Westpac Banking Corporation

WBC Details

Long-term potential: Westpac Banking Corporation (ASX: WBC) recently announced the distribution of $0.0843 per security for SFI (Self-Funding Instalments) over securities in South32 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 11 October 2018 with the ex-distribution/ entitlement date of 13 September 2018. Furthermore, the distribution of $1.0700 per security for SFI (Self-Funding Instalments) over securities in Flight Centre Travel Group Limited (FLT) as mentioned in PDS (Product Disclosure Statement) have been announced wherein dividends will be applied to reduce the Completion Payment of the SFIs and will be paid on or about 12 October 2018 with the ex-distribution/ entitlement date of 13 September 2018.

Westpac maintained robust liquidity position during the third quarter 2018 with net stable funding ratio (NSFR) at 112%, and liquidity coverage ratio (LCR) at 127%, which are well above regulatory minimums. For 10 months to 31 July 2018, the group had raised $31 billion in term of wholesale funding at an average duration of over 6 years, which broadly completes the group’s full-year 2108 term funding requirement. Net interest margin for Q3 FY18 was down by 11 bps to 2.06% compared to 2.17% in first half 2018. The net interest income declined because of higher funding costs and a lower contribution from the Group’s treasurywhile credit quality remained sound, with stressed exposures as a percentage of total committed exposures at 1.08 percent, down 1 basis points as compared to 1HFY18.


Net Interest Margin (Source: Company Reports)
Meanwhile, the stock has fallen 7.83% in the past six months and was further down by 5.17% in the last one month as on September 11, 2018. As of now, the stock traded at a lower level with reasonable PE level of 11.390x. Hence, we maintain our “Buy” recommendation on the stock at the current price of $ 27.730 as the group is well placed to meet the common equity tier 1 ratio, CET 1 Capital, and risk-weighted assets ratio as per the regulatory guidelines.


 
WBC Daily Chart (Source: Thomson Reuters)
 

BrainChip Holdings 

BRN Details

Brighter Future Ahead:BrainChip Holdings Ltd (ASX: BRN) has recently introduced the first in a new breed of hardware solutions i.e., neural network acceleration SoCs that puts artificial intelligence at the edge and the enterprise. As per the release, the company claims that BRN is the first company to bring a production of spiking neural network architecture – the Akida Neuromorphic System-on-Chip (NSoC) to the market. The company will start sampling its new neuromorphic system-on-a-chip (SoC) in Q3 2019, preceded by an FPGA-based development board for designers anticipating the introduction. The Akida Development Environment is available now for early access customers to begin the creation, training, and testing of spiking neural networks targeting the Akida NSoC. We assume that this is a superior declaration, and things should begin to heat up from here, energizing occasions ahead as the artificial intelligence acceleration chipset marketplace is expected to surpass US$60 billion by 2025.


AI Acceleration Chipset Forecast (Source: Company Reports)

On the financial front, the current ratio substantially increased from 4.60x to 12.09x in 1HFY18 from the prior corresponding period.The cash conversion cycle also reduced from 572 days to 194 days in 1HFY18 over pcp because of lower account receivable days - indicating that the management is doing well towards its collection policy. The debt to equity ratio came in at 0.2x in 1HFY18. Meanwhile, the share price has risen 45.83 percent in the past three months and traded below the average of 52 week high and low prices. Hence, we maintain our “Speculative Buy” recommendation on the stock at the current price of $ 0.170, considering the aforesaid facts and trading level.


