Suncorp Group Limited

SUN Details

Ended FY20 With Healthy Balance Sheet: Suncorp Group Limited (ASX: SUN) is a financial services company which offers insurance, banking and wealth products and services throughout Australia and New Zealand. The market capitalisation of the company stood at $11.22 billion as on 30^th September 2020. As per the recent quarterly rebalance of the S&P/ASX Indices, SUN has been removed from the S&P/ASX 20 Index, which became effective on 21^st September 2020. During the year ended 30 June 2020, the company reported a net profit after tax amounting to $913 million, which included profit after tax of $285 million from the sale of Capital SMART and ACM Parts businesses. In addition, the company reported cash earnings of $749 million, reflecting a fall of 32.8% year-over-year. This was impacted by one-off expenses, as well as provisioning for the COVID-19 impacts.

Despite the challenges presented by the ongoing COVID-19 pandemic, the company managed to maintain its financial flexibility throughout the period, which enabled the company to declare a final dividend amounting to 10 cents per share. In addition, the strength in the company’s balance sheet is reflected with an excess Common Equity Tier 1 capital of $823 million after adjusting for dividends.

Key Financials (Source: Company Reports)

Positive Outlook: The company seems well-capitalized to tap future business growth. The company’s future key priorities revolve around enhancing the performance of the core insurance and banking businesses, leveraging, and building upon data and digital assets and embracing regulatory changes. The company has scheduled to conduct its 2020 Annual General Meeting on 22^nd October 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: During FY20, the company implemented a conservative approach for capital management to maintain a strong position in a period full of heightened uncertainty. The stock price of SUN has corrected 5.70% and 4.88% in the past one and three months, respectively. As a result, the stock is inclined towards its 52-week low level of $7.300. On a technical analysis front, the stock price of SUN has a support level of ~$8.319 and a resistance level of ~$8.924. 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). For the purpose, we have taken peers such as Insurance Australia Group Ltd (ASX: IAG), Magellan Financial Group Ltd (ASX: MFG), Medibank Private Ltd (ASX: MPL) etc. Considering the robust balance sheet, decent returns to shareholders, conservative approach for capital management, and the current trading levels, we have given a “Buy” recommendation on the stock at the current market price of $8.450 per share, down by 3.649% on 30^th September 2020.

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

IGO Limited

IGO Details

Beginning of Commercial Production: 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 ~$2.55 billion as on 30^th September 2020. Recently, the company with its joint venture partner AngloGold Ashanti Australia announced commencement of the commercial production at the Boston Shaker Underground Mine. The company added that mining has now touched an annualized rate of 0.7 Mtpa, and it is likely to achieve the design production rate of 1.1 Mtpa by March 2021.

Financial Performance Supported by Nova: For the year ended 30^th June 2020, the production at Nova has exceeded the guidance for all metals while production at Tropicana was in line with the guidance. IGO reported revenue and other income of $892 million. Underlying EBITDA for the period amounted to $460 million at an improved margin of 52%. IGO witnessed a growth of 104% in the bottom-line (NPAT) to $155 million. The financial performance for the year was supported by the continued strength of the Nova Operation. In addition, Tropicana operation assisted IGO in generating strong free cash flow of $311 million.

Free Cash Flow (Source: Company Reports)

Guidance: The company is expecting production of Nickel in concentrate in the ambit of 27,000 to 29,000t and Copper in concentrate of between 11,000 to 12,500t at Nova operation in FY21. The company has scheduled to conduct its Annual Shareholders Meeting on 18^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: During FY20, the company maintained its focus on creating organic and inorganic growth opportunities. The company closed FY20 with a net cash position of $453 million, comprising cash and a debt balance of $510 million and $57 million, respectively. In addition, the stock of IGO is inclined towards its 52-week low level of $3.270. On a technical analysis front, the stock of IGO has a support level of ~$3.947 and a resistance level of ~$4.797.  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). Therefore, considering the decent financial performance, growth in free cash flow and strengthened cash position, we have given a “Buy” recommendation on the stock at the current market price of $4.160 per share, down by 3.48% on 30^th September 2020.

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

Iress Limited

IRE Details

Increase in Consideration for Acquisition of OVH: Iress Limited (ASX: IRE) is engaged in the provisioning of IT solutions to financial market participants and wealth managers. The market capitalisation of the company stood at $1.89 billion as on 30^th September 2020. Recently, the company has increased consideration for the acquisition of OneVue Holdings Limited (OVH), which was announced on 1^st June 2020. As per the change in consideration, now shareholders of OneValue would receive 43 cents per share as compared to the previous 40 cents per share for their holdings. In addition, on 7^th September 2020, Australian Competition and Consumer Commission (ACCC) confirmed it will not object the proposed. The acquisition would be financed via a portion of the funds from an equity raising comprised of a fully underwritten placement to raise $150 million, and a non-underwritten Share Purchase Plan for $20 million.

For the half-year ended 30^th June 2020, the company recorded revenue amounting to $270.7 million as against $241.8 million in 1H FY19, which was underpinned by growth in core markets and positive contribution from QuantHouse acquisition. Reported NPAT for the half-year amounted to $26.3 million against $30.4 million in 1H FY19. The Board of the company declared an interim dividend of 16 cents per share, franked at 35%.

