Origin Energy Limited
.JPG)
ORG Details
Impacted by impairment charges in FY17: Origin Energy Limited (ASX: ORG) witnessed a stock price surge of 5.4% on August 16, 2017 while the group posted a FY17 statutory loss of $2.22 billion, driven by an impairment charge (post tax) of $3.1 billion. However, Underlying EBITDA increased $834 million or 49% yoy to $2.53 billion, led by an improvement in the electricity and gas portfolios, the ramp up of LNG earnings and commencement of production at the Halladale/Speculant field. Underlying Profit of $550 million increased by $185 million or 51% yoy due to higher Underlying EBITDA. Accordingly, net cash flow from operating and investing activities (NCOIA) increased by 13% to $1.38 billion.
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Financial performance; (Source: Company reports)
Integrated Gas Underlying EBITDA increased by $718 million to $1.1 billion. However, it was offset by an increase in interest, tax, depreciation and amortisation and the recognition of financing costs associated with the funding of Origin’s investment in Australia Pacific LNG. Production increased by 40% due to the ramp up of operations at Australia Pacific LNG and the commencement of production at Halladale/Speculant in the Otway Basin. Moreover, Australia Pacific LNG production increased by 46% as Train 2 came online, and the operational phase of a 90-day two train Lenders’ Test was completed. Notably, Australia Pacific LNG continues to meet export commitments and plays a major a role in supplying gas to Australia’s east coast, where it meets approximately 20% of annual demand.
Outlook and Stock Recommendation: Energy Markets Underlying EBITDA for FY2018 is expected to be $1.7 billion to $1.8 billion, representing a 14 to 21% increase on FY2017, while, integrated Gas is expected to achieve production of 245 to 265 PJ in FY2018, reflecting an increase of 7 to 16% on FY2017. Earnings contribution from Lattice Energy is expected to be driven by production of 76 to 86 PJ for FY2018. Debt reduction remains a key priority and Origin is targeting adjusted net debt of below $7 billion by the end of FY2018, pending the divestment of Lattice Energy. Given the ongoing developments and long-term prospects of the company, we maintain a “Buy” recommendation on the stock at the current price of $ 7.22
Aveo Group
.JPG)
AOG Details
Robust results driven by Retirement Established Business: Shares of Aveo Group (ASX: AOG) zoomed 11.1% post the strong results announcement on August 16, 2017. For the year to 30 June 2017 (FY17), Aveo Group recorded an underlying profit after tax of $108.4 million, up 22% on FY16, driven by a lift in earnings from both its Retirement Established Business and its development activities with 266 new retirement units delivered during the year. Aveo recorded sales of 1,242 retirement units in FY17, up from 799 in FY16. Statutory profit after tax increased by 118% yoy to $252.8 million, and earnings per stapled security (EPS) on underlying profit after tax and non-controlling interest grew by 11% to 18.9 cents, despite the impact of the additional equity raised to fund the RVG and Freedom acquisitions. Moreover, funds from operations (FFO) of $163.9 million ($141.3 million in FY16), were largely driven by lower capitalised interest included in cost of goods sold and higher income tax expense.
Moreover, focus on asset improvement was reflected in high numbers of unit buyback purchases, refurbishments, and subsequent buyback sales. The expansion of innovative Freedom product offering continued in FY17, driven by resident demand for increased levels of care services. Notably, revenues from Aveo’s Retirement Established Business increased 37% in FY17 to $204.1 million and profit contribution increased 26% to $73.8 million, driven by a combination of higher volumes and higher sales prices. Sales volumes increased 37% to 1,008 units, whilst the average transaction price point increased 25% to $358,000. An improved performance in the legacy Aveo business was supplemented by additional contributions from the RVG and Freedom assets.
Stock Recommendation: The company expects 7.9% increase in EPS at 20.4 cents per security (cps) for FY18, while being on track to achieve its FY18 retirement return on asset target of 7.5% - 8.0%. The stock has declined 26.4% over the past three months on account of negative media investigation into its operational practices. However, given the strong operating performance and improved business environment, we give a “Buy” recommendation on the stock at the current market price of $ 2.70
Vita Group Limited
.JPG)
VTG Details
Changes to the terms of Master Licence Agreement:Recently, Vita Group Ltd (ASX: VTG) had concluded negotiations with strategic partner, Telstra (ASX: TLS), and agreed some changes to the terms of its Master Licence Agreement relating to tenure, remuneration and an immediate expansion of allowable store footprint, aimed at delivering long-term benefits for both parties. The tenure of the agreement has been extended to 30 June 2023, with rolling annual extensions after this date. However, this is subject to annual review, which will include Vita’s performance against key metrics, and a minimum of three-year’s notice is to be provided by either party, if they wish to cease the agreement at the relevant expiry date. Following discussions, Telstra has confirmed that it is comfortable with the model of remuneration applicable for FY18, reflecting changes made up to and including 1 July 2017. Further, it also clarified that it has made no specific decisions about any remuneration changes beyond FY18. Whilst Telstra retains the right to amend remuneration up or down to reflect changing market conditions and product lifecycle changes, the current remuneration model balances prevailing industry conditions with the economic health of the licensee channel. On retail store footprint, both the parties agreed on expansion in the allowable number of stores Vita can own and operate to 110. Effective from 1 July 2019, Vita has agreed to forego some legacy remuneration components, amounting to approximately 7 – 8% of retail remuneration, which will be partly offset by a further expansion to 115 stores from the date. As currently applies, all movements in and out of the footprint are subject to Telstra approval.
Stock Recommendation: The stock has tumbled 48.5% in the past six months, owing to the impact of remuneration reductions and uncertainty about the negotiations. However, the latest developments are in the positive direction for Vita group and offer an upside for the stock. VTG stock rose about 9% on August 16, 2017. We maintain a “Hold” recommendation on the stock at the current price of $ 1.91
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