Top Ten Picks for September 2016

 
Australia and New Zealand Banking Group Ltd


ANZ Details

Boosting capital position: Australia and New Zealand Banking Group Ltd (ASX: ANZ) has allocated $1.3 billion under ANZ Capital Notes 4 Bookbuild and the Margin is set at 4.7% per annum. However, the final size of the Offer would be determined after the Reinvestment Offer and the ANZ Securityholder Offer. ANZ would use the proceeds to refinance CPS2 and for general corporate purposes.
 

Details of ANZ Capital Notes 4 (Source: Company Reports)
 
APRA has confirmed that the Notes would constitute an additional Tier 1 Capital for the purposes of ANZ’s regulatory capital requirements. ANZ stock rose over 11.6% in the last six months (as of August 31, 2016), and still the bank is having a solid dividend yield while trading at a very low P/E as compared to its peers. Accordingly, we give a “Buy” recommendation on the stock at the current price of $27.06
 

ANZ Daily Chart (Source: Thomson Reuters)
 
National Australia Bank Ltd


NAB Details

Growth initiatives: National Australia Bank Ltd (ASX: NAB) reported a 3% fall in unaudited cash earnings for continuing operations to about $1.6 billion for the third quarter of 2016 as compared to the corresponding period of 2015. The revenue is flat for the quarter despite growth in lending due to a lower net interest margin. The group’s NIM, excluding the impact of Markets and Treasury, was slightly lower due to higher funding costs. Moreover, NAB had higher funding costs during the quarter as the bank did not pass-on all of the most recent RBA interest rate cut to home loan borrowers. On the other hand, the bank’s asset quality remains strong while the group’s cost control measures are on track. Additionally, the branch rollout from the Personal Banking Origination Platform has now been completed in every state except New South Wales, which recently started. NAB’s initiative, NAB Labs is supporting the small business sector including NAB QuickBiz loans, NAB Business Start-up and new digital marketplace Proquo in partnership with Telstra. The bank has recently updated its domestic debt issuance programme. Having a solid dividend yield, we maintain our “Buy” recommendation on the stock at the current price of $27.43
 

NAB Daily Chart (Source: Thomson Reuters)
 
Freelancer Ltd


FLN Details

Positive operating EBITDA in 1H 2016:Freelancer Ltd (ASX: FLN) has reported a 56% increase in the net revenue to $26.2 million in the 1H 2016 as the Gross Payment Volume grew 453% to $354.9 million on pcp. FLN has achieved positive operating EBITDA of $0.1 million.
 

1H 16 Financial Performance (Source: Company Reports)
 
Moreover, FLN is focusing on an increased investment in talent and on repositioning the newly acquired Escrow.com business for growth. The group has acquired Escrow Angel and its automotive brand Protecti. With a promising prospect ahead for the business, we give a “Buy” recommendation on the stock at the current price of $1.50
 

FLN Daily Chart (Source: Thomson Reuters)
 
Xero Ltd


XRO Details

Rising subscribers base and global revenue: Xero Ltd (ASX: XRO) is growing with the addition of 242,000 new subscribers in FY16 versus 222,000 for the year to September 2015. At this current rate, XRO should exceed 1 million global subscribers in the next year. Moreover, XRO in FY 16 has reported operating revenues of $207.1 million, which is an increase of 67% on FY15.
 

Subscription Growth (Source: Company Reports)
 
The global revenue grew 95% in international markets on year-on-year basis and 57% growth in Australia and New Zealand. Moreover, with the increase in subscription, XRO can add roughly NZ$100 million of annualized revenue. XRO’s annualized committed monthly revenue is $257.9 million, which is an increase of 62% on year-on-year basis. Given such solid results, XRO stock has risen 38.76% in the last six months (as of August 31, 2016). We believe there is more momentum left in the stock, and accordingly we give a “Buy” recommendation on the stock at the current price of $19.03
 

XRO Daily Chart (Source: Thomson Reuters)
 
Village Roadshow Ltd


VRL Details

Growth initiative for all the divisions in FY 16: Village Roadshow Ltd (ASX: VRL) posted FY 16 results with the attributable net profit after tax before material items and discontinued operations of $50.9 million, which is a marginal increase over $50.1 million of FY15. The earnings before interest, tax, depreciation and amortization, excluding material items and discontinued operations is of $168.8 million, up 1.8% from $165.7 million in FY15.
 

