Rio Tinto Limited

RIO Details

Update on Share Option Plan: Rio Tinto Limited’s (ASX: RIO) stock edged down 0.751 per cent on August 10, 2018 following the ex-dividend date that was August 09, 2018. Recently, the group notified to ASX of its material dealings with Rio Tinto plc shares by PDMR/KMP and both the ASX and LSE of material dealings by PDMR/KMP in Rio Tinto Limited securities. In which, the following Persons discharging managerial responsibility (PDMR)/ Key Management Personnel (KMP) i.e., Salisbury and Christopher exercised their 3,335 options over shares at the price of AUD$ 33.45 per share and sold 2,397 shares at the price of AUD$ 76.175469 to fund the tax and social security liabilities arising on exercise and retained 938 shares. On the financial front, RoE substantially increased by 200 bps to 10.1 per cent in 1HFY18 as compared to the prior corresponding period (pcp). Its Quick ratio and current ratio came at 1.11x and 1.47x respectively in 1HFY18 which is broadly in line with pcp. However, the interim result was not very encouraging for the shareholders as there was an increase in capital expenditure to $2.4 billion while interim ordinary dividend was of $2.2 billion, equivalent to 127 US cents per share.


Rio Tinto Share Option Plan (SOP) (Source: Company Reports)

Group’s consolidated sales revenue of $19.9 billion was $0.6 billion higher than 2017 first half. The iron ore, bauxite and copper volumes along with higher prices for aluminium and copper were offset by lower iron ore prices and the divestment of Coal & Allied.  Meanwhile, the stock has fallen 7.02 per cent in the past three months as at August 09, 2018 and traded at close to 52-week high ($87.090). Hence, we maintain our “Expensive” recommendation on the stock at the current market price of $75.37.
 

RIO Daily Chart (Source: Thomson Reuters)
 

Telstra Corporation Limited

TLS Details

Transformation in Organisational Structure and Leadership Team: Telstra Corporation Limited (ASX: TLS) announced new topline organizational structural changes along with the Executive Leadership team effective from 1^st October 2018 with the objective of ensuring the simplification of its product mix portfolio and services built on new technology and removing duplication, hierarchy, and silos across the organization. These initiatives will improve operating efficiency and productivity across the entire business chain. By mid-next year, the group will be fully rolled out with its leading products and services in the market. To help deliver these changes, the group disclosed a new end-to-end products and technology division of Telstra which indicates that the company has a potentiality to ramp up in terms of product development and management. As per the release, there are 4 senior members who will leave the company this year, and these include Warwick Bray, Stephen Elop, Will Irving and Joe Pollard. In turn, Ms. Robyn Denholm will move to the new position of Chief Financial Officer (CFO) & Head of Strategy and she will continue to support the CEO to drive the overall strategy and ensure long-term shareholder value growth while Brendon Riley will become the CEO of Telstra InfraCo (an infrastructure division of the Group). Besides this, Michael Ebeid will join the company from 8 October 2018 to run the Enterprise team servicing Australian and international business and government customers with market-leading solutions and services. While Nikos Katinakis will join the company in mid of October this year. We expect that this top management structural changes will deliver market-leading innovation in networks and support the build-out of 5G and Internet of Things. 
 

Organisational structure (Source: Company Reports)

Meanwhile, the stock has fallen 13.23 per cent in the past three months as at August 09, 2018, owing to intense competition in the telco industry. However, the group’s initiative towards structural changes can drive profitability growth, hence we maintain our “Hold” recommendation on the stock at the current price of $ 2.840 as it is trading at reasonable PE level of 8.810x among its peer group.
 

TLS Daily Chart (Source: Thomson Reuters)
 

Suncorp Group Limited

SUN Details

Decent Outlook Ahead Backed by Strategic Investment: Suncorp Group Limited (ASX: SUN) has recently released its FY18 annual results wherein the group produced strong financial returns with a net profit after tax of $1,059 Mn after making important forward-looking investments during the year. NPAT from functions grew by 4.8 per cent in FY18 and amounted to $1,263 Mn as compared to the previous year. The reported NPAT was slightly down by 1.5 per cent in FY18 against FY17 due to one-off investment in the acceleration of the marketplace component of the strategy during the same period. However, we believe that these investments will support to deliver a further uplift in shareholder returns in FY19. Based on decent performance in FY18 (NPAT, up 8.0% Y-o-Y, excl. accelerated investment), the Board of Directors has declared a fully franked final ordinary dividend of 40 cents per share (cps) and a special dividend of 8 cps, bringing the total dividend of 48 cents per share and it will be payable on September 19, 2018 with the record date of August 16, 2018. This brings the total full-year dividend to 81 cents per share, up 11.0% on the prior year, equating to a payout ratio of 95.2% of cash earnings.


FY18 Financial Highlights (Source: Company Reports)

On other hand, the group has signed a non-binding Heads of Agreement with TAL Dai-ichi Life Australia for the sale of 100% of the Australian Life Insurance business for the total consideration of approximately $725 Mn. The legally binding sale documentation to be entered into between Suncorp and TAL is expected to be executed by the end of August 2018 and the completion of the Transaction is expected to occur by 31 December 2018, subject to the satisfaction of certain conditions and regulatory approvals in Australia and Japan. Meanwhile, the share price rose by 18.67 per cent in the past six months as at August 09, 2018 and currently trading close to 52-week high ($15.960). Hence, we maintain our “Hold” recommendation on the stock at the current market price of $15.630, as the company is paying regular dividends which reflects the sound financial health of the company and its strategic investment which will be a key catalyst for growth.
 

SUN Daily Chart (Source: Thomson Reuters)
 

QBE Insurance Group Limited

QBE Details

Agreed to Dispose its travel Business to nib Holdings: QBE Insurance Group Limited (ASX: QBE) has recently announced that nib holdings limited will acquire QBE’s travel insurance business as part of World Nomads Group expansion for the total consideration of up to $25 Mn. As per the deal, the acquisition includes the distribution and claims capability of QBE Travel but excludes capital supporting the business and the QBE brand. The objective of the aforesaid deal is to build a stronger and simpler business model which will help to focus on core businesses thereby generating better earnings ahead. On the financial front, the premium earned ratio significantly increased from 0.7% to 8.8% in FY17 as compared to the prior year. Expense ratio and loss ratio stood at 17.3% and 70.9%, respectively in FY17 while combined ratio recorded at 88.2% which is higher than the prior year. Further, the group expects property earnings to be at the high end of its guidance range of $55-$65 million of EBITDA for FY18. Meanwhile, the stock has risen 4.80 per cent in the past one month as at August 09, 2018 and trading over 52-week low ($9.280). Based on foregoing, we maintain our “Buy” recommendation on the stock at the current market price of $10.280.
 

QBE Daily Chart (Source: Thomson Reuters)

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