Are these two stocks good to buy now?

Spark Infrastructure Group

        SKI Dividend Details
 
Efforts to boost Capital Position for Transgrid Investment: Spark Infrastructure Group (ASX: SKI) recently announced its investment in Transgrid followed by a pro rata entitlement offer to fund its Transgrid transaction. The group is seeking to invest over $734.3 million for 15.01% ownership interest in Transgrid, through which Spark could enhance its portfolio with high quality regulated electricity distribution and transmission assets in Australia. The group announced that the investment is forecast to be standalone operating cashflow per security accretive relative to SKI’s 2015 forecast standalone operating cashflow of 14 cents per security. Moreover, Spark recently finished the $405 million entitlement offer of institutional component. The group reported that the new securities which were issued under pro rata entitlement offer would generate to the FY15 final distribution of 6 cents per security for full payable on March 2016. On the other hand, SKI also reported a decent first half of 2015 performance, with underlying profit before loan note interest and tax for the year rising by 3.7% year on year (yoy) to $140.3 million driven by better equity accounted share of profits and interest income from the Asset Companies. But the gains were partially offset by an unrealized loss on derivative contracts associated with the economic interest in DUET Group. Management reported an interim distribution of 6.0 cents per security (cps) in line with the earlier distribution guidance of 12.0 cps for 2015, representing a rise of 4.3% on 2014. Management estimates its distribution to be 12.5 cps for 2016. Meanwhile, SKI overall regulated revenue of the Asset Companies rose by 9.2% yoy to $998.8 million while EBITDA improved by 12.7% yoy to $808.4 million. The Regulated Asset Base (RAB) of the Asset Companies increased 1.6% yoy resulting in the overall RAB to $9.2 billion (with Spark share being $4.5 billion) during the period.
 

Spark Infrastructure performance (Source: Company Reports)
 
Solid dividend yield: The shares of Spark Infrastructure plunged over 2.11% (as of December 07, 2015) in just last four weeks as some of the institutions have backed off from the group’s recent institutional entitlement offer. On the other hand, the group estimates a finalization of the regulatory reset processes for SA Power Networks, CitiPower and Powercor in the coming twelve months (as of first half report). Moreover, SKI’s net debt to RAB at the Asset Company level decreased by 1% to 76.2% as at June ending, as compared to December 2014 while declined by 1.6% from 77.8% on a rolling 12 month basis. The group achieved distributions of around twice covered by operating cash flows from the Asset Companies while the group forecasts a gearing target of 75% net debt to RAB. The group is well positioned to leverage its current strengths and is seeking to expand into new areas to drive its business further. Spark Infrastructure group also has an outstanding dividend yield of about 6%. Investors could use the recent correction to enter the stock and we give a “BUY” recommendation on the stock at the current price of  $1.945
 
 
SKI Daily Chart (Source: Thomson Reuters)
 

Spotless Group Holdings Ltd

               SPO Dividend Details
 
Growing business via building solid clients and acquisitions but FY16 profit warning announced: Spotless Group Holdings Ltd (ASX: SPO) shares plunged over 42.12% in the last three months (as of December 07, 2015) but demonstrated a decent 2015 financial performance. The group reported a statutory revenue increase by 9.6% yoy to $2,872.9 million during the fiscal year of 2015, driven by its five acquisitions. Spotless Group is also on acquisition spree and accordingly finished Aladdin Laundry, International Linen Service and TechGuard Security acquisitions during the first half of fiscal 2015. Spotless Group also acquired Utility Services Group, which is Australia’s leading provider of retail meter reading and installation services, with annual revenues of $200 million at the time of acquisition. SPO is also acquiring AE Smith, Australia’s leading air-conditioning and mechanical services provider, which has $100 million of annual service and maintenance revenues. On the other hand, Spotless Group cost savings efforts and efficiency programs over the last three years have improved its statutory EBITDA by 70.2% yoy to $316.4 million in FY15. The Group is also developing a long term client base and has annualised revenues of over $1,300 million per annum and achieved over $350 million per annum of new contract wins.
 

Growing revenue and EBITDA base over the last three years (Source: Company Reports)
 
SPO’s contracts have a combined average tenor of over 27 years, offering a long-term security to SPO’s revenue stream. But, Spotless Group earlier announced that it expects an incremental annualized revenue of over $130 million and around $112 million from PPP projects which would achieve a full operational phase during FY16 and FY17. However, the recent trading update with a profit warning revealed that the company expects NPAT to be down by 10% in view of the challenging economic conditions along with issues concerning the time taken for integrating acquisitions. The company announced about the realization of one-off charges (relating to tenders and restructuring etc.) and other charges (IT implementation etc.) impacting the FY16 results. Excluding the one-off charges, the FY16 EBITDA is expected to surge by 5% over FY15. SPO also advised its positive outlook for FY16 results provided at the AGM on 22 Oct 2015 being made after the review of the FY16 budget and being based on performance to the end of September 2015, in response to an ASX query. Nevertheless, we have confidence on the company’s contract portfolio having supportive contract duration to help generate stable EBITDA in next few years. Given that the company is still trading at decent valuation with a reasonable P/E and a good dividend yield, we put a “Buy” on this stock at the current price of  $1.145
 
 
SPO Daily Chart (Source: Thomson Reuters)

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