Key Financials (Source: Company Reports)

Strategic Priorities: The strategic priorities of the company revolve around a continued focus on operational efficiency and quality, and targeted investment in data services, cloud technology and connectivity. In addition, the key growth drivers of the company include rising regulatory requirements, growth in business complexity and industry change, and demand for inter-connected software and services.

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 possess strong underlying fundamentals, including cash conversion of 134% and recurring revenue of around 90%. On a technical analysis front, the stock of IRE has a support level of ~$9.445 and a resistance level of ~$10.405. 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 lower double-digit (in percentage terms). For the purpose, we have taken peers such as Tyro Payments Ltd (ASX: TYR), EML Payments Ltd (ASX: EML), Bravura Solutions Ltd (ASX: BVS) etc. Hence, considering the acquisition of OneVue Holdings Limited, growth in financials, and strong fundamentals, we have given a “Buy” recommendation on the stock at the current market price of $9.570 per share, down by 2.247% on 30^th September 2020.

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

Monadelphous Group Limited

MND Details

Future Growth to be Supported by Winning of New Contracts: Monadelphous Group Limited (ASX: MND) is engaged in the provisioning of engineering services within Australia with a market capitalisation of $1 Bn as on 30^th September 2020. Recently, the company won construction and maintenance contracts of around $120 million in the resources sector, which include a contract to provide structural, mechanical, and electrical upgrades at the Newman Hub site in the Pilbara, Western Australia (WA) and a contract associated with the dewatering of surplus water at Jimblebar mine site in Newman, WA.

Decent Performance by Industrial and Maintenance Services Division: During FY20, the company recorded revenue amounting to $1.65 billion, driven by significant increase in shutdown and maintenance work in the resources sector during 1H FY20, and the commencement of numerous large resource construction projects. The maintenance and industrial Services division reported an annual revenue of $1.05 billion, reflecting a rise of 5.1% over FY19. Net profit after tax for the period stood at $36.5 million. During 2H FY20, the company experienced a significant impact on its earnings from the disruption caused by COVID-19, as well as disappointing levels of profitability in the Water Infrastructure business.

Key Financials (Source: Company Reports)

Outlook: The company is optimistic about the long-term outlook for renewable projects and maintenance services. MND is likely to conduct its Annual Shareholders Meeting on 24th 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: The company has resolved to pay a fully franked final dividend of 13 cents per share on 2^nd October 2020 taking the full-year dividend to 35 cents per share. In addition, the company managed to close FY20 with a strong balance sheet comprising a cash balance of $208.3 million despite challenging economic and operating conditions. On a technical analysis front, the stock of MND has a support level of ~$9.039 and a resistance level of ~$11.299. 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 lower double-digit (in percentage terms). For the purpose, we have taken peers such as Downer EDI Ltd (ASX: DOW), Boral Ltd (ASX: BLD), Fletcher Building Ltd (ASX: FBU) etc. Thus, considering the winning of contracts in the resources sector, strong balance sheet, and positive outlook, we have given a “Buy” recommendation on the stock at the current market price of $10.140 per share, down by 4.159% on 30^th September 2020.

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

Western Areas Limited

WSA Details

Metallurgical Results for Mt Alexander Project: Western Areas Limited (ASX: WSA) is engaged in the mining, processing, and sale of nickel sulphide concentrate. The company has announced decent results from metallurgical test work on nickel-copper sulphide mineralization from Mt Alexander Project. The company assessed if nickel and copper could be recovered into separate saleable concentrates by flotation process.

FY20 Highlights: During the year ended 30 June 2020, sales revenue amounted to $308.4 million, up from the prior-year revenue of $268.7 million. Average realized price of nickel increased to $9.42/lb. NPAT for FY20 was the highest in seven years and stood at $31.9 million. Nickel produced in concentrate stood at 20.9kt and nickel in concentrate sales came in at 19.9kt. Stronger nickel price and reliable performance from the Forrestania operations delivered a 51% increase in EBITDA and a 123% increase in NPAT. The company declared a fully franked final dividend of 1.0 cents per share which is payable on 9^th October 2020. The company’s balance sheet remained strong with a cash balance of $144.8m and no debt at the end of the period.  

Financial Highlights (Source: Company Reports)

Key Guidance: The company has provided guidance for FY21 wherein it expects to produce 19,000 to 21,000 tonnes of nickel at a cash cost of production in the range of $3.25/lb to $3.75/lb. The company also expects its capital and growth expenditure in between $7 million to $10 million for FY20.

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 undertook new offtake agreements and retained a flexible debt- free balance sheet. The stock is inclined towards its 52-weeks’ low level of $1.625, proffering a decent opportunity for accumulation. On a technical analysis front, the stock price of WSA has a support level of ~$2.01 and a resistance level of ~$2.39. 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 lower double-digit (in percentage terms). Considering the current trading levels,  decent performance in the past 6 months (+13.90%), and modest long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $2.050 per share , down by 3.756% on 30^th September 2020.

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

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