Telstra Corporation Limited

TLS Details

Ended FY20 with Good Momentum: Telstra Corporation Limited (ASX: TLS) is involved in the provisioning of telecommunication and information services. The market capitalisation of the company stood at ~$31.99 Bn as on 30^th October 2020. Recently, the company notified of some changes in its Group Executive roles, wherein it stated that Michael Ebeid would be leaving the company to take up other business interests and would be replaced by David Burns. TLS ended FY20 with good momentum and growing confidence in its ability to deliver its strategic ambitions. During FY20 the company added 240,000 retail postpaid mobile services, which include 154,000 from Belong. Total income for the year went down by 5.9% to $26.2 billion, and reported EBITDA stood at $8.9 billion. In the same time span, NPAT amounted to $1.8 billion, reflecting a fall of 14.4%.

Key Financials (Source: Company Reports)

Guidance: For FY21, the company is expecting total income in the range of $23.2 to $25.1 billion and an underlying EBITDA of between $6.5 to $7.0 billion. The company is likely to conduct its investor day on 11^th November 2020.

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

EV/Sales 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 FY20 with a healthy balance sheet comprising A-band credit ratings and net assets of $15,147 million. In the past three months, the stock has corrected 18.60%. As a result, the stock is inclined towards its 52-week low level of $2.660. On a technical analysis front, the stock of TLS has a support level of ~$2.617 and a resistance level of ~$2.903. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Vocus Group Ltd (ASX: VOC), Spark New Zealand Ltd (ASX: SPK) Macquarie Telecom Group Ltd (ASX: MAQ), etc. Thus, in light of the healthy balance sheet, significant investments and guidance, we give a “Buy” recommendation on the stock at the current market price of $2.680 per share, down by 0.372% on 30^th October 2020.

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

IGO Limited

IGO Details

Decent Production at Nova: IGO Limited (ASX: IGO) is a nickel, gold, and copper-zinc-silver mining, development, and exploration company. The market capitalisation of the company stood at ~$2.57 Bn as on 30^th October 2020. IGO started FY21 with strong operational and financial performance in Q1 FY21. At Nova operations, the company experienced a decent QoQ growth in production for all metals. In addition, higher prices of nickel during September 2020 quarter supported Nova operation to generate free cash of $91 million. During Q1 FY21, the gold production at Tropicana stood at 107,060oz, reflecting a rise of 5% as compared to the prior quarter. In addition, revenue for the quarter was mainly in line with the previous quarter at $226.6 million. Moreover, the rise in revenue receipts at Nova and Tropicana has resulted in a growth of 29% in total cash from operating activities to $109.6 million.

Key Financials (Source: Company Reports)

Guidance: With respect to Nova, the company is expecting production of nickel and copper in the range of 6,750t to 7,250t and 2,750t to 3,125t, respectively in FY21. In addition, gold production at Tropicana is expected to be between 95,000oz to 107,500oz at an AISC of A$1,730/oz to A$1,860/oz. The company has scheduled to conduct its Annual Shareholders Meeting on 18^th November 2020 and would release its 1H FY21 results on 29 January 2021.

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

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

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

Stock Recommendation: During Q1 FY21, the company paid a final dividend of $0.05 per share and completed debt repayment of $57.1 million. As a result, IGO finished Q1 FY21 with a cash balance of $508.5 million and zero debt. On a technical analysis front, the stock of IGO has a support level of ~$4.069 and a resistance level of ~$4.53. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Iluka Resources Ltd (ASX: ILU), Mineral Resources Ltd (ASX: MIN), Regis Resources Ltd (ASX: RRL), etc. Therefore, considering the growth in production, nil debt, and outlook, we give a “Buy” recommendation on the stock at the current market price of $4.440 per share, up by 1.834% on 30^th October 2020.

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

Monadelphous Group Limited

MND Details

Winning of Contracts: Monadelphous Group Limited (ASX: MND) provides large-scale multi-disciplinary project management and construction services. Recently, the company announced that it has won several construction and maintenance contracts having the value of around $120 million resources sector. Under it WAIO Asset Panel Framework Agreement with BHP, the company secured a contract to provide structural, mechanical and electrical upgrades at the Newman Hub site in the Pilbara, Western Australia In addition, the company has also been given a contract for surplus water at Jimblebar mine site in Newman, Western Australia.

FY20 Financial Highlights: During FY20, MND reported revenue of $1.65 billion, reflecting a rise of 2.6% over pcp. In addition, the Maintenance, and Industrial Services division of MND recorded annual revenue growth of 5.1% to $1.05 billion. This was mainly due to the strong demand for maintenance, shutdown and sustaining capital services within the resources sector, mainly 1HFY20. The company declared a fully franked final dividend of 13 cents per share, which brought the full-year dividend to 35 cents per share.

