Top 4 ASX listed Stocks in terms of Market Capitalisation – BHP, CBA, CSL and WBC

Stocks’ Details
 

BHP Billiton Limited

Maximizing cash flow: BHP Billiton Limited (ASX: BHP) delivered US$12.5 billion of free cash flow driven by rising prices and volumes, coupled with annual production records at nine operations across iron ore, coal, copper and petroleum. The group expects productivity gains of over US$1 billion for the 2019 financial year. The group reported a final dividend of 63 US cps, while ROCE was up to 14.4%, while it is exiting Onshore US assets. The final dividend of 63.0 US cents per share includes a further amount of 17 US cents per share which is above the 50% minimum payout policy (equivalent to US$0.9 billion). Maintaining a simplified portfolio has been a part of BHP’s strategy, which helps the management to focus on their growth portfolio. BHP stock rallied over 10.2% in this year to date (as of August 24, 2018) and we believe the bullish momentum would continue in the coming months.

The group’s free cash flow has also enhanced significantly in the last six months as at June 2018 at $12.6 bn and sales to receivables ratio for profitability return scenario has been positive at 14.71x as at Jun 2018 above the previous quarter’s mark of about 11x.

Trading at about 4.8% dividend yield, we maintain a “Hold” recommendation on the stock at the current price of $33.080 which is expected to have an upside in single digits given PE and EPS scenario with development work at hand.


Simplified portfolio (Source: Company reports)
 

Commonwealth Bank of Australia

Facing regulatory pressure: Commonwealth Bank of Australia (ASX: CBA) has been facing regulatory pressure with Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian Government’s financial intelligence agency, alleging contraventions of four provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). The group made an agreement with AUSTRAC and incurred a civil penalty of $700 million, along with AUSTRAC’s legal costs. But this pressure impacted their 2018 financial performance with Cash net profit after tax (NPAT) falling to $9233 million in FY18 against $9696 million in FY17. Their ROE fell to 14.1% in 2018 from 15.7% in 2017. Nonetheless, this is still a decent performance despite the magnitude of issues. On the other hand, the group has been making efforts to revamp their client’s faith on them. The bank believes that Matt Comyn who was appointed as the CEO, would add the mix of attributes and values needed to lead the Bank. They reported a full year dividend to $4.31 per share, fully franked, which is a rise of 2 cents against the last year. The group’s free cash flow has been in the positive zone as at June 2018. Its profitability to return ratio has been positive with EBITDA by common share equity maintained over 30% in the past quarters since 2014.

However, CBA stock lost over 11.6% in this year to date (as of August 24, 2018) and we maintain our “Buy” recommendation at the current price of $71.190 as the group can witness an upside in single digits with its strategic moves.
 

FY18 financial performance (Source: Company Reports)
 

CSL Limited

Higher levels:CSL Limited (ASX: CSL) reported an outstanding FY18 performance with lG sales rising 11% as IDELVION exceeded forecast, and Specialty Products’ sales rising 24%. Influenza vaccine sales surged 53% while  FLUCELVAX® quadrupled and FLUAD® sales were up 142%. The group got PRIVIGEN® approved for CIDP in US while HIZENTRA® got approved for CIDP in US & EU. They made Calimmune acquisition and Vitaeris collaboration. For FY19, the group sees an ongoing demand for plasma and recombinant products while CSL’s collections growth was expected to outpace the market but supply remains a limiting factor. Their Seqirus is tracking as per plan while the group intends to  incur capital expenditure of FY19 of over $1.2 - $1.3 billion. With this, the stock can witness a double digit upside as per the consensus estimates while it has positive free cash flow despite high investments. On the other hand, CSL stock surged over 59.7% in this year to date (as of August 24, 2018) placing the stock at higher levels and we believe that the stock is still “Expensive” at the current price of $ 224.800.
 

CSL Behring Sales FY18 (Source: Company reports)
 

Westpac Banking Corp

Strong dividend yield: Westpac Banking Corp’s (ASX: WBC) stock lost over 6.4% in the last four weeks (as of August 24, 2018) on investors’ concern over the margins. For the third quarter of 2018, the net interest margin during the June quarter 2018 was 2.06% as compared to 2.17% in First Half 2018 (1H18). The 11bp fall is on the back of the rising funding costs coupled with a lower contribution from the Group’s Treasury. The group earlier reported that every 5bp movement in BBSW would hurt their margins by around 1bp. Mortgage 90+ day delinquencies in Australia rose 3bps over the three months ended June 2018 with most States recording some increase. On the other hand, the Group has maintained strong liquidity metrics with the Net stable funding ratio of 112% while the Liquidity coverage ratio reached 127%. The Group had raised $31bn in term wholesale funding at an average duration of over 6 years for the 10 months to 31 July 2018. The recent stock fall placed them at attractive levels with the stock trading at a lower P/E and having a solid 6.8% dividend yield. The group’s free cash flow has also enhanced significantly in the last six months as at March 2018 at $7.2 bn.

We rate a “Buy” on WBC at the current price of $ 27.760 as the group is expected to witness a single digit growth.
 
 

Comparative EPS Chart (Source: Thomson Reuters)

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