Insurance Australia Group Limited (ASX: IAG)

Witnessing Growth: Insurance group, IAG reported for 1H FY18 profit growth of 23.5% to $551 million at the back of rate increases in commercial and consumer line, and volume growth in motor division. Like-for-like GWP growth was nearly 4% which reflected a short tail rate response to claims inflation and also an ongoing momentum in commercial lines. It also reported a margin of 17.3% which was due to favourable peril, reserve release and credit spread outcomes. Interim Dividend also increased and reached to 14cps. If we talk about Natural Perils, its 1H18 outcomes were below allowance that is $78 million which led to aggregate production. Its revised FY 18 reported margin guidance of 15.5-17.5% raised reserve release expectation. IAG’s Asia strategic review that was announced earlier also was completed as per the schedule. The group delivered a modernised pricing using real-time models to optimise new business conversion and implemented more detailed, active and a real-time advocacy and experience measures. It also launched Firemark labs in Sydney and Singapore to drive innovation. It continues to invest in workforce to build the skills and capabilities for the workforce of the future. Its FY 18 allowance of $627m took into account its 12.5% quota shares from 1 January 2018 and reserve releases were higher than originally expected outcome that is 2.8% of NEP and is expected around 3% in FY18. Meanwhile, IAG stock has risen 9.5% in six months as on February 13, 2018 and was up 3.2% on February 14, 2018. Trading at a higher level, we maintain a “Hold” recommendation on the stock at the current price of $7.50
 

Natural Perils Experience and Allowance (Source: Company Reports)
 

Aveo Group (ASX: AOG)

Business Improvement Initiatives: Last year, AOG announced a package of key initiatives that have now been largely implemented with some final steps to be taken by 30 June 2018. The package included better pre-contract disclosure, improved consumer offer, commitment to shorter and clearer contracts and improved complaint and incident handling procedures. As a member of leadership committee, Group continued to work on the Property Council of Australia’s Retirement Living Council on implementing eight resolutions that were adopted by its peak industry body aiming at raising standards in the industry. The retirement village operator has moved to implement a number of these resolutions unilaterally. On the other hand, the Group filed its defence in the class action in November 2017 by generally denying the lead applicant’s allegations and the group also obtained security for the costs of $185k for the first stage of the action and will be applying for further securities as the action proceeds. The proceeding is before the Federal Court for a status hearing in March 2018. In June 2018, the group will open $200m project at Aveo Newstand. Looking at the half year results, there was a lift in statutory profits from HY17 profit figure of $121.2m to $149.3m in HY18 and this was assisted by revaluation uplifts in the retirement portfolio and the sale of Gaswork. Retirement assets will compromise 95% of total divisional assets which was followed by the sale of Gasworks. However, underlying profit after tax dropped 33% to $36.3 million due to reduced sales volumes and funds from operations were down 39%. Nonetheless, there was an 8% rise in total assets. Despite the pitfalls, the stock rose 3.5% on February 14, 2018. Given the retirement industry trends, improved retirement sales volume in Q2 FY18, group’s potential and full year distribution guidance of 40%-60% of underlying profit, we maintain a “Buy” recommendation at the current price of $2.67
 
 
Retirement Earning Composition (Source: Company Reports)
 

Computershare Limited (ASX: CPU)

Enhancing Shareholders’ Return: With 14% rise in net profit of $171.2 million for the first half of FY18, Computershare is inching towards its 52-week high price. Given the strong 1H18 result and the outlook for 2H18, the Group expects Management EPS for FY18 in constant currency to increase by +12.5% on FY17 with a positive bias. This outlook assumes that equity markets will remain at its current levels and interest rate markets will also remain in line with current market expectations. Its Mortgage Services EBITDA was up by 72.1% on pcp basis and made a significant contribution to the Group’s EBITDA. Margin income also accelerated and was up by $11.8m and Net Debt to EBITDA continued to reduce to 1.58x after self-funding growth engines, strategic investments, share buy-back and increased dividends. Buy-back is expected to continue in March 18 while interim dividend was up by 11.8% as compared to the corresponding period in the prior year. Karvy sale is now expected to be completed in 2H18. Market share of IPOs was up by 10% over the recent periods and 1/3^rd of IPO customers buy multiple products. For the full year FY18, the US Federal corporate tax rate for Computershare is expected to be around 28% as compared to 35% in FY17, and this will fall to 21% in FY19. CPU lately appointed Ms Abi Cleland and Ms Lisa Gay as the independent directors. Both will stand for election at the Company’s next AGM to be held in November 2018. The stock price is up by 15.15% in the past six months and by 4.8% on February 14, 2018, and looks “Expensive” at the current market price of $17.29
 

NPAT Performance (Source: Company Reports)
 

CSL Limited (ASX: CSL)

