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Mid-Cap

Seven Cheap but Attractive Stocks under the Nose

September 18, 2015 | Team Kalkine
Seven Cheap but Attractive Stocks under the Nose

Australia and New Zealand Banking Group



Addressed concerns over its Asian Business Performance: Australia and New Zealand Banking Group (ASX: ANZ) is heavily focusing on its Asian business growth and launched a “super-regional strategy” program to build a solid presence in Asia as compared to its Australian peers. The global markets business income rose 6% yoy to $1.8 billion during the nine months ended on June 30 of fiscal year of 2015, while the customers for International and Institutional Banking improved 9% yoy, boosted by Asian business. Cross border payments represented over 25% of the institutional total customer revenues as of first half of 2015.  Management has also addressed the investors’ concerns over China growth, by reaffirming the China’s growth outlook over 7% to 7.5% per year. The bank managed to deliver a decent performance despite the CET1 ratio impact, wherein the group’s cash profit rose 4.3% yoy to $5.4 billion in the nine months ended on June 30 of fiscal year of 2015.

 
Provision charges and impaired assets (Source: Company Reports)

But, ANZ made efforts to maintain a stable Net Interest Margin during the third quarter of FY15 and even stabilized its trade and supply chain business margins. ANZ shares fell by 21.5% in last six months due to investors’ concerns on ANZ’s Asian business. But ANZ is trading at a cheaper valuation with an attractive P/E of 10.41x as compared to National Australia Bank Ltd. (ASX:NAB) P/E of 13x,  Commonwealth Bank of Australia (ASX:CBA) P/E of 14x and Westpac Banking Corp (ASX:WBC) P/E of 13x. The bank is also a strong dividend player, with a yield of 6.4%.


ANZ Daily Chart (Source: Thomson Reuters)

We remain bullish on the stock and reiterate our “BUY” recommendation at the current price of $28.4.

Woodside petroleum



Built reserves capabilities through acquisitions to offset pressure due to oil volatility: Woodside Petroleum Limited (ASX: WPL) net profit after tax dipped 39% year on year (yoy) to US$679 million, as the operating revenues fell 28% yoy to US$2.556 billion against prior corresponding period (pcp), impacted by falling oil prices as well as due to the planned turnaround work at Pluto and lower sales volumes. But, WPL has been building its reserves by purchasing interests in Wheatstone, Balnaves and Kitimat. Accordingly, Woodside improved its Proved (1P) Developed and Undeveloped reserves by 18.3% or by 191.8 MMboe, while the Proved plus Probable (2P) Developed and Undeveloped reserves increased by 260.9 MMboe or 19.5%. The Contingent resources (2C) posted a significant increase of 151% or by 2,632.0 MMboe. Meanwhile, quite recently, Oil Search declined Woodside Petroleum merger proposal wherein WPL wanted to build a world class portfolio at Papua New Guinea and Australia. On the other hand, The Browse Joint Venture members approved to enter the front-end engineering and design (FEED) phase for the proposed floating LNG development, which is a major parameter for making the final investment decision that is expected to be finished by second half of 2016.


WPL Daily Chart (Source: Thomson Reuters)

As a part of the Productivity program efforts, Woodside is targeting over $800 million of enduring benefits by the end of 2016. The recent stock correction placed the stock in an attractive valuation levels, with WPL P/E at 9.27x, which is cheap as compared to its peers like BHP Billiton Limited (BHP) having a P/E of 52.74x. Investors should also note that Woodside Petroleum has a strong dividend yield of 9.5%.
 


Solid development pipeline ahead (Source: Company Reports)

Based on the foregoing, we give a “BUY” recommendation to Woodside Petroleum at the current price of $29.69.

Lend Lease Group



Focusing on International Markets: Lend Lease Group (ASX: LLC) building international projects in Asia and America, with the pipeline achieving a record level of over $45 billion, wherein over 70% represent the urbanization projects. Construction backlog revenue surged 7% yoy to $17.3 billion, while the Funds under Management soared 31% yoy to $21.3 billion. The group’s stock fell over 17.7% in the last six months (as of Sep 17), as its Profit after tax fell to $618.6 million for the year ended on June 2015, against $822.9 million in pcp (PAT included sale contribution from the Bluewater Shopping Centre asset in the UK for $485.0 million). But the group’s outlook is positive, as its pre-sold residential revenues of $5.2 billion are estimated to generate earnings from FY18.
 

FY15 performance highlights (Source: Company Reports)

International markets would also support the stock, as it already has a circa of $8 billion of new major urban regeneration projects in Asia and the America. Having a relatively cheaper P/E of 12x, and a decent dividend yield of 4.1%, we give a “BUY” recommendation on the stock at the current price of $13.2.


