Australia And New Zealand Banking Group Limited

ANZ Details

Maintained Decent Capital Position: Australia And New Zealand Banking Group Limited (ASX: ANZ) is Australia’s leading bank that offers a range of personal banking and business financial solutions. As on 30 November 2020, ANZ’s market capitalisation stood at ~$65.58 billion. For the year ended 30^th September 2020, the bank recorded a statutory profit after tax amounting to $3.58 billion, reflecting a fall of 40% over pcp. In addition, cash profit from its continuing operations stood at $3.76 billion, indicating a decline of 42% as compared to the previous year. This decline in the profit was mainly because of full rear credit impairment charges of $2.74 billion. However, the capital position of the bank was strong and enhanced in the last quarter of FY20 with a Level 2 Common Equity Tier 1 capital ratio of 11.3%. As a result of capital strength and its underlying profitability, the bank declared a fully franked final dividend of 35 cents per share, which is payable on 16^th December 2020.

Key Financials (Source: Company Reports)

Outlook: The bank is well-positioned to respond to the opportunities which are emerging because of accelerated structural shifts in the economy. In addition, ANZ is optimistic about its future on the back of the positive actions undertaken by the governments in its key markets, mainly in Australia and New Zealand.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The banks possess an experienced and stable management team, a healthy balance sheet and prudent credit reserves, which may support in ensuring that it is able to support its customers. On a technical front, the stock of ANZ has a support level of ~$18.53 and a resistance level of ~$23.876. We have valued the stock using the price to book value multiple based illustrative relative valuation method and have arrived at a target price of low double-digit (in percentage terms). Therefore, considering the decent capital position, healthy balance sheet, opportunities in the future, we give a “Buy” recommendation on the stock at the current market price of $22.640 per share, down by 1.949% on 30^th November 2020.

ANZ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Suncorp Group Limited

SUN Details

Decision by NSW Court of Appeal: Suncorp Group Limited (ASX: SUN) is engaged in proving banking, insurance, wealth and other financial solutions to the retail, corporate and commercial sectors. The market capitalisation of the company stood at ~$13.03 billion as on 30^th November 2020. Recently, the company notified the market that the NSW Court of Appeal has given a decision on the Insurance Council of Australia’s (ICA) Business Interruption (BI) industry test case on behalf of insurers. The NSW Court of Appeal provided judgment in favour of policyholders, wherein, it stated that the certain policy exclusions referencing the “Quarantine Act and subsequent amendments” cannot be read as references to the Biosecurity Act and cannot be relied on in relation to COVID-19 BI claims.

Q1FY21 Result Highlights: During the quarter ended 30^th September 2020, the lending portfolio of Suncorp Bank contracted $336 million as a result of a fall of 1% in retail lending, which was partly offset by a rise of 1% in business lending. As on 30^th September 2020, Suncorp Bank reported net stable funding ratio (NSFR) and liquidity coverage ratio (LCR) of 130% and 147%, respectively, which indicates the SUN’s decent funding and liquidity position. During FY20, SUN reported net profit after tax of $913 million, which includes an after-tax profit of $285 million from the sale of the Capital SMART and ACM Parts businesses as well as the $89 million non-cash impairment charge relating to the core banking platform. The company also maintained a decent capital position with excess Common Equity Tier 1 capital of $823 million.

Financial Summary (Source: Company Reports)

Outlook: The company anticipates the impact of COVID-19 to be broadly neutral on its general Insurance portfolio in 1H FY21. In addition, SUN is focused on strengthening its insurance and banking customers and assisting them to pass through the COVID-19 crisis with a range of targeted measures.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Low risk and high-quality investment portfolio, decent levels of funding and liquidity place the company in a decent position to tap growth opportunities in FY21. On a technical analysis front, the stock of SUN has a support level of ~$8.383 and a resistance level of ~$10.326. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the said purposes, we have considered Insurance Australia Group Ltd (ASX: IAG), QBE Insurance Group Ltd (ASX: QBE), Medibank Private Ltd (ASX: MPL), etc., as peers. Thus, in light of the decent levels of funding and liquidity, strong capital position and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $10.090 per share, down by 0.885% on 30^th November 2020.

SUN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Downer EDI Limited

DOW Details

Sale of Blasting Business: Downer EDI Limited (ASX: DOW) is engaged in designing, building and sustaining assets, infrastructure and facilities. The market capitalisation of the company stood at ~$3.75 billion as on 30^th November 2020. Recently, the company reached an agreement with Enaex S.A for the divestment of its blasting services business. The sale price reflects an enterprise value of $62 million and sale is likely to be finished by the end of March 2021, which is subject to regulatory approvals and other customary conditions. On 20^th October 2020, the company stated that Link Alliance had secured a further two important contracts for Auckland’s City Rail Link project with a total value of NZ$825 million.

