Stocks’ Details

IPH Limited

Acquisition of Xenith IP Led to Improved Business Prospect: IPH Limited (ASX: IPH) operates in IP services related to the provision of filing, prosecution, enforcement and management of patents, designs, trademarks and other IP in Australia, New Zealand, Asia and other countries.

FY19 Financial Highlights for the period ended 30 June 2019:IPH declared its FY19 results wherein, the reported revenue of $259.5 million increased by 15% on y-o-y basis, driven by the impact of organic growth, acquisitions, sale of Practice Insight businesses and also the impact of a weaker Australian dollar compared to the prior year. Statutory EBITDA came in at $85.9 million, increased by 23% on y-o-y basis. Underlying EBITDA stood at $89.7 million, up 21% from FY18, driven by the inclusion of an interim dividend of $576k, which came from the investment in Xenith IP Group. The company reported PAT at $53.11 million as compared to $40.673 million in FY18. The Asian business reported strong growth in the second half as compared to FY18. The company reported cash and cash equivalents at $35.263 million, total assets at $414.896 million and net assets at $284.750 million as on 30 June 2019. During the year, the company successfully sold Filing Analytics, Citation Eagle and DMS products. The business reported a decrease in Intangibles due to the disposal of goodwill and other intangibles relating to the sale of Practice Insight products.

 

FY19 Financial Highlights (Source: Company Reports)

Outlook:As per the FY20 guidance, the company will be looking for Successful Xenith IP integration, followed by WiseTime growth in sales. The company will be focusing on maintaining a market-leading position in Australia and New Zealand and continued margin expansion. As per the Management guidance, the company will be focusing on potential overseas acquisitions in secondary IP markets.

Stock Recommendation:The stock of IPH is quoting at $8.200, with a market capitalization of ~$1.67 billion. The stock has given returns of -10.87% and 17.48% in the last three-months and six-months, respectively. The stock is trading near the upper band of its 52-weeks trading range of $4.85 to $9.570. IPH Limited will be focusing on maintaining market-leading position in Australia and New Zealand and continued margin expansion. Successful integration of Xenith is expected to provide high-quality people into the IPH Group. The business has delivered EBITDA margin of 33.1% in FY19 as compared to 31.2% in FY18. Net margin, during the year, stood at 21% as compared to 18.3% in FY18. Considering the stock price movement, business prospects, successful integration of Xenith, current trading levels and improved margins, we recommend a ‘Buy’ rating on the stock at the current market price of $8.200, up 5.263% as on 22 November 2019, taking cues from the AGM 2019.
 

Reliance Worldwide Corporation Limited

Reported Net Sales for FY19 Improved By 43%:Reliance Worldwide Corporation Limited (ASX: RWC) is involved in designing, manufacturing and supplying high quality, reliable and premium branded water flow, control and monitoring products, and solutions for the plumbing and heating industry. Recently, a substantial holder of the company, AustralianSuper Pty Ltd, increased its stake from 8.38% to 10.90%, effective from November 7, 2019.Earlier, Bennelong Australian Equity Partners Ltd, a substantial holder in the company decreased its stake from 13.7934% to 11.1551%, effective from November 6, 2019. On November 6, 2019, the company announced the appointment of Christine Bartlett as an independent non-executive director. Christine is currently a Non-Executive Director of Mirvac Group, Sigma Healthcare Limited, TAL and icare. She is the Chairman of The Smith Family and a member of the UNSW Australian School of Business Advisory Council, Chief Executive Women and the Australian Institute of Company Directors.

FY19 Key Highlights for the period ended June 30, 2019:Reported net sales for the period increased by 43% to $1,104.0 Mn, which includes the first full-year contribution from the John Guest business. Core RWC net sales (excluding John Guest) increased by 5% to $782.9 Mn. John guest net sales for the period increased by 8% to $321.1 Mn, which excludes the impact of forex movements and the planned lower sales to the automotive sector. Reported net profit after tax for the period increased by 102% to $133 Mn.


FY19 Key Metrics (Source: Company Reports)

FY20 Outlook:The company expects to achieve better sales growth above that of the broader markets in which it operates. It aims at continuing this growth via a combination of acquisitions, market share gains, conversion of end users from traditional methods to RWC’s products and systems, distribution expansion, price and commercialisation of new products. Realised margin expansion in FY2020 is expected to be partly offset by investment in new product development and commercialisation.NPAT for FY2020 has been estimated to be in the range of $150 Mn to $165 Mn, and EBITDA to be in the range of $280 Mn to $305 Mn.

Stock Recommendation:RWC’s share generated a negative YTD return of 9.91%. Its gross margin, EBITDA margin and net margin for FY19 stood at 42.2%, 22.0% and 12%, better than the FY18 result of 41.2%, 17.6% and 8.8%, respectively, implying an improvement in the company’s fundamentals. Its ROE for FY19 stood at 9.7%, better than the FY18 result of 8.8%. Its debt to equity ratio for FY19 stood at 0.35x, lower than the FY18 result of 0.50x. Hence, considering decent FY19 results, optimistic FY20 guidance, improving profitability margins and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $4.000, up 1.781% on November 22, 2019.
 

Air New Zealand Limited

Traffic Volumes for Sep Qtr Improved Over Previous Qtr:World-class airline, Air New Zealand Limited (ASX: AIZ), has its strategic focus within the Pacific Rim. Its network expands from New Zealand to Australia, the Pacific Islands, Asia, North and South America and the United Kingdom.

Key Highlights of September’19 Quarter:The company appointed Greg Foran as the airline’s next Chief Executive Officer, effective from the first quarter of 2020. Greg is currently President and Chief Executive Officer of Walmart U.S. He is responsible for the strategic direction and performance of the company’s 4,600 stores and more than 1 million staff.

 

September’19 Quarter Traffic Data (Source: Company Reports)

What to Expect:AIZ has announced the signing of contracts for the airline’s multi-billion-dollar investment to purchase eight Boeing 787-10 Dreamliner aircraft. The aircraft will be powered by GE Aviation’s GEnx-1B engines.The airline first announced its intention to enter into contracts with both Boeing and GE Aviation on 27 May 2019. The first new aircraft is expected to join the Air New Zealand fleet in late 2022, with the remainder to be delivered at intervals through to 2027. Moreover, it is introducing a new, more spacious Economy product on its widebody fleet from late 2020, offering customers extra legroom and perks on long-haul flights. The company currently has 51 aircrafts, operating 320 flights per day to regional centres and is evaluating the demand outlook on the affected Jetstar routes.

Stock Recommendation:AIZ’s share generated a negative YTD return of 9.93%. Its gross margin and net margin for FY19 stood at 49.7% and 4.7%, better than the industry median of 39.7% and 4.2%, respectively. ROE for FY19 stood at 12.7%, better than the industry median of 5.2%. Currently, the stock is trading close to the average of 52-week high and low levels of $3.150 and $2.170, respectively. Hence, considering the improvement in traffic, recent developments and current trading levels, we have a wait and watch stance on the stock at the current market price of $2.630, up 1.154% on November 22, 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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