LLC Daily Chart (Source: Thomson Reuters)

Flight Centre Travel Group Ltd



Outstanding TTV Growth: Flight Centre Travel Group Ltd (ASX: FLT) delivered a new TTV milestone across all of its 10 countries and regions. UK and Ireland, USA, South Africa and Singapore achieved record earnings before interest and tax during the period leading to >$100million overseas EBIT for the first time. FLT’s UK and Ireland TTV was GBP 1 billion for the first time, while USA TTV surged 18% yoy and contributed >$AUD2.5billion to the group’s top-line. InduAsia (which comprises India, Dubai (UAE), Greater China and Singapore), business delivered $870 million of TTV, with Singapore growing rapidly by TTV. Greater China business is also aggressively expanding through new brands, shops and websites plus landmark domestic ticketing licenses. Overall revenues improved by 6.8% yoy to $2.4 billion for the fiscal year of 2015, driven by significant total transaction value improvement by 9.7% yoy to $17.6 billion. Australia’s TTV surged to $9.6 billion in FY15, from $9.1 billion in the corresponding period of last year. Accordingly, the group’s statutory PBT rose 13.1% yoy to $254.8 million while statutory PAT surged 24% yoy to $256.6 million during the period. We believe FLT is well positioned to tap the huge potential market through its wide product ranges, omni-channel capabilities and brand diversity.

 
Performance by Region (Source: Company Reports)

On the short term perspective, leisure travel is picking up with increasing customer enquiries than expected. Gross margins in Flight Centre brand have also recovered while niche leisure brands performance is improving. FLT is trading with a P/E of 14.2x and has a strong dividend yield of 4.2%. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $36.8.


FLT Daily Chart (Source: Thomson Reuters)
 

SEEK Limited



Market Leader: SEEK Limited (ASX: SEK) SEK continues to maintain its market leadership position in Australia, with 32% of placements and a lead of 10x higher as compared to its nearest competitor. The total visits in Australia witnessed a CAGR increase of 22% to 35+million in FY15, from FY12. Mobile visits performed even better showing a CAGR of 47% during FY12 to FY15. The group’s fiscal year of 2015 revenues rose 20% yoy to $858.4 million. SEEK Limited’s improved Australia and New Zealand online employment businesses, Premium Talent Search promotion, and integration of JobsDB and JobStreet to Zhaopin in China have contributed to the overall revenue increase. The group owns market leaders in Brazil and Mexico that are achieving robust financial results whilst evolving their product and service offerings. However, SEEK’s conservative FY16 guidance have disappointed the investors, due to which the stock fell over 15.4% in last four weeks (as of Sep 17 close).
 

SEEK’s international presence (Source: Company Reports)

The group expects a revenue growth in 15% to 18% range while EBITDA is estimated to grow in the range of 5% to 8%. Therefore, the group is trading at a relatively cheaper valuation P/E of 20.61x as compared to its peers opening an attractive buying opportunity at the current price of $12.04 for investors seeking for high value stocks.


SEK Daily Chart (Source: Thomson Reuters)

Spotless Group



Ongoing client additions: Spotless Group Holdings Ltd (ASX:SPO) has been building a long term client base and has renewals of over $1,300 million per annum and approximately $350 million per annum of new contract wins. The group’s contracts have a combined average tenor of ~27 years, offering a long-term security to SPO’s revenue stream. The group completed Aladdin Laundry, International Linen Service and TechGuard Security acquisitions in the first half of fiscal 2015, and is acquiring Utility Services Group, and AE Smith. SPO delivered statutory revenues growth of 9.6% yoy to $2,872.9 million during the fiscal year of 2015, boosted by five acquisitions as well as organic growth. Spotless Group stock declined by 5% over the last three months on concerns over its funding abilities for its acquisitions. However, the recent full year FY15 results have been very positive and Spotless Group said that its fiscal year of 2016 results might be better than FY15 results, based on the market conditions.


Growing revenue and EBITDA base over the last three years (Source: Company Reports)

The group estimates an incremental annualized revenue of over $130 million from PPP projects which would achieve a full operational phase during FY16 and FY17. Therefore, the stock surged over 12.4% in last four weeks (as of sep 17) and we believe this upbeat on the stock would continue. Based on the foregoing, we recommend a “BUY” on SPO at current price of $2.09.
 

SPO Daily Chart (Source: Thomson Reuters)

Kathmandu holdings



Ongoing Briscoe Group takeover conflict: Kathmandu Holdings Ltd (ASX: KMD) had been urging its shareholders not to accept the takeover bid from Briscoe Group, leading to a correction of over 11.5% in just last four weeks (as of Sep 17 close). But Briscoe have 23.5 % of the shares in Kathmandu Holdings. On the other hand, KMD’s NPAT fell 115.8% yoy for the first half of 2015, even though the group improved its sales by 7% yoy to $179.4 million during the period. Higher weighting of clearance sales coupled with weaker trading during December and January months contributed to the decline. Consequently, the group’s shares have fallen over 23.3% in the last six months. But the group’s stock price have been improving by over 13.7% in the last three months and is trading at a cheaper P/E of 10.05x against its peers, and also have a decent dividend yield of 8.4%. Based on the foregoing, we give a “BUY” recommendation at the current stock price of $1.315.


KMD Daily Chart (Source: Thomson Reuters)

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