FY20 Result Highlights: During FY20, the company’s Urban Services businesses have performed well and helped the group in gaining leading market positions and attractive medium and long-term growth opportunities. The company recorded total revenue of $13.4 billion, which was in line with FY19. The company witnessed a loss amounting to $155.7 million.

Key Metrics (Source: Company Reports)

Outlook: Looking forward, the company anticipates demand for Transport and Utilities services to be strong. The company is also focused on finishing significant refinancing and establishment of new facilities to enhance liquidity and reduce short-term debt maturities.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $588.5 million. In the past one month, the stock has provided a return of 14.58%. On a technical analysis front, the stock of DOW has a support level of ~$4.036 and a resistance level of ~$5.992. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the said purposes, we have considered Monadelphous Group Ltd (ASX: MND), CIMIC Group Ltd (ASX: CIM), NRW Holdings Ltd (ASX: NWH), etc., as peers. Hence, considering the new contracts, decent performance by Urban Services businesses, and modest outlook, we give a “Buy” recommendation on the stock at the current market price of $5.200 per share, down by 2.986% on 30^th November 2020.

DOW Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Iress Limited

IRE Details

Acquisition on OneVue: Iress Limited (ASX: IRE) is involved in the provisioning of IT solutions to financial market participants and wealth managers. On 6^th November 2020, the company finished the acquisition of OneVue Holdings Limited for which the company entered into a Scheme Implementation Agreement on 1^st June 2020. The acquisition is likely to support the company is strengthening the administration of managed funds, superannuation and investment, along with its position in technology and data.

Growth in Topline: During Q3 FY20, the company witnessed a rise of 3% (YoY) in operating revenue to $133.8 million, which was supported by strong performance in APAC and Mortgages. Segment profit for the quarter amounted to $37.2 million as compared to $36.4 in Q3 FY19. The company’s NPAT for Q3FY20 stood at $14.6 million.

Key Metrics (Source: Company Reports)

Outlook: During Q4 FY20, the company is expecting to report increased revenue momentum and improved profitability. In addition, the company would also be benefited from additional cost savings. The company is scheduled to release its FY20 results on 20^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: At the end of half-year 2020, the cash balance of the company stood at $100.0 million as compared to $29.2 million in 1H FY19. On a technical analysis front, the stock of IRE has a support level of ~$9.408 and a resistance level of ~$10.708. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). For the said purposes, we have considered Link Administration Holdings Ltd (ASX: LNK), Codan Ltd (ASX: CDA), TechnologyOne Ltd (ASX: TNE), etc., as peers. Thus, considering the decent performance in Q3FY20, acquisition of OneVue, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $10.410 per share, down by 1.978% on 30^th November 2020.

IRE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

OceanaGold Corporation

OGC Details

Net Zero Emissions by 2050: OceanaGold Corporation (ASX: OGC) is a gold exploration company with a market capitalisation of ~$1.26 billion as on 30^th November 2020. In a recent release related to climate change, the company stated that it is targeting to achieve net zero emissions from its operations by 2050. This would be achieved through the execution of four key strategic areas such as improved energy efficiency and energy reduction; decarbonisation of electrical energy supply; decarbonisation of mobile equipment fuel; and carbon sequestration.

Q3 FY20 Financial Highlights: For the quarter ended 30^th September 2020, the company recorded gold production of 63.1koz, which was lower than expected because of delayed access to higher grade zones at Haile, partially offset by stronger production from Macraes. The company reported revenue and EBITDA for the quarter of US$97.9 million and US$13.5 million.

Key Financials (Source: Company Reports)

Guidance: For FY20, the company forecast to achieve low-end production guidance of 295,000 to 345,000 consolidated ounces at AISC of $1,150 to $1,250 per ounce sold. The company is scheduled to release Q4 FY20 results on 18^th February 2021.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company ended September 2020 quarter with cash and immediately available liquidity of US$127.0 million and net debt of US$187.0 million. The stock is currently inclined towards its 52-weeks low price of $1.455, offering a decent opportunity for accumulation. On a technical analysis front, the stock of OGC has a support level of ~$1.527 and an immediate resistance level of ~$4.303. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). Hence, considering the decent production from Macreas, FY20 production guidance, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the current market price of $1.730 per share, down by 3.622% on 30^th November 2020.

OGC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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