Stocks’ Details 

Suncorp Group Limited

Release of 1H21 Financial Results: Suncorp Group Limited (ASX: SUN) is a provider of insurance, wealth and banking products and services in New Zealand and Australia. As on 9^th February 2021, the market capitalisation of the company stood at ~$13.36 billion. The company reported growth in total revenue from $7,352 million in 1H21 as compared to $7.054 million in 1H20 due to rise in insurance premium income. SUN registered a profit after tax of $500 million, up by 40.4% on pcp basis. This was driven by robust growth in top-line, higher ROI, low impairment losses and higher net interest margin (NIM). The company held $1,234 million as cash and cash equivalents balance as on 31 December 2020. Net cash flows from operating activities amounting to $2,688 million in 1HFY21. The company has determined 26 cents per share of interim dividend fully franked for 1H21.

Income Statement Interim 1H21, Highlights (Source: Company Reports)

Outlook: The management forecasts a modest rise in the Group cost base in FY21, FY22 and expects opex to return to $2.7 billion for FY23. The company intends to maintain dividend payout ratio at 60-80% and improve ROE by distributing any capital in excess to the business needs.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of SUN gave a positive return of 17.26% in the past three months and a positive return of 21.38% in the past six months. The stock is currently trading towards its 52-weeks’ low level of $7.30. The stock of SUN has a support level of ~$10.278 and a resistance level of ~$11.154. We have valued the stock using Price to Book Value based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering impact of higher provisions and risk margins to offset COVID-19 business interruption (BI) claims along with risk of regulatory changes. For the purpose, we have taken peers like QBE Insurance Group Limited (ASX: QBE), Insurance Australia Group Limited (ASX: IAG), to name a few. Considering the current trading levels, decent results, commitment to dividend payout, improved ROE and reduced cost base outlook for FY21 and ahead, we give a ‘Buy’ rating on the stock at the current market price of $10.73, up by 2.777% on 9^th February 2021.

Dexus

Declaration of 1HFY21 Financial Results: Dexus (ASX: DXS) is engaged in the business of property investment in Australia. DXS owns $16.5 billion of industrial and office properties and manages $15.6 billion of office, retail, healthcare, and industrial properties for III-party clients. As on 9^th February 2021, the market capitalisation of the company stood at ~$9.48 billion. For 1H21, the company reported growth in revenue by 7.4% YoY to $626.6 million as compared to $583.5 million in 1H19. Its adjusted FFO (AFFO) stood at $313.8 million, up by 6.3% YoY and distribution to security holders amounted to $313.6 million, 5.9% YoY higher on pcp basis. The company distributed 28.8 cents per security for 1H21 as compared to 27 cents per security in 1H20. 

During 1HFY21, DXS maintained robust balance sheet with gearing (look-through) at 24.9%, which below the target range 30-40%. It held $47.3 million of cash and cash equivalents as on 31 December 2020.

Summary of 1HFY21 Financials (Source: Company Reports)

Valuation Methodology: Enterprise Value to Sales Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Outlook: The company expects Australian economy to recovery in FY21 with the required fiscal stimulus to yield results. Further, DSX expects an improved investment climate in 2021. The company expects investment demand for quality assets to remain robust with investors expected to shift from defensive to growth as their risk appetite improves. For FY21, DXS expects distribution per security to be consistent with the 50.3 cents per security distributed in FY20.

Stock Recommendation: The stock of DXS gave a negative 13.72% in the past three months and a negative return of 1.97% in the past six months. The stock of DXS is currently trading towards its 52-weeks low level of $8.03. The stock of DXS has a support level of ~$8.176 and a resistance level of ~$8.807. We have valued the stock using an Enterprise Value to EBITDA multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering its lower NPAT for 1H21 vs 1H20, decline in operating income and decrease in FFO for 1H21, along with risks associated with the pandemic. For the purpose, we have taken peers like Goodman Group Limited (ASX: GMG), GPT Group (ASX: GPT), to name a few. Considering the current trading levels, decent results of 1H21 and distribution outlook for FY21, higher ROE, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $8.420, down by 3.551% on 9^th February 2021.

Boral Limited

1HFY21 Key Financial Highlight: Boral Limited (ASX: BLD) is a producer and distributor of building and construction materials in Asia, US, Australia. As on 9^th February 2021, the market capitalisation of the company stood at ~$6.63 billion. The company reported a fall of 8.7% YoY in revenue to ~$2.70 billion during 1H21, reflective of lower pricing and demand in Australia, which was partially offset by an improved demand scenario in North America. BLD recorded a net profit of $161.4 million during 1H21, up from $136.5 million in 1HFY20. BLD holds cash and cash equivalents of $558.1 million at the end of 1HFY20. Earned net cashflows from operating activities stood at $390.6 million, up by 65% YoY during 1H21. The company reduced its net debt (including leases) to $1.9 billion at the end of 1HFY21 from $2.6 billion in June 2020. Notably, the Board has contemplated not to pay an interim dividend during the period.

Income Statement Highlights, 1H21 (Source: Company Reports)

Outlook: BLD has declared to set a target of $300 million in EBIT Transformation (after inflation) to accomplish return on funds employed above the cost of capital throughout the cycle. In 1H FY21 based on a portfolio review, the company has declared to divest 50% interests in USG Boral and Meridian Brick and expects to complete this transaction in FY21.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BLD gave a positive return of 32.53% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $5.54. The stock of BLD has a support level of ~$4.835 and a resistance level of ~$5.374. We have valued the stock using the Price to Earnings based illustrative relative valuation method and have arrived at a target price with a correction low double-digit (in % terms). We believe that the company can trade at a slight discount as compared to its peer mean, considering its fall in top-line due to lower demand and prices in Australia, leveraged balance sheet, and currency fluctuation risk. For the purpose, we have taken peers like James Hardie Industries Plc, (ASX: JHX), CSR Limited (ASX: CSR), Adbri Limited (ASX: ABC) to name a few. Considering the current trading levels, high returns in the past 6 months, fall in top line for 1H21, negative ROE, and valuation, we are of the view that most of its positives have been factored in the stock performance presently. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $5.01, down by 7.394% on 9^th February 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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