AusNet Services Limited

AST Details

Draft Decision by AER: AusNet Services Limited (ASX: AST) is involved in the transmission and distribution of electricity and also has footprints in the business of gas distribution. The market capitalisation of the company stood at $7.51 billion as on 9^th October 2020. On 30^th September 2020, the company noted the draft decision published by Australian Energy Regulator (AER) on the company’s 2021-26 Electricity Distribution Price Review Proposal. The company added that the draft decision happens to be a broad endorsement of the agreements reached with the Customer Forum. AST is likely to respond with a revised proposal in early December 2020, and a final decision is likely to come by 30 April 2021.

AER Draft Decision (Source: Company Reports)

Improved Financial Performance: Despite a challenging operating environment, the company managed to report improved financial performance in FY20. The company reported revenue amounting to $1,977.6 million as compared to $1,861.5 million in FY19. Net profit after tax for the period amounted to $290.7, reflecting a rise of 14.5%. These results have been mainly generated by higher regulated revenues and customer contributions. In addition, the company experienced a fall in underlying operating expenditures via the ongoing delivery of efficiency initiatives in spite of the overall increase in expenses. The company declared a final dividend of 5.1cps, which took the FY20 dividend to 10.20cps, franked to 50%.

Outlook: For FY21, the company is expecting to pay a dividend in the range of 9.0 - 9.5 cps. In addition, AST is aiming $1.5 billion of contracted energy infrastructure assets by FY24.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: In the month of September 2020, the company has priced A$650 million non-convertible subordinated notes. The company possesses a diversified debt maturity profile, accessing funds from a variety of sources. On the technical analysis front, the stock price of AST has a support level of ~$1.881 and a resistance level of ~$2.015. The stock of AST is inclined towards its 52-week high level of $2.030. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price with limited upside (in percentage terms). Therefore, considering the current trading levels and valuation, we give an “Expensive” rating on the stock at the current market price of $1.980 per share, down by 1% on 9^th October 2020.

AST Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

People Infrastructure Ltd

PPE Details

Transition in Senior Leadership:  People Infrastructure Ltd (ASX: PPE) is involved in workforce management and staffing solutions. The market capitalisation of the company stood at ~$294.92 million as on 9^th October 2020. Recently, the company announced a transition in senior leadership, as per which Mr Declan Sherman is moved to the role of Executive Director from a position of Managing Director and Mr David Cuda will continue to lead the business as Group CEO.

Decent Growth in Financials For the year ended 30^th June 2020, the company reported revenue and EBITDA amounting to $374 million and $26.4 million, reflecting a YoY growth of 34.5% and 49.2%, respectively. Normalised NPATA for the period amounted to $18.4 million with a growth of 53.3%. The growth in the company’s financial performance indicated continued demand for staffing services in the sectors in which PPE operates. In the past five-years (2015-2020), the company’s revenue and EPS have grown at a CAGR of 24.8% and 21.4%, respectively.

Improved Financials (Source: Company Reports)

Outlook: The company’s is focused on growing its business in sectors which have long term demand for their products and services. PPE seems to be well-positioned to continue to drive strong earnings even in a volatile economic environment. The company expects organic opportunities to drive strong growth across the business over the medium to long term.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During FY20, the company was focused on cash flow generation and a conservative balance sheet. The company is in a decent position to invest in future growth with a positive cash balance of $9.8 million. The company declared a fully franked final dividend of 4.5 cents per share, which took the total dividend to 8.5 cents per share. On the technical analysis front, the stock price of PPE has a support level of ~$2.473 and a resistance level of ~$3.548. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of mid-single digit (in percentage terms). Therefore, considering the company’s improving top and bottom line, decent FY20 results, its focus areas, organic growth opportunities and valuation, we give a “Hold” recommendation on the stock at the current market price of $3.260 per share, up by 0.617% on 9^th October 2020.

PPE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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