Buy, Sell or Hold – ANZ, XRO, FXL, SIQ

Australia and New Zealand Banking Group Limited

ANZ Details

Healthy Fundamentals: Australia and New Zealand Banking Group Limited (ASX: ANZ) is an international bank which provides financial services such as general banking, mortgage and instalment lending, life insurance, leasing, hire purchase and general finance, etc. The company is Australia’s third largest banking corporation with a market cap of $72.96 Bn as on November 16, 2018. The company for the FY 2018 has achieved net a cash profit of $6.5 Bn, the cash ROE for the company for the same period stood at 11%. The company has declared fully franked dividend of 160 cps for the FY2018. The strong operating performance was achieved due to healthy growth in the retail deposits, home lending, and business lending portfolios during the period. Also, performance looked sound on the back of higher other banking income, however there was degrowth of 2% in the Net Interest Income. Consequently, the group’s NIM’s were lower for the FY2018 due to growth in lower margin liquid assets, unfavourable changes in product mix, an introduction of major bank levy & the impact of customer remediation. Moreover, the gross impaired asset decreased by $371 Mn in FY18 primarily driven by repayments and upgrades.

Going forth it’s expected that the trading environment in Australia will remain challenging, specifically in retail banking due to the fact of increasing regulation and mounting compliance costs as well as the costs of implementing the recommendations of the Royal Commission.

 
ANZ’s key financial metrics (Source: Company Reports)

Meanwhile, the stock price has fallen 15.79% in the past three months and traded at a lower level, and this signifies an attractive opportunity for the investors to acquire the stock at the current juncture. In our view, the company has a brighter outlook on the back of sound fundamentals along with improving asset quality across segments. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $25.360.


 
ANZ Daily Chart (Source: Thomson Reuters)
 

Xero Limited

XRO Details

Growing global business platform and subscriber growth across geographies: Xero Limited (ASX: XRO), together with its subsidiaries, operates as a software as a service company worldwide. The company offers Xero, cloud-based accounting software that connects small businesses to their customers. The company has a market cap of $5.71 Bn as on November 16, 2018. Recently, the company posted its numbers for the 1H 2019 where its operating revenue grew by 37% and amounted to $256.5 Mn as compared to the prior year. Moreover, the company experienced positive EBITDA of $16.8 million in 1HFY19 which was 7% higher than the prior corresponding year. It was due to the improved operating efficiencies across the business. Further, average revenue per user (ARPU) increased by 6% to $31.09 in 1HFY19 over the prior year. As a result, AMRR (annualized monthly recurring revenue) grew by 40% to $589.1 Mn in the first half of the year 2019. As of now, the group focuses on growing its global small business platform and intends to re-invest its surplus cash flow into the business which will drive long-term shareholder value.


XRO operating revenue trends across geographies (Source: Company Reports)

Meanwhile, the stock price has fallen 3.99% in the past one month as at November 15, 2018 and traded at a premium level of current juncture. However, if we look at the YTD performance, the stock has given phenomenal returns of 43.39% hence, investors should sit tight on the stock. Given the backdrop of robust subscriber growth in 1HFY19 and reliable traction in its global business platform, we maintain our “Hold” recommendation on the stock at the current market price of $41.980.


 
XRO Daily Chart (Source: Thomson Reuters)
 

Flexigroup Limited

FXL Details

Strong operational growth coupled with robust EBITDA margins: Flexigroup Ltd (ASX: FXL) provides retail point-of-sale lease and rental finance for IT equipment and electrical appliances. The Company's products include desktop and laptop computers, computer peripherals and software, audio visual equipment, and white goods and brown goods. The stock price climbed up 6.291% on 16 November 2018 as the company has reiterated its own guidance issued on 21 August 2018 of achieving Cash NPAT for FY19 of $95-100 Mn which represents an 8%-13% of cash NPAT growth on a Y-O-Y basis. This guidance has been reiterated by the company on the back of solid profitable growth as the company has expanded and diversified its business through organic growth, acquisition and product innovation.

For the FY 2018, the company has delivered the numbers in line with the guidance with a cash NPAT of $88.2 Mn and this was achieved on account of the volume expansion of more than 17% on a Y-O-Y basis and active customers growth of 5% to reach above 1 Mn mark. The major drivers for the volume performance during 2018 were the Australia and New Zealand cards business, growth in the commercial business and increasing momentum in Certegy. A good sign of momentum in the business was the increment in the receivables exhibiting a growth of 10% which reached to $2.4 Bn during the year hence underscoring the strength of Flexi Group’s market position.

               
FXL’s Segment wise performance (Source: Company Reports)

Meanwhile, the stock price has fallen over the past one month by 12.72%, also if we look at the YTD performance, the stock is down by 9.04%, thus demonstrating a below par performance. However, considering the volume expansion that it has achieved and results constantly in line with the stated guidance, we reiterate our “Hold” recommendation on the stock at the current market price of $1.605.


 
FXL Daily Chart (Source: Thomson Reuters)
 

Smartgroup Corporation Ltd

SIQ Details

More catalysts required for the stock to move further: Smartgroup Corporation Ltd. (ASX: SIQ) is an Australian outsourced salary packaging company within the health, not-for-profit, State and Federal Government Departments and corporate sectors nationwide. The company has a market cap of circa $1.32 Bn as on November 16, 2018. The company’s decent performance in 1HFY18 wherein revenue came in at $122.6 Mn, exhibited a growth of 26% on Y-o-Y basis. EBITDA stood at $55 Mn in 1HFY18, showing a decent rise of 23% on PCP basis. The company achieved growth in NPATA of 27%, and it came in at $38.5 Mn. These results were on account of continued client growth underpinning the organic growth of ~9000 salary package & ~1500 novated leases. After-tax operating cashflows account for 98% of NPATA which signifies the better earnings quality.

Backed by strong growth across all key financial & operating metrics and consolidation in the salary packaging service delivery segment along with cash flows, the stock may look to be on a growth path.The company has also declared a fully franked interim dividend of 20.5 cps. However, novated segment looks to be raising some concerns going forward.

Meanwhile, the stock price has fallen 10.20% in the past one month as at November 15, 2018 and traded close to lower level, however, we believe that all the positives catalyst are discounted into the current market price of $10.28, and there isn’t any such significant catalyst as of now that can drive the stock much higher from the current levels, hence we maintain our “Sell” recommendation on the stock while the future of the group is also expected to be impacted by upcoming elections given the industry.  


 
SIQ Daily Chart (Source: Thomson Reuters)  
 
 

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