Seven big names with fully franked dividends and positive ROE

Insurance Australia Group Limited

IAG Details
Extends CTP quota share agreement: Insurance Australia Group Ltd (ASX: IAG) completed its off-market share buy-back amounting to 64 million shares (2.6% of ordinary issued capital). IAG had announced the $300 million off-market share buy-back as part of the capital management program. The group also recently extended the quota share agreement for a minimum of four-year period from 1^st July 2016, with an option for a further two years with Munich Re that covers 30% of IAG’s compulsory third party (CTP) business.

 
Mixed FY 16 Financial Performance (Source: Company Reports)
 
Despite pressure in net profit, the insurance profit grew 6.8% year on year (yoy) to $1.18 billion as compared to FY15. There was a modest GWP contraction, and the reported margin is of 14.3%. Moreover, IAG’s reported margin guidance for FY17 is 12.5-14.5%. Meanwhile, IAG stock rose over 4.4% in the last one month (as of October 17, 2016). We give a “Buy” recommendation on the stock at the current price of $ 5.57

 
IAG Daily Chart (Source: Thomson Reuters) 

Telstra Corporation Ltd

TLS Details
Despite share buyback plan, core business pressure continues: Telstra Corporation Ltd (ASX: TLS) has announced $1.5 billion of share buy back in the first half of FY17, comprising a $1.25 billion off-market share buy-back and a $250 million on-market share buy-back. In addition, TLS has reported a 6.3% growth in revenues to $28.3 billion in FY 16 and 36% growth in the net profit to $5.8 billion including $1.8 billion from sale of Autohome shares against FY 15. Moreover, MNF has secured the mobile virtual network operator (MVNO) deal with TLS. TLS has appointed an experienced director and former Accenture regional managing director Jane Hemstritch, 62, as a non-executive Director.
 

Limited top line FY 16 Financial Performance (Source: Company Reports)
 
On the other hand, given the saturated telecom market coupled with limited core business growth we believe the stock would continue to be under pressure. TLS stock fell 12.98% in last three months (as of October 17, 2016) and many headwinds are expected going forward. We thus give an “Expensive” recommendation on the stock at the current price of $ 5.03

 
TLS Daily Chart (Source: Thomson Reuters)

Wesfarmers Ltd

WES Details
Agreement with Woolworths for the additional sites: Wesfarmers Ltd’s (ASX: WES) Home consortium has signed the agreement with Woolworths for the acquisition of Masters Property portfolio consisting of small number of properties, which is subject to the consent of Lowe’s Companies, Inc. As per the agreement there are 6 freehold trading locations and 2 freehold development sites covered under the proposed acquisition.
 

Weak FY 16 Financial Performance (Source: Company Reports)
 
On the other hand, WES reported an 83.3% fall in the net profit after tax to $407 million in FY16 and we believe the group’s stock could further be under pressure. Moreover, the group’s FY16 operating cash flows declined 11.2% to $3,365 million due to the higher working capital investment. The group’s 2017 first quarter retail sales are due on October 26, 2016. We give an “Expensive” recommendation on this dividend yield stock at the current price of $ 45.38

 
WES Daily Chart (Source: Thomson Reuters) 

Woolworths Limited

WOW Details
End of the Licensing Agreement with Hills: Woolworths Limited (ASX: WOW) has planned to exit its Home Improvement Business, and for this, WOW has agreed to end the contract entered with Hills Limited in December 2014, under which certain Hills Home Living (HHL) brands were licensed to Woolworths for a period of seven years. WOW will pay an amount to Hills in settlement of all rights and obligations under the Licensing Agreement. Meanwhile, Notes II holders are entitled to be paid proceeds of $100 face value per Woolworths Note II, plus the final interest payment of $1.25523 per Woolworths Note II (which is the accumulated interest up to and including 23^rd November 2016). Recently, Caltex has confirmed interests in WOW’s fuel business. On the other side, the group has implemented the new operating model to further increase the accountability into the business. Meanwhile, WOW stock rose 10.48% in the last three months (as of October 17, 2016) and the company is having a decent dividend yield. We maintain a “Buy” recommendation on the stock at the current price of $ 24.25

 
WOW Daily Chart (Source: Thomson Reuters) 

Suncorp Group Ltd

SUN Details
Successfully priced A$330 million floating rate subordinated notes: Suncorp Group Ltd (ASX: SUN) through its wholly-owned subsidiary, AAI Limited has successfully priced an issue of A$330 million (aggregate principal amount) floating rate subordinated notes, which is an offering to institutional and wholesale investors.

 

FY 16 Financial Performance (Source: Company Reports)
 
There has been otherwise an increase in motor-insurance claims which looks little challenging. On the other hand, SUN has delivered a growth of 2.9% across the group despite a period of significant change for FY16. There is a positive top line momentum, particularly in motor at 2.9% and home at 1.8%. Bank lending has grown 4.5% while maintaining credit quality and margin, and the Life individual in?force business has increased by 6.4%. Trading at a decent dividend yield and a reasonable P/E, we give a “Buy” recommendation on the stock at the current price of $ 12.32

 
SUN Daily Chart (Source: Thomson Reuters)

Automotive Holdings Group Ltd

AHG Details
Boosting Capital position to fund acquisitions: Automotive Holdings Group Ltd (ASX: AHG) has successfully raised $90 million via placement and SPP, to raise up to $20 million to fund automotive acquisitions. In addition, AHG reported a 7.2% increase in revenues to $5.25 billion in FY 16 and the earnings per share grew 2.4% to 28.7 cents per share, but slower than operating profit primarily due to costs related to acquisitions and a few one-offs including impairment of assets.

 

FY 16 Financial Performance (Source: Company Reports)
 
On the other hand, the Transformation program’s core focus for Refrigerated Logistics business would drive efficiencies and synergy savings in FY2017. Moreover, AHG has finished the acquisition of the Mercedes Benz commercial vehicle dealership in Laverton, Victoria from Mercedes Benz Australia/Pacific Pty Ltd. The group aims to have its AGM on November 18, 2016. We give a “Buy” recommendation on the stock at the current price of $ 4.06
 

AHG Daily Chart (Source: Thomson Reuters) 

National Australia Bank Ltd

NAB Details
Focusing on the core business in the Australia and New Zealand: National Australia Bank Ltd (ASX: NAB) has completed the sale of 80% of its life insurance business to Nippon Life Insurance Company for $2.4 billion. This is an end of the company’s major divestments which would enable NAB to totally focus on the core business in the Australia and New Zealand. NAB is set to report results for the period ended 30 September 2016 on 27 October 2016.

 

Group Results (Source: Company Reports)
 
On the other hand, the branch rollout from the Personal Banking Origination Platform has now been finished in every state except New South Wales, which has recently started. NAB’s initiative, NAB Labs are supporting the small business sector including NAB QuickBiz loans, NAB Business Start-up and new digital marketplace Proquo in partnership with Telstra. NAB stock has an outstanding dividend yield and has recovered over 6.28% in the last three months (as of October 17, 2016). We give a “Buy” recommendation on the stock at the current price of $ 27.57

 
NAB Daily Chart (Source: Thomson Reuters)

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