limited (ASX: OZL) has recently announced that the drilling continues at Jericho for the Eloise JV, located 55km southeast of Cloncurry, NW Queensland. The new campaign is testing depth extensions on recent strong copper-gold intersections at J1 conductor and J2 North conductor. The key points of the drilling at Jericho i.e., reduced the on-strike hole spacing to between 150-300m on J1 conductor and to 150- 400m on J2 North conductor for the total of 7900m since April month. Assays for holes from that expanded drilling other than EL18D15 are still pending. EL18D15 is the first of those holes who returned strong copper-gold values on both J1 and J2 North. Importantly, this hole extended mineralisation 400m north of the previous drilling on J2 North. However, the mineralisation is open in all the directions and the new campaign will eye down-dip extensions in two areas i.e., the central zones of J1 and J2 North and then further south on J1 between holes EL18D05 and EL18D18. The new drill program is expected to be completed in September this year. Additionally, OZL’s cash balance remained strong at $454 million at the end of the second quarter, after making payments to Avanco shareholders, ongoing Carrapateena investment, and tax payments for 2017 and 2018. Meanwhile, OZL stock has fallen 4.72 per cent in the past three months as on August 06, 2018 while it has risen 9.58% in the last one year. Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $ 9.430 given the run-up (130.34% in last five years) and trading levels.

Atlas Arteria

Decent 1HFY18 Performance: Atlas Arteria (ASX: ALX) develops and operates toll roads and tunnels and serves clients across the world. Recently, the group provided toll revenue and traffic statistics for second quarter 2018 in which the weighted average toll revenue and traffic for the June 2018 quarter increased by 5.9% and 3.5%, respectively on the pcp basis at the back of increased aggregate traffic levels, primarily at APRR, and revised toll schedules implemented over the past 12 months. For the six months to 30 June 2018, the weighted average toll revenue grew 5.7% while traffic over the same period was 3.4% above pcp. Toll revenue for the June 2018 quarter grew by 7.0% on pcp to EUR627.0 million. This was majorly driven by the combination of higher traffic levels, traffic mix and toll increase of 2.00% and 2.04% for APRR and AREA respectively, which came into effect on 1 February 2018. We expect that the group has a potential to grow further with the support of favourable French economic environment and rise in vehicle number at toll station.


Summary table of Toll Revenue and Traffic Performance (Source: Company Reports)

Macquarie Group Limited and its controlled bodies ceased to be the substantial holder of the Group since 13 July 2018. Meanwhile, the share price has risen 30.0 per cent in the past six months as at August 06, 2018 and traded close to higher level. Hence, we give a “Hold” recommendation on the stock at the current market price of $ 6.930, considering decent outlook ahead.

Westpac Banking Corporation

Improvement in net interest margin: Westpac Banking Corporation (ASX: WBC) recently announced the distribution of $1.7084 per security for SFI (Self-Funding Instalments) over securities in Rio Tinto Limited as mentioned in PDS (Product Disclosure Statement) and dividends will be applied to reduce the Completion Payment of the SFIs and will be paid on or about 20 September 2018 with the ex-distribution/ entitlement date of 9 August 2018. On the other hand, Westpac has a sound capital base ensuring capital adequacy to support its organic and inorganic growth with the secured and unsecured nature of its lending. We expect that the sound capital management and moderate risk-weighted asset growth have enabled the group to strengthen its capital base.

 
Distribution/Entitlement of Security (Source: Company Reports)

In 1HFY18, its common equity tier 1 ratio, CET 1 Capital, and risk-weighted assets expanded by 53 bps, 8%, and 3% to 10.50%, $43.6 Bn, and $415.7 Bn, respectively against the prior corresponding period. The net interest margin (NIM) increased by 10 bps and recorded at 2.17% as compared to pcp. As of now, WBC traded at reasonable PE ratio of 11.900x (indicating to be undervalued at current price), thus, we maintain our “Buy” recommendation on the stock at the current market price of $ 29.220 given its low risk profile in comparison to many other banks.

Qantas Airways Limited

Traded at Reasonable PE level: Qantas Airways Limited (ASX: QAN) is Australia’s largest airline, providing domestic and regional flights in Australia and New Zealand, as well as international passenger and freight services to and from Australia. Recently, the group has launched a new direct seasonal freight service from Darwin to Hong Kong, supporting producers in Northern Australia to respond to growing demand from Asia. This new service will support the volume growth of the company in the upcoming period. On the valuation front, the company has a price-to-earnings ratio of 12.830x. It has posted a return on equity (RoE) of 16.7 per cent, return on capital employed (RoCE) of 5.9 per cent and has a debt-to-equity ratio of 1.31 in 1HFY18. The share price climbed up 31.01 per cent in the past six months (as at August 06, 2018) and traded at reasonable PE level among its peer group. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $ 6.670 by looking at its strong fundamentals and increasing travellers year on year.
 

Comparative Price Movement Chart (Source: Thomson Reuters)
 
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