Earnings Metrics for FY 16 (Source: Company Reports)
 
Moreover, in FY 16 results VRL has reported growth for fifth consecutive year of the Cinema Exhibition division, growth from the Gold Coast Theme Parks and the inclusion of approximately six months of Opia in the Marketing Solutions division. These results have offset disappointment at Wet’n’Wild Sydney and the Film Distribution division. Meanwhile, the stock has a solid dividend yield and is trading at attractive levels. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $4.61
 

VRL Daily Chart (Source: Thomson Reuters)
 
Woolworths Limited


WOW Details

Investment efforts would start paying off: Woolworths Limited (ASX: WOW) has reported its first annual net loss of A$1.2 billion ($913.6 million) in the FY 16 as compared with a net profit of A$2.1 billion the previous year. The loss included a one-off charge of A$1.8 billion to quit a hardware joint venture with U.S.-based Lowe's. WOW reported that Lowe’s has taken legal action against the company accusing it of acting in “bad faith” with regard to exit from their home improvement joint venture while WOW is yet to receive the documents. On the other hand, the new Woolworths Group operating model is implemented to further increase the accountability into the business. WOW has revised short term and long term performance measures aligned with driving business transformation. WOW would separately disclose the financials of Endeavour Drinks Group and is progressing on exit of Home Improvement business. The group is constantly investing to improve pricing, product variety and customer scores to develop an edge over competitors.  Meanwhile, stock has risen 6.3% in the last six months (as of August 31, 2016) and we believe the stock recovery would continue in the coming months. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $23.91
 

WOW Daily Chart (Source: Thomson Reuters)
 
FlexiGroup Limited


FXL Details

Met the updated guidance in FY 16: FlexiGroup Limited (ASX: FXL) reported 8% growth in cash NPAT of $97.0 million in FY 16, in line with updated guidance provided in May 2016. The group’s new business volume increased by 19% to $1,350 million on the prior year, and the closing receivables were up 47% to $2,094 million, crossing the $2 billion mark for the first time in FXL’s history. FY16 portfolio income increased 16% on the prior comparable period, to $396.4 million.
 

FY 16 Financial Performance (Source: Company Reports)
 
Moreover, FY17 cash NPAT is expected to be in the range of $90 million - $97 million, after targeted growth investments. Meanwhile, FXL stock has already risen 24.5% in the last four weeks (as of August 31, 2016), and still has a lucrative dividend yield. We give a “Speculative Buy” recommendation on the stock at the current price of $2.48
 

FXL Daily Chart (Source: Thomson Reuters)
 
Altura Mining Limited


AJM Details

Agreements signed with Pilbara:Altura Mining Ltd (ASX: AJM) and Pilbara Minerals Ltd have signed Joint Access Agreement and a non-binding Memorandum of Understanding (MOU) formalizing a framework for ongoing cooperation between the two companies in the development of their adjoining lithium-tantalum deposits. AJM has a deposit immediately adjoining Pilbara’s Pilgangoora Lithium-Tantalum Project to the south-west and the proximity of the two projects offers numerous opportunities to unlock benefits to both companies.
 

Pilgangoora FS Project Details (Source: Company Reports)
 
Moreover, AJM has acquired the first significant long lead capital item that would be an integral component of the process plant. AJM has identified plans for other long lead capital item opportunities to secure further items in the near future and the Pilgangoora Lithium Project is on track for Q4 2017 production timeline. Meanwhile, AJM stock has risen 50% in the last six months (as of August 31, 2016) and we give a “Buy” recommendation on the stock at the current price of $0.14
 

AJM Daily Chart (Source: Thomson Reuters)
 
Pilbara Minerals Ltd


PLS Details

Strong Pilgangoora Ore Reserves:Pilbara Minerals Ltd (ASX: PLS) has signed agreements with Altura Mining Limited for development of their adjoining lithium-tantalum deposits. On the other side, PLS has reported a substantial increase in the ore reserves for its 100%-owned Pilgangoora Lithium-Tantalum Project in WA’s Pilbara region which has reached 69.8 million tonnes grading at 1.26% Li₂O. Meanwhile, PLS stock has risen 43.24% in the last six months (as of August 31, 2016) and we believe that the stock could deliver further upside. We give a “Buy” recommendation on the stock at the current price of $0.555
 

PLS Daily Chart (Source: Thomson Reuters)
 
Cedar Woods Properties Limited


CWP Details

20% growth in presales for settlement:Cedar Woods Properties Limited (ASX: CWP) has reported 2.4% growth in net profit after tax (NPAT) of $43.6 million in FY 16. This is due to the lot sales from the residential communities in Victoria and Western Australia, coupled with contributions from medium density housing and apartment projects, and the town center development at Williams Landing.
 

FY 16 Financial Performance (Source: Company Reports)
 
Moreover, CWP has secured presales of $184 million for settlement in FY2017 and FY2018, as compared to $153 million at the same time last year, representing an increase of 20 per cent. Meanwhile, CWP stock has risen 26.50% in the six months (as of August 31, 2016), and still the stock has attractive valuations. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $5.02
 

CWP Daily Chart (Source: Thomson Reuters)

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