Strong sales of core immunoglobin products: Up 5% on February 14, 2018, CSL’s focused execution of its strategic priorities delivered outstanding results in the first half especially considering the strength of the prior comparable period. CSL Limited announced a reported net profit after tax of $1,086 million for the six months ending 31 December 2017 which was up by 35% on a constant currency basis. EPS also grew by 36% or 32% on a constant currency basis on pcp. The Group successfully launched Haegarda, a transformational therapy for patients with Hereditary Angioedema (HAE) and it provides an unprecedented reduction in oedema attacks and significantly reduces the need for rescue medication. High demand for Idelvion continued and based on feedback from patients and healthcare providers it was clear that its next generation recombinant coagulation therapy which has now been launched in 13 countries is quickly becoming the new standard of care for Haemophilia B patients. Its Immunoglobulin products Hizentra and Privigen continued to deliver strong performance. Its emerging transplant franchise is developing well. It is expected that the CSL Group’s net profit after tax for FY18 is now expected to be in the range of approximately $1,550 to $1,660 million at constant currency. During the first half of FY18, CSL completed a US private placement raising approximately US$700 million for general corporate purposes as a part of the company’s overall capital management program. The share prices rose by 11.87% in the past six months and the stock is trading at high levels. We maintain an “Expensive” recommendation at the current price of $149.29
 

Financial Health (Source: Company Reports)
 

Domino’s Pizza Enterprises Limited (ASX: DMP)

Slipping on a reduced sales outlook: Slipping 6% on February 14, 2018, DMP reported that Australia/New Zealand same store sales growth for the full year has been reduced from 7 to 9% to 6 to 8% given the lower than expected first half sales. DMP reaffirmed its NPAT guidance in the region of +20% and menu innovation and operational improvements with contributed sales in all the markets and a higher half year earnings helped the Group. The Group reported NPAT of $62.9 million on revenue of $567.6m and after normalising for share buy-back costs, NPAT was 7.0% up on pcp. In November, Dominos highlighted at its AGM that profit growth would be appreciably lower in H1 due to the pcp’s exceptionally strong SSS growth in Australia/New Zealand and also some foreign exchange weakened in Japan and New Zealand. The company will pay shareholders an interim dividend of 58.1 cents (40% franked) which was up by +20% on the interim dividend paid in pcp and it will be paid in March 2018. Domino’s ANZ stores delivered revenue of $173.9m for H1FY18 and this was up by 15.8% on pcp. With this mixed bag of results and softer outlook, the stock looks “Expensive” at the current price of $46.50
 

Sales Performance (Source: Company Reports)
 

Goodman Group (ASX: GMG)

Stabilised Investment Opportunities: During the half year, the final proceeds from the sale of the first phase of GMG’s urban renewal have been received and these investment properties have been reflected as disposals in the current half year. The Group is now focused on the planning and rezoning of its future precincts and the potential pipeline of 35,000 apartments across the Australian portfolio has been maintained. On a net basis, the liability was $787.2 million at 31 December 2017 as compared to $693.8 million as on 30 June 2017 and other liabilities also increased by $433.8 million to $1,172.9 million due to an increase in loans from other members of Goodman Group. An interim distribution in respect of the half year ending 31 December 2017 was 13.75 cents per unit and amounted to $247.6 million but in 2016 it was 227.2 million. $1.9 billion in new bonds were issued which included US$850 million of 10.5 years and 20-year 144A/Reg S notes. Occupancy rates in the Group’s portfolio remained strong at 98%. Operating cash flow were slightly higher than the prior half year and the reduction in the net property income was offset by lower finance cost due to debt restructuring during half year. Given the outlook and trading performance, we give an “Expensive” recommendation at the current price of $8.03

Group Debt Profile (Source: Company Reports)
 

Orora Limited (ASX: ORA)

Investing in growth opportunities: ORA’s net profit after tax (NPAT) for the six months ended December 31, 2017, was $105.7 million and this was up by 14.8% on the prior corresponding period. Earning Per share and sales revenue were up by 14.7% and 6.2%, respectively. It delivered an 11.1% of an increase in EBIT recorded at $121.1 million. Both Australasian business groups, Fibre Packaging and Beverage delivered earnings growth despite of the flat economic conditions and higher input costs. Orora’s strong cash conversion combined with the strength of its balance sheet continued to provide the Company with capacity to invest in view of discipline in innovation, capital projects and acquisition of growth opportunities. In the December half, $93 million was invested in organic capital projects and innovation to drive a sustainable growth. The Group also signed a long-term power purchasing agreement with global renewable Pacific Hydro to supply wind-generated electricity for Orora’s South Australian (SA) operations which included the Gawler Glass facility; and in addition to the supply of renewable energy, the agreement also included innovative risk sharing terms to further protect Orora’s exposure to variable market prices in South Australia. However, the stock trades at higher levels and is “Expensive” at the current market price of $3.29

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