Stocks’ Details

The Star Entertainment Group Limited

A Quick Look at Trading and Earnings Update: The Star Entertainment Group Limited (ASX: SGR) operates The Star in Sydney, The Star Gold Coast and Treasury Casino & Hotel in Brisbane. The market capitalisation of the company stood at ~A$3.86 billion as on 26^th July 2019. Recently, the company, via a release dated 27^th June 2019 communicated that Perpetual Limited and its related bodies corporate have made a change in its substantial holding in the company. The interest declined to 67,176,031 from 76,625,116 ordinary shares, reflecting 7.32% of voting power in the group. It was also stated that since the release of its 1H FY19 results, the domestic revenue growth trends throughout The Star properties have been softened. In 1H FY19, the company declared an interim dividend of 10.5 cents per share (fully franked), which has been paid on 3^rd April 2019. The following picture provides a broader idea of earnings of 1H FY19.


Record Earnings (Source: Company Reports).

What to Expect: The Star Entertainment Group Limited anticipates normalised EBITDA for FY19 in the ambit of $550-560 Mn in comparison to $568 Mn in FY18. With respect to The Star Gold Coast, construction of the first joint venture tower with its partners Chow Tai Fook and Far East Consortium is underway, with the completion remaining on track for FY22.At the current market price of A$4.240 per share, the annual dividend yield of the company stood at 5.58% in comparison to the industry median of 4.0%, generating more income for the shareholders.

Stock Recommendation: The gross margin and EBITDA margin of the company stood at 95.8% and 28.8% in 1H FY19 as compared to the industry median of 55.6% and 26.0%, respectively. It posted a net margin of 12.9% for the same period against the industry median of 9.7%. This implies that SGR is effectively converting its topline into the bottom line in comparison to the broader industry. It is presently trading slightly below the average of 52 weeks high and 52 weeks low levels of $3.685 and $5.660, respectively, with a reasonable PE multiple of 14.280. Hence, considering the above-stated facts coupled with decent outlook and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$4.240 per share (up 0.713% on 26^th July 2019).
 

Challenger Limited

US Dollar Annuity Reinsurance: Challenger Limited (ASX: CGF) is involved in the business of annuities, funds management, and administration platforms. The market capitalisation of the company stood at ~A$4.26 Bn as on 26^th July 2019. Recently, the company with the help of release dated 28^th June 2019, announced that CGF received all necessary regulatory approvals as well as implemented the operational requirements in order to commence reinsurance of US dollar denominated annuities from 1 July 2019. The company further added that under expanded strategic relationship with MS&AD (or MS&AD Insurance Group Holdings Inc.), it would commence a quota share reinsurance of US dollar denominated annuities which have been issued in the Japanese market by a subsidiary company of MS&AD i.e.  Mitsui Sumitomo Primary Life Insurance Company Limited. The following picture gives an idea of the quarterly annuity sales by channel:


Quarterly Annuity Sales (Source: Company Reports)

Future Aspects: The company is expecting nornmalised NPBT in the range of $500 Mn to $550 Mn for FY20, which includes lower equities normalised growth assumption and the company is also anticipating that its normalised cost to income ratio would be above 30%-34% for FY20 which would be driven by DPM initiatives. The company is projecting normalised dividend payout ratio in the range of 45% to 50%. The company also stated that FY19 dividend (cps) is expected to be maintained in FY20.

Stock Recommendation: The gross margin of the company stood at 87.6% in 1H FY19 in comparison to the industry median of 74.1%. At the current market price of A$7.010 per share, the annual dividend yield of the stock stood at 5.06% in comparison to the industry median of 3.8%, which reflects that the company is providing better returns to shareholders. Coming to the stock’s past performance, it generated returns of 6.10% and -14.60% in the time span of one month and three months, respectively. Currently, the stock is trading at close to its 52-week low level of $6.220, proffering a decent opportunity fort accumulation. Hence, considering the aforesaid facts coupled with decent outlook and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$7.010 per share (up 0.718% on 26^th July 2019).
 

JB Hi-Fi Limited

Rise in Interim Dividend: JB Hi-Fi Limited (ASX: JBH) is a retailer of home consumer products with a major focus on consumer electronics, software, etc. The market capitalization of the company stood at ~A$3.44 Bn as on 26^th July 2019. Recently, the company, via a release announced that AustralianSuper Pty Ltd has changed its substantial holding in the company with the voting power of 10.02% in comparison to the previous voting power of 8.97%. The company has lowest cost of doing businessin comparison to the major Australian listed retailers and international consumer electronics retailers.The Board of the company also declared an interim dividend of 91 cents per share (fully franked), which reflects a rise of 5.8% on pcp basis. The company paid the interim dividend on 8^th March 2019.


Low Cost operating Model (Source: Company Reports)

What to Expect: For FY19, it expects the total group sales to be around $7.1 billion, which is comprised of $4.73 billion from JB HI-FI Australia, (NZD) $0.24 billion from JB HI-FI New Zealand and $2.15 billion from The Good Guys. At the current market price of A$30.350 per share, the annual dividend yield of the company stood at 4.58%, which is, more or less, in line with the industry median of 4.6%.

Stock Recommendation: The company reported a gross margin and net margin of 21.5% and 4.2% in 1H FY19 against the industry median of 25.1% and 5.7%, respectively. It posted a return on equity of 16.0% in 1H FY19 in comparison to the industry median of 8.5%, which represents that the company is providing better returns to its shareholders as compared to the concerned industry. As per ASX, the stock is trading closer to its 52-week higher level of $30.860, which increases the probability for a correction in the near term. Hence, considering the above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of A$30.350 per share (up 1.437% on 26^th July 2019).
 

BHP Group Limited

Strong Operational Performance Witnessed: BHP Group Limited (ASX: BHP) is involved into the exploration of minerals. Recently, the company, via a release dated 17^th July 2019, reported its results for the financial year ended 30^th June 2019. The group’s copper equivalent production witnessed a rise of 11% in the quarter ended 30^th June 2019, which represents a strong operational performance throughout the portfolio, particularly at Western Australia Iron Ore and Queensland Coal which achieved annualised run rates above 290 Mt and 48 Mt respectively during the quarter. In the 1H FY19, the Board of the company declared an interim dividend of US 55 cents per share including an additional amount of 18 US cents per share above the 50% minimum payout policy.


Production Results for the Quarter (Source: Company Reports)
Future Prospects: The company is expecting production of petroleum in the range of 110-116 MMboe and production of copper to be between 1,705-1,820 kt. The group’s copper equivalent production for FY20 is anticipated to be slightly higher than FY19 despite a fall of around 7% in petroleum volumes mainly because ofnatural field decline.At the current market price of A$40.850 per share, the annual dividend yield of the company stood at 4.08% in comparison to the industry median of 3.6%, which represents that the company is providing better returns to its shareholders as compared to the broader industry.

Stock Recommendation: The company reported a net margin of 21.4% in 1H FY19 as compared to the industry median of 13.0%. This implies that the company is effectively converting its top line into the bottom line. On the stock’s performance front, it provided returns of -0.75% and 8.64% in the time span of one month and three months, respectively. As per ASX, the stock is trading towards its 52-week higher levels. Hence, considering the above-stated facts and decent outlook, we maintain our “Hold” recommendation on the stock at the current market price of A$40.850 per share (up 0.641% on 26^th July 2019).


Comparative Price Chart (Source: Thomson Reuters)

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