Peet Limited

PPC Details
Diversified land bank but market conditions are expected to remain gloomy in some patches in FY17-18: Peet Limited (ASX: PPC) has a pipeline of 47,000 lots with an on-completion value of ~$11.8 billion with FM and JV projects accounting for ~80% of the group’s land bank and expects ~80% of total land bank to be in development by end of FY17. Although, the market conditions across Victoria, New South Wales/ACT and South Australia are expected to remain supportive; in Western Australia and Northern Territory, the conditions are expected to remain subdued through FY17-FY18. Further, continuing price growth across the Victorian and ACT/NSW portfolios, and an improved level of sales across Queensland portfolio augurs well for the recently launched Flagstone City and Redbank Plains projects as both these projects are expected to be strong contributors to the group’s earnings over the next decade.
 

Key performance metrics for H1FY17 (Source: Company Report)
 
Dip in lot sales and flat EBITDA Margin:PPC sales were noted to witness a decline by 10% year on year (yoy) to 1,488 lots while settlements increased by 10% yoy to 1,408 during H1FY17, with the strong east coast markets offsetting the continuing weak Western Australian and Northern Territory markets. At 31 December 2016, there were a record 2,450 contracts on hand with a gross value of $556.4 million against 2,426 contracts on hand at 30 June 2016 (with a gross value of $545.7 million) and these are expected to provide strong momentum into 2H17. PPC has sold an undeveloped englobo parcel in Rockbank, west of Melbourne for $30.5 million with settlement expected to occur in FY18. During H1FY17, PPC announced the establishment of two new wholesale funds, both involving the co-ownership of residential land development projects with Supalai Public Company (a real estate developer listed on the Thailand Stock Exchange). PPC’s revenue grew by 12% yoy to $153.1 million in the first half driven by favorable market conditions and new projects. EBITDA grew by 9% yoy to $44.0 million with higher contribution from eastern states’ projects (increased to 90% of EBITDA) and price growth in both Funds Management and Development projects in the Victorian portfolio. However, EBITDA margin was flat yoy at 29% due to increased settlements across VIC projects and expected to be weighted to 2H17. In the last six months, PPC stock has risen about 31.4% (as at April 24, 2017) and has been on a correction mode in last five days, and is also nearing its 52-week high price. PPC may also need to manage debt at a better rate looking at the operating cash flows compared to its overall-debt. Given the dented sentiment prevailing around the real-estate stocks and PPC’s trading scenario, we give a “Sell” recommendation at the current price of $ 1.23


PPC Daily Chart (Source: Thomson Reuters) 

Data#3 Limited

DTL Details
Transformation from a product centric model to a service centric model: Recently, Data#3 Limited (ASX: DTL) announced the successful deployment and adoption of a Hybrid Cloud solution, including Microsoft’s Public Cloud, within the Victoria State Emergency Service (VIC SES). Importantly, DTL was chosen as VIC SES’s preferred partner primarily due to its Microsoft capabilities and Azure expertise, as well as their experience in the Victorian Emergency Management landscape. VIC SES is the first emergency services organization in Australia to entrust their core infrastructure to a Cloud-based solution. The new platform enables VIC SES to be more agile and efficient in responding to critical incidents and emergencies, whether it’s bushfires, floods, storms, road rescues or search and rescue operations. DTL continues to develop and offer the combination of on-premises and cloud-based solutions for changing requirements by customers. Its robust business model with no material debt coupled with strategic transition from product centric to service centric will enable it to enhance shareholder returns.The company declared a fully franked interim dividend of 3.35 cents per share, which is 34% more than the H1FY16 dividend and in line with the profits.

H1FY17 performance: For H1FY17, DTL revenue grew by 10.6% yoy to $506.0 million with increased revenue from both product and services segments, and net profit after tax increased by 34.0% yoy to $5.7 million. Product revenue (hardware and software) grew by of 11.5% yoy to $413.9 million led by public cloud solutions (up 32.5% yoy to $53.3 million) and steady growth in other on-premises solutions (up 9.0% yoy to $360.7 million). While the total gross profit increased by 8.1% yoy to $74.0 million, gross margin declined by 40bps to 14.6% on account of changes in the sales mix. Gross margin % from products segment declined to 8.4% from 9.3%. Services revenue increased by 6.6% yoy to $91.3 million driven by consulting, professional services and recruitment revenues. The overall staff numbers remained steady and staff costs increased by 6.6% yoy to $54.8 million led by increase in average salaries in line with the industry and geographic expansion. In H1FY17, net cash outflow from operating activities stood at $74.0 million against $86.5 million in H1FY16, primarily due to a decline in inventories and the reversal of a slightly lower than temporary cash surplus at 30 June 2016. In last one year, the stock has moved up 80.8% (as at April 24, 2017) and is now close to its fair value. We give a “Sell” recommendation at the current price of $ 1.75


DTL Daily Chart (Source: Thomson Reuters) 

Seven Group Holdings Ltd

SVW Details
Strong Caterpillar earnings boosted the stock sentiment: Seven Group Holdings Ltd (ASX: SVW) stock enhanced over 10.8% on April 26, 2017 driven by strong earnings from Caterpillar Inc.(NYSE:CAT) and SVW is a key distributor of latter’s machinery. WesTrac Australia is the authorized Caterpillar dealer in Western Australia, New South Wales and the Australian Capital Territory while WesTrac China is the authorized dealer in China.Caterpillar Inc. (NYSE:CAT) enhanced their revenue outlook from $38 billion to $41 billion. On the other hand, underlying EBIT of $176 million for the half-year, up 5% on the prior comparative period and ahead of earlier expectations, was reported for SVW. The Group posted a statutory net loss of $41 million for the half after taking into account the noncash impairment of Seven West Media. With the current short term rise in the stock, SVW has moved close to its fair value (81.4% rise in one year as at April 24, 2017). We believe investors can take profits on the stock as we give a “Sell” recommendation at the current price of $ 11.31


SVW Daily Chart (Source: Thomson Reuters)

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