 
BRN Daily Chart (Source: Thomson Reuters)
 

QBE Insurance Group 

QBE Details

Simplifying the business operation – could be a game changer for the business: QBE Insurance Group Limited (ASX: QBE) is the large-cap company with the market capitalization of circa $14.8 Bn as of September 12, 2018. QBE is engaged in underwriting general insurance and reinsurance risks, management of Lloyd's syndicates and investment management. Besides this, QBE seems to be one insurer firm in the life insurance market that has started moving in right direction and did not report any instance of misconduct to the inquiry of Royal Commission while QBE described some issues and incidents. On the other hand, the group has taken significant steps to simplify its historically complicated business such as disposed-off its Latin America operation, Argentina, Brazil, Thailand, Hong Kong construction Workers’ compensation, Australian & New Zealand travel business, Australian travel, and North American personal lines business. Further, it has a comprehensive remediation program for its Asia Pacific business including exiting unprofitable lines of business and reducing costs. Moreover, the sale of operations in Ecuador, Colombia, and Mexico are expected to complete by end of this year. We expect that once the simplification program is complete, the business will be in a more sustainable position over the long term.


Combined Operating Ratio (Source: Company Reports)
Based on simplification program, the combined operating ratio (COR) grew by 130 bps to 95.80% in 1HFY18 over the prior corresponding period and anticipated to be in the range of 95% to 97.0% for the full year. We trust that the management has acted to de-risk and simplify its business operations over the past few years, which is a positive step to focus on core business operations. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $10.930, (up 7.13% in the past one month as on September 11, 2018).


 
QBE Daily Chart (Source: Thomson Reuters)
 

Australian Finance Group 

AFG Details

Decent Performance in FY18: Australian Finance Group Ltd (ASX: AFG) has delivered decent FY18 performance in which underlying NPAT grew by 7% to $28.1 Mn over the prior year. As a result, normalized EPS increased by 10% to 15.4 cents in FY18 over PCP. Normalised RoE came in at 33% which is up by 200 bps from the previous year (31%). Besides this, AFG retains a strong balance sheet which remains debt-free. In a relatively benign credit market, the growth in AFG’s profit is reflective of the strength of its distribution capability with residential settlements of $35.3 Bn representing growth of 3%. Hence, we expect that the company will continue to be a first-choice partner for lenders and broking groups. As of now, the group has 50 lenders on its panel with more than 40% of residential borrowings going to lenders other than the four major banks, and AFG remains committed to ensuring choice while competition remains for all Australian consumers.


FY18 Financial Highlights (Source: Company Reports)

Based on the decent performance, Normalised PE ratio recorded at 10.1x in FY18, while the same was accounted to 10.3x over the prior year. This in a way signifies lower side of valuation. Meanwhile, the stock climbed up 19.01% in the past three months as at September 11, 2018 and still traded at a reasonable PE level. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $1.570.


 
AFG Daily Chart (Source: Thomson Reuters)
 

Cann Group 

CAN Details

Robust Partnership and Collaboration – to ensure upcoming growth: Cann Group Limited’s (ASX: CAN) stock tumbled 1.805 percent on September 12, 2018 ahead of cannabis decriminalization bill which will be presented in U.S. House Panel on 14 September 2018. Recently, the group delivered decent performance in FY18 wherein the group has secured its positions across the full value chain, through its own investments and important collaborations and partnerships that will add significant value to the company’s business plans. As of now, the expansion program is underway with the total new investment facility of around $100 Mn for the project. As at 30 June 2018, the group had cash and cash equivalent of $ 49.57 Mn with virtual debt-free status. Hence, we expect that the company will continue to strengthen its capabilities in the market with the support of a healthy balance sheet position, the pipeline of core assets, secured strategic partnerships and licensing agreements.


Robust Partnerships (Source: Company Reports)

On the other hand, the group has issued new shares of about 50,000 for the purpose of the settlement of invoice totalling $142,900.83 (exclusive of GST) for consulting services provided over the period from 1 December 2017 to 30 August 2018. Meanwhile, the stock tumbled 4.48 percent in the past six months as at September 11, 2018 and traded above 52-week lower level of $1.100. Based on foregoing and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of 2.740 while the voting on the bill will be viewed closely.  


 
CAN Daily Chart (Source: Thomson Reuters)
 

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