Stocks’ Details
 

Telstra Corporation Limited

 
TLS to Impair 35% Stake in Foxtel: Telstra Corporation Limited (ASX: TLS) provides telecommunications and information services, including mobiles, internet, and pay television. On 8 May 2020, the company stated that it expects to make a non-cash impairment and write down the carrying value of its 35% interest in Foxtel. Further, TLS anticipates recognising an impairment charge of approximately $300 million against this investment in its FY20 results. Consequently, this is likely to write down the value of TLS’s share in Foxtel to around $450 million from ~750 million. 
 
COVID-19 Update: The company has been reacting well to the COVID-19 crisis and has put on hold any job reduction in the workforce. In order to boost call centre volumes, it has opted to hire 1,000 temporary roles in Australia. It is also serving its customers in the best possible way while they work remotely. Furthermore, TLS has further bolstered its balance sheet through a $860 million bond issue, which will be used to finance general corporate expenses and pre-funding of future debt maturities.
 
1HFY20 Key Highlights: During the six months ending 31st December 2019, the company reported total income amounting to $13.4 billion, down 2.8% year over year. The company reported strong progress against the T22 strategy with continuous optimistic financial momentum. The company reduced its underlying fixed costs by 12.1%, owing to improvement in the strategy.
 

Financial Summary (Source: Company Reports)
 
What to Expect: TLS predicts free cash flow for FY20 to be at the bottom end of the range of $3.3 - $3.8 billion. The company expects underlying EBITDA to be at the bottom end of the outlook band of $7.4 - $7.9 billion.  
 
Valuation Methodology:P/E Multiple Based Relative Valuation (Illustrative)

P/E Based Relative Valuation Method (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock corrected 7.42% in the past one year. At the current market price of $3.03, the stock has an annual dividend yield of 3.3%. The company has a market capitalisation of ~$36.39 billion and ~11.89 billion outstanding shares. Currently, the stock is trading below the average of it 52-week high and low of $3.945 and $2.870, respectively.TLS’s access to low-cost capital and a strong credit position depicts the strength of the business during such volatile times. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in percentage terms). Hence, we give a “Buy” recommendation on the stock at the current market price of $3.03, down by 0.98% on 8 May 2020.
 

REA Group Limited

 
Sneak Peek at REA’s Q3FY20 Financial Performance: REA Group Limited (ASX: REA) is a digital advertising business, focusing in residential, commercial and share property businesses. During the three months ended 31 March 2020, the company reported revenue of $199.8 million, up by 1% on pcp. Operating expenses (excluding associates and joint ventures) amounted to $80.2 million, down 9% year over year. The company witnessed strong cost management and efficiencies from an organisational realignment, which resulted in a reduction in total operating expenses.During the quarter, the company showed strong signs of recovery, which included advancements in national residential listings led by Melbourne and Sydney. Notably, national residential listings during the quarter declined 7% year over year, while Melbourne and Sydney were up 6% and 5%, respectively.
 
 

Q3FY20 Performance (Source: Company Reports)
 
Current COVID-19 Scenario and outlook: The company has seen an accelerated impact of COVID-19 on the business and is keeping a check on the potential impact of the restrictions imposed on the performance. The company is taking necessary measures to implement cost-saving initiatives, which consist of workforce planning measures, reduced marketing expenditure and a review of all supplier arrangements. For 4QFY20, REA expects operating expenses to be~ 20% lower when compared to Q4FY19. As at 30 April 2020, the company has a healthy balance sheet, with low debt levels and a cash balance of $135 million.
 
Other recent Update: In another update, the company announced that Sarah Turner, a General Counsel and Company Secretary of the company, has resigned with effect from 15 May 2020.
 
Stock Recommendation: The stock of the company gave positive returns of 7.35% in the last one month and is currently trading above the average of its 52-week low and high level of $62.050 - $117.3. The stock has a market capitalisation of ~$11.64 billion and an annual dividend yield of 1.34%, with P/E multiple of 50.09x.The company retains a healthy balance sheet, low debt levels and ability to avail debt, if required. Consequently, the business is well prepared to deal with the challenges with best practices in place. Considering the above factors and the potential impact of COVID-19, we recommend a “Hold” rating on the stock at the current market price of $95.17, up 7.719% on 8 May 2020.
 

TPG Telecom Limited

 
TPM Receives Approval from FIRB to Merge With VHA: TPG Telecom Limited (ASX: TPM) is engaged in providing consumer, wholesale, and corporate telecommunications services. As on 8 May 2020, the market capitalization of the company stood at $6.68 billion. On 7 May 2020, the company reported that it has received approval from the Foreign Investment Review Board regarding the proposed merger of TPG and Vodafone Hutchison Australia Pty Limited (VHA) via a Scheme of Arrangement. Both companies are continuing to work towards the completion of the merger in mid-2020.
 

Merged Group Structure (Source: Company Reports 2018)
 
Other Recent Update: In another update, the company stated that it has been informed by Infocomm Media Development Authority (IMDA) that TPG Telecom Pte Ltd (TPG Singapore) will no longer be allotted 3.5 GHz Spectrum in Singapore.
 
Key Business Highlights for 1HFY20: The company has recently released its interim results for the period ending 31 January 2020, wherein it reported a slight increase of 1% in revenue of $1,246.5 million and a rise in reported NPAT to $143.6 million from $46.9 million in 1HFY19. This resulted in a rise of EPS from 5.1 cents per share to 15.5 cents per share in 1HFY20. The decent financial performance enabled the Board to declare an interim dividend of 3 cents per share which is to be paid on 19 May 2020.
 
 
1H20 Reported Financial Highlights (Source: Company Reports)
 
Outlook: TPM expects FY20 BAU EBITDA to be between $775m-$785m and capex to be in the range of $200m-$240m.
 
Valuation Methodology:P/BV Multiple Based Relative Valuation (Illustrative)

P/B Based Relative Valuation Method (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of TPM gave a return of 9.76% in the last six months. The company is currently trading close to the average of its 52-week low and high of $5.94 - $8.78. The company has a market capitalisation of ~$6.68 billion and an annual dividend yield of 0.69%, with P/E multiple of 24.95x.During 1HFY20, debt to equity ratio of the company stood at 0.6x, lower than the industry median of 1.13x, depicting a strong financial position. We have valued the stock using a P/BV multiple based illustrative relative valuation method and arrived at a target price with high single-digit upside (in percentage terms).Considering the returns, current trading levels and positive guidance, we recommend a “Hold” rating on the stock at the current market price of $7.26, up by 0.833% on 8 May 2020.
 
 
Comparative Price Chart (Source: Refinitiv,Thomson Reuters)

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