Telstra Corporation Limited

TLS Details

Bond Issue of $500 Million: Telstra Corporation Limited (ASX: TLS) is a leading provider of telecommunication and information services. The market capitalisation of the company stood at ~$40.2 billion as on 31^st July 2020. Recently, the company notified the market that it is likely to make a non-cash impairment and write-down the carrying value of its 35% stake in Foxtel. Also, the company is expecting to recognise an impairment charge of around $300 million in its FY20 results against its investment in Foxtel. In another update, the company announced that it has issued bonds amounting to €500 million and the company would utilise the funds for general corporate purposes, which include pre-funding of future debt maturities. During 1H FY20, the company’s total income and NPAT witnessed a fall of 2.8% and 6.4% to $13.4 billion and $1.2 billion, respectively, on a reported basis. During the half-year, the company’s financial performance was in-line with the guidance provided to the market. Moreover, T22 strategy of TLS assisted in building value and delivering a positive financial momentum during 1H FY20.

Key Financials (Source: Company Reports)

Guidance: For FY20, the company expects total income in the ambit of $25.3 billion to $27.3 billion and underlying EBITDA to be between $7.4 billion to $7.9 billion. The company is scheduled to release its FY20 earnings on 13^th August 2020. TLS will conduct its 2020 Annual General Meeting on 13^th October 2020.

Key Risks: The company is exposed to material business risk, which includes privacy and cyber security risk as well as the rising competition from its peers. In addition, TLS’s business is also sensitive to financial risks such as interest rate risk, foreign currency risk, credit risk and liquidity risk.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Net margin of the company stood at 9.5% in 1H FY20 as compared to the industry median of 7.0%. This indicates that the company possesses decent capabilities to convert its top-line into the bottom-line. Over the span of five years, the company has maintained a positive free cash flow, which indicates prudent use of working capital. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Vocus Group Ltd (ASX: VOC), and Macquarie Telecom Group Ltd (ASX: MAQ), Uniti Group Ltd (ASX: UWL) to name a few. Therefore, considering the decent growth in T22 strategy, positive financial momentum, and prudent use of working capital, we give a “Buy” recommendation on the stock at the current market price of $3.350 per share, down by 0.888% on 31^st July 2020.

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

IGO Limited

IGO Details         

Production of June 2020 Quarter Exceeded Guidance Range: IGO Limited (ASX: IGO) is mainly engaged in mining and processing of nickel, copper and cobalt at Nova Operation. The market capitalisation of the company stood at ~$2.76 billion as on 31^st July 2020. For the quarter ended 30^th June 2020, the company reported production of nickel, copper and cobalt of 7,181t, 3,210t and 277t, respectively, at nova operation. This took FY20 production of nickel, copper, and cobalt to 30,436t, 13,772t and 1,142t, respectively. Resultantly, the production at nova has surpassed guidance for all metals. At Tropicana operation, the company reported gold production of 102,007 ounces for the quarter and 463,118 ounces for FY20, which stood within the guidance range. Due to higher Nova payable metal sold and stronger base metal prices, the revenue and other income of the company surged by 23% to $230.6 million on QoQ basis.

Key Financials (Source: Company Reports)

Production Guidance: For FY21, the company expects to produce nickel in concentrate within the range of 27,000t to 29,000t, while copper in concentrate of between 11,000t to 12,500t at nova operation. Also, the gold production at Tropicana is likely to be in between 380koz to 430koz. On 27^th August 2020, the company will release its FY20 results to the market.

Key Risks: The company is mainly exposed to economic, environmental, and social sustainability risks. Moreover, the business is also sensitive to any change in market supply and demand for products.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As at 30^th June 2020, the company had a cash balance of $510.3 million, up 10% on the previous quarter, while the debt balance stood at $57.1 million. Debt to equity of the company stood at 0.05x in 1H FY20 as compared to the industry median of 0.16x. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as OZ Minerals Ltd (ASX: OZL), and Western Areas Ltd (ASX: WSA), and Lynas Corporation Ltd (ASX: LYC). Therefore, considering the decent production growth from Nova operations, improved cash balance and deleveraged balance sheet, we give a “Buy” recommendation on the stock at the current market price of $4.600 per share, down by 1.709% on 31^st July 2020.

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

Service Stream Limited

SSM Details

Resignation and Appointment of Company Secretary: Service Stream Limited (ASX: SSM) provides essential network services, including access, design, building, installation, and maintenance. The market capitalisation of the company stood at ~$769.13 million as on 31^st July 2020. Recently, the company announced that Vicki Letcher has tendered his resignation from the role of Company Secretary, which became effective on 29^th July 2020. However, the company has appointed Mr. Chris Chapman as the Company Secretary, who was performing the role of additional Company Secretary since February 2019. During the COVID-19 crisis, the demand for its services was strong. However, the business experienced various negative impacts associated with increased costs related to the safe delivery of field-based operations as well as the delayed beginning of individual minor projects. The below picture gives an overview of financial performance for 1H FY20:

Key Metrics (Source: Company Reports)

EBITDA Guidance: For FY20, the company expects to report EBITDA from operations of around $108 million. The company will release its FY20 results on 19^th August 2020, and will conduct its 2020 Annual General Meeting on 22^nd October 2020.

