Telstra Corporation Limited
TLS Details
This report is an updated version of the report published on 31 May 2022 at ~3:55 PM GMT
Appointment of CFO: Telstra Corporation Limited (ASX: TLS) is engaged in the provisioning of telecommunications and information services, including mobiles, internet, and pay television. As announced on 2 May 2022, the company has appointed Michael Ackland as Chief Financial Officer and Group Executive Strategy & Finance, which will be effective from 1 September 2022.
1HFY22 Highlights: The below picture gives an overview of the company’s performance in 1HFY22:
Financial Summary (Source: Analysis by Kalkine Group)
Key Risks: The company’s business is exposed to risks arising from the rising market share of peers, regulatory uncertainties, and loss of subscribers.
Outlook: For FY22, the company anticipates total income in the range of $21.6 -$23.6 billion and underlying EBITDA of between $7.0-$7.3 billion. In addition, the company has planned capex in the ambit of $2.8-$3.0 billion for FY22.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of TLS has a 52-week low-high range of $3.445 - $4.310, respectively. The stock has been corrected by ~2.97% in the past month. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at some discount to its peers, considering the COVID-19 Uncertainties and falling earnings, etc. For valuation, a few peers like Spark New Zealand Ltd (ASX: SPK), TPG Telecom Ltd (ASX: TPG), and Uniti Group Ltd (ASX: UWL) have been considered. Considering the expected upside in valuation, addition of new subscribers, optimistic outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $3.900 as of 31 May 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.
Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
TLS Daily Technical Chart, Data Source: REFINITIV
Netwealth Group Limited
NWL Details
Insights of Q3FY22: Netwealth Group Limited (ASX: NWL) provides financial services to financial intermediaries and investors. The below picture showcases an overview of the company’s performance in Q3FY22:
Financial Summary (Source: Analysis by Kalkine Group)
Key Risks: The company is exposed to risks arising from the change in the policies by the authorities. NWL’s performance could be impacted by the heightened volatility in the market.
Outlook: The company recorded net inflows of $790 million, which were slightly below expectations. However, NWL anticipates seasonally strong inflows for May and June 2022. The company has revised its net inflow guidance to $13 billion for FY22
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of NWL is trading below its 52-week low-high average of $11.865 - $18.250, respectively. The stock has been corrected by ~6.40% in the past three months. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the investment market volatility and other material business risks, etc. For valuation, a few peers like Pinnacle Investment Management Group Ltd (ASX: PNI), Hub24 Ltd (ASX: HUB), Magellan Financial Group Ltd (ASX: MFG), and others have been considered. Considering the expected upside in valuation, decent fundamentals, rising market share, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $13.160, as of 31 May 2022, 10:50 AM (GMT+10), Sydney, Eastern Australia.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
NWL Daily Technical Chart, Data Source: REFINITIV
BAPCOR LIMITED
BAP Details
Business Update: Bapcor Limited (ASX: BAP) operates in TRBC – Auto & Truck Parts Wholesale sector by focusing on the distribution of automotive equipment, accessories, vehicle parts, services, and solutions. As on 19th May 2022, Perpetual Limited increased its holding from 8.56% to 9.66% and become the largest shareholder in the company.
Business Analysis:
- In H1FY22, the largest revenue growth was clocked by Bapcor Specialist Wholesale, which came in at 7.4%, while the lowest was by Bapcor Retail, which was -5.4% relative to H1FY21.
- BAP reports a solid start in FY22 after absorbing the prolonged impact of lockdown showing the resilience of BAP business model and its exposure to non-discretionary purchasing.
- In 1HFY22, the company also successfully refinanced $270m 3-year debt facilities.
Growth Analysis, (Source: Analysis by Kalkine Group)
Key Risks: The company faces certain risks from the pandemic as it leads to restrictions on its business activities. Additionally, it faces risk from increased competition and from existing players that could have an adverse impact on the company’s financial performance and industry positioning.
Outlook: BAP regularly reported better results by recording growth on a YOY basis. The company reported 26% CAGR in revenue, 18% CAGR in EPS, 15% CAGR in dividends, and 34% CAGR in EBITDA from FY14 till FY21. Management of BAP focuses on a similar business strategy where the aim is to drive expansion in network footprint, but management emphasis increasing the pace of execution. The company will report the full-year results on 19th October 2022, as the company plans AGM on this date.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock is currently trading below its average 52-week low-high level of $5.960-$8.600, offering a decent opportunity for accumulation. The stock has been down by ~8.96% in the past one month. The stock has been valued using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a discount to its peers, considering the competition in the industry, risk from a pandemic, and disruption of the supply chain. For the purpose of this valuation, a few peers like ARB Corp Ltd (ASX: ARB), National Tyre & Wheel ltd (ASX: NTD), Supply Network Ltd (ASX: SNL), and others have been considered. Considering the upside trading valuation, positive compounded annual growth rate, successful business strategy, and improved margins, we recommend a ‘Buy’ rating on the stock at the current market price $6.110, as of 31st May 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.
Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
BAP Daily Technical Chart, Data Source: REFINITIV
Fletcher Building Limited
FBU Details
Recent Material Updates: Headquartered in New Zealand (NZ), Fletcher Building Limited (ASX: FBU) is a manufacturer of building products used in commercial and residential markets. It also develops residential and commercial land holdings in NZ and Australia.
Key Latest Results: FBU posted EBIT of ~$264 million in Q2FY22, up by ~73% on Q2FY21 as the markets recovered from COVID-19 restrictions. EBIT margin improved to ~11.8% in Q2FY22 vs ~7.9% in Q2FY21, depicting robust momentum in 1HFY22.
Comparative Net Operating Cashflows; (Analysis by Kalkine Group)
Key Risks: FBU faces the risk of COVID-19 lockdowns in Australia and New Zealand, inventory building investments, risk of inflation, and macro headwinds.
Outlook:
- FBU plans to conduct an investor day on 22 June 2022.
- For New Zealand, FBU has a committed project pipeline depicting growth across Infrastructure & Commercial sectors beyond FY23.
- FBU targets operational and margin improvements beyond FY23. Construction is expected to benefit from a higher margin order book.
- FBU is well placed to leverage macro trends and will continue to solidify the current pipeline of growth opportunities.
- FBU aims for ~$750 million in EBIT in FY22 (vs ~$669 million in CY21) and ~9.5% EBIT margin in 2HFY22.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of FBU gave a negative return of ~21.75% in the past three months. The stock is currently close to its 52-weeks’ low level of $4.93. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/Sales multiple, considering the risk of forex changes, the continuing COVID-19 impact on the supply chains, and higher freight & other input costs. For this purpose of valuation, a few peers like NRW Holdings Ltd (ASX: NWH), Reece Ltd (ASX: REH), Adbri Ltd (ASX: ABC), and others have been considered. Considering the current trading levels, robust market conditions in Australia & New Zealand, continuous product innovation in Australia, investment in increased manufacturing capacity in New Zealand materials and distribution divisions, plans for a higher EBIT in FY22, an indicative upside in valuation, we give a ‘Buy’ rating on the stock at the current market price of $4.945, as of 31 May 2022, 3:28 PM (GMT+10), Sydney, Eastern Australia.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
FBU Daily Technical Chart, Data Source: REFINITIV
BCI Minerals Limited
BCI Details
Elevated Price Levels Continue in Q3FY22 (ended 31 March 2022): BCI Minerals Limited (ASX: BCI) operates a ~100% Mardie salt & potash project on the Pilbara coast in Western Australia.
- The salt and sulphate of potash (SOP) prices have increased substantially since April 2021. The salt market has been robust through Q1FY22 and has witnessed a downstream demand for PVC (from chlorine) and alumina (from caustic soda) products.
- The company’s EBITDA from valley, depicts the headline of 62% iron (Fe) ore prices averaged US$141/tonne in Q3FY22 versus US$109/tonne in Q2FY22. Iron valley EBITDA for the quarter stood at ~$3.5 million, from ~1.0 Mt shipment reported in Q3FY22.
Comparative Cash Position; (Analysis by Kalkine Group)
Key Risks: The company faces the risk of regulatory delays, a tight labour market scenario, rising equipment and fuel costs, supply chain issues due to the COVID-19 situation, etc.
Outlook: BCI continues to expedite the Mardie project's ongoing operational and site construction activities. During Q3FY22, BCI signed a few non-binding salt offtake terms sheets and plans to advance them to binding offtake contracts in 2022 (later). BCI continues to target the commercial production of salt in FY24 and sulphate of potash (SOP) in FY26.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Source: Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: The stock of BCI gave a negative return of ~23.71% in the past six and nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.345 - $0.615. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering continuing negative net margins, negative ROE, and an expected increase in the Mardie project cost & timelines. For this purpose of valuation, a few peers like Champion Iron Ltd (ASX: CIA), BHP Group Ltd (ASX: BHP), Fortescue Metals Group Ltd (ASX: FMG), and others have been considered. Considering the current trading levels, robust pricing of salt and SOP, accelerated commissioning activities on the Mardie project, offtake term sheets entered in Q3FY22, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.365, as of 31 May 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
BCI Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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