Revenue Breakout (Source: Company Reports)

Outlook: Going forward, the company seems to be well-placed to capitalise on the upcoming opportunities and challenges. In addition, the company is focused on increasing its earnings by maximising returns from its core markets, building its infrastructure business and delivering core services to overseas markets. MND has scheduled to conduct its Annual Shareholders Meeting on 23^rd November 2020.

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

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

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

Stock Recommendation: During FY20, the company witnessed decent cash flow from operations and settled the year with a growth of 27% in cash balance to $208 million. On a technical analysis front, the stock of MND has a support level of ~$8.393 and a resistance level of ~$11.322. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Downer EDI Ltd (ASX: DOW), CIMIC Group Ltd (ASX: CIM), NRW Holdings Ltd (ASX: NWH), etc. Thus, considering the recent winning of contracts, growth in topline and increased cash position, we give a “Buy” recommendation on the stock at the current market price of $9.140 per share, down by 4.593% on 30^th October 2020.

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

Bravura Solutions Limited

BVS Details

Signing of Agreement with Aware Super: Bravura Solutions Limited (ASX: BVS) provides software products and services to clients operating in the wealth management and funds administration industries. Recently, the company announced that it has inked a long-term contract with Aware Super for the execution of an ecosystem of Bravura products, supported by Sonata Alta. Previously, BVS announced the acquisition of Delta Financial Systems (Delta) (UK based company,) for a total consideration of up to GBP23.0 million. This acquisition would bolster core Sonata offering of BVS and may expand its growing ecosystem of products and services. This acquisition would be financed from existing cash reserves and would be EPS accretive in FY21.

During FY20, BVS recorded revenue amounting to $274.2 million, indicating a rise of 6% over FY19 and EBITDA for the period amounted to $57.8 million, up by 19%. In addition, NPAT for the year amounted to $40.1 million, which soared by 22% over pcp. The robust growth across the product suite has supported improvement in financials.

Financial Summary (Source: Company Reports)

Outlook: For FY21, the company anticipates NPAT to be significantly weighted to the 2H FY21 due to the increased uncertainty as a result of stalling Brexit negotiations and slowing the progress of pipeline opportunities in the UK. In addition, the company would continue to enhance its strategic relationships with existing clients with a focus on regulatory changes and product developments. The company has scheduled to conduct its 2020 Annual General Meeting on 24^th November 2020.

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: Going forward, the company continues to assess a pipeline of additional acquisitive and organic growth opportunities. As on 30^th June 2020, the cash balance of the company stood at $99.1 million. On a technical analysis front, the stock of BVS has a support level of ~$2.479 and a resistance level of ~$3.759. 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). For the purpose, we have taken peers such as Hansen Technologies Ltd (ASX: HSN), TechnologyOne Ltd (ASX: TNE), and Iress Ltd (ASX: IRE), etc. Therefore, considering the signing of long-term contact, acquisition of Delts and decent financials, we give a “Buy” recommendation on the stock at the current market price of $2.930 per share, down by 2.007% on 30^th October 2020.

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

Downer EDI Limited

DOW Details

Decent Growth in Urban Services Businesses: Downer EDI Limited (ASX: DOW) provides integrated services in Australia and New Zealand. On 7^th October 2020, the company stated that it has finished the compulsory acquisition process and acquired the remaining shares in Spotless Group Holdings Limited. The company has been recently awarded two important contracts worth NZ$825 million for Auckland’s City Rail Link project. During the year ended 30^th June 2020, the Urban services business of the company showcased decent performance, supported by strong demand for the Group’s road, rail, power, gas, water, health, education, defence and government services company. Total revenue for the year amounted to $13.4 billion, which is in line with FY19. Group Underlying EBIT stood at $344.7 million, down 29.7% on pcp.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company is focused on developing solutions to decrease its energy consumption and GHG emissions. The company is likely to conduct its Annual General Meeting on 5^th November 2020.

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

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

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: In the month of July 2020, the company launched a $400 million equity raising to provide flexibility for continued investment in its core businesses. In addition, the company enjoys a strong liquidity position which may support DOW in meeting any further market volatility. On the technical analysis front, the stock price of DOW has an immediate support level of ~$3.954 and a resistance level of ~$5.428.  We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Thus, considering the decent performance in Urban businesses, strong liquidity position and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $4.400 per share, down by 1.346% on 30^th October 2020.

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

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