Key Risks: SSM’s business is mainly exposed to credit risk, which arises from the default of counterparties on their contractual obligations, which may create financial losses to the group. The company is also exposed to other financial risks, such as interest rate and liquidity risk.

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: Gross margin and EBITDA margin of the company stood at 94.1% and 11.6% in 1H FY20 against the industry median of 14.3% and 6.4%, respectively. The stock of SSM is inclined towards its 52-week low levels of $1.535, offering a decent opportunity for accumulation.  We have valued the stock using EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of lower double digit-upside (in % terms). For the purpose, we have taken peers such as Vocus Group Ltd (ASX: VOC), and Telstra Corporation Ltd (ASX: TLS), SmartGroup Corporation Ltd (ASX: SIQ) to name few. Hence, considering the strong demand for services despite COVID-19, decent key margins and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $1.795 per share, down by 4.755% on 31^st July 2020.

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

Austal Limited

ASB Details

Funding from the US Government: Austal Limited (ASX: ASB) is engaged in designing, manufacturing, and support of high-performance vessels for commercial and defence customers globally. The market capitalisation of the company stood at ~$1.22 billion as on 31^st July 2020. Recently, the company announced that joint venture between Austal and Jianglong Shipbuilding (Aulong Shipbuilding) has delivered the largest and fastest aluminium passenger ferry to Beihai Ennova Cruise Co. Ltd. On 9^th July 2020, the company notified the market that Austal Philippines has started construction of a newly designed 115- metre vehicle-passenger catamaran for Danish ferry operator Molslinjen. In another update, ASB announced that the United States Government, Department of Defense would invest US$50 million in Austal USA. Austal will utilise these funds to commence investment in the development of additional capacity for steel naval vessel construction at the Mobile shipyard. The below picture provides an overview of financial performance for 1H FY20:

1H FY20 Financial Performance (Source: Company Reports)

Guidance: For FY20, the company expects revenue of around $2.0 billion and an EBIT of at least $125 million. The company anticipates US shipbuilding EBIT margin in the range of 7.5% – 8.5%.

Key Risks: The company is exposed to market risk, which arises from the change in interest rates and foreign exchange rates. This can affect the earnings, cash flows and carrying values of its financial statements.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: Current ratio of the company stood at 1.90x in 1H FY20, reflecting YoY growth of 14.2%. This indicates that the company has improved its position to address its short-term obligations. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Monadelphous Group Ltd (ASX: MND), and Incitec Pivot Ltd (ASX: IPL), ARB Corp Ltd (ASX: ARB) to name few. Thus, in light of the funding by the US Government, improved liquidity position and guidance, we give a “Buy” recommendation on the stock at the current market price of $3.300 per share, down by 3.226% on 31^st July 2020.

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

CLINUVEL Pharmaceuticals Limited

CUV Details

Growth in Cash Reserves: CLINUVEL Pharmaceuticals Limited (ASX: CUV) is mainly focused on developing and delivering treatments for patients with a range of severe genetic, skin, and vascular disorders. The market capitalisation of the company stood at ~$1.11 billion as on 31^st July 2020. In the month of April 2020, the company commenced the distribution of SCENESSE® in the USA. The company continued the expansion of its SCENESSE® supply in Europe. During the quarter ended 30^th June 2020, the company reported cash receipts of $10,403,000, which are related to the supply of SCENESSE® to erythropoietic protoporphyria. At the end of June 2020 quarter, the company had a cash balance of $66.74 million.

Growth in Cash and Cash Equivalents (Source: Company Reports)

Growth Aspects: The company is well-positioned to deliver on its potential by aiming new medical indications, delivering new products, and pursuing opportunities to grow the operations globally.

Key Risks: The company is sensitive to material business, which includes technology, supply, and drug pricing. These business risks may affect the achievement of the business goals of the company.

Stock Recommendation: Current ratio of the company stood at 15.38 in 1H FY20 as compared to the industry median of 4.58x. This indicates that the company is well-placed to pay its short-term obligations. The stock of CUV has corrected 12.67% and 16.79% within the past one and six months, respectively. As a result, the stock is inclined towards its 52-week low levels of $12.920. Thus, considering the expansion of SCENESSE® supply in Europe, decent liquidity position, and current trading level, we give a “Buy” recommendation on the stock at the current market price of $22.040 per share, down by 1.607% on 31^st July 2020.

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

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