BlueScope Steel Limited

BSL Details

Sale of Taharoa export iron sands business: BlueScope has sold 100% of the its shareholding Taharoa export iron sands business to Taharoa Mining Investments Limited (TMIL), a majority owned subsidiary of Taharoa C Block Incorporation (Taharoa C). Taharoa C is a Maori Incorporation with a wide shareholder base that owns the land at Taharoa. Importantly, BlueScope’s sale of the Taharoa export iron sands business simplifies the company’s portfolio and is consistent with the implementation of its strategy to focus on growing premium branded steel businesses, delivering competitive commodity steel supply in local markets and maintaining a strong balance sheet. Further, BlueScope will make a cash contribution of approximately NZ$51m and TMIL will assume all liabilities associated with the business including NZ$76.5m in finance lease liabilities. BlueScope expects a reduction in net debt of NZ$25.5m at completion. The company expects H2FY2017 underlying EBIT to be 50% higher than H2FY2016 (which was $340.3M), while underlying net finance costs to be lower than 1H FY2017 due to lower average net debt. Further, it expects slightly higher underlying tax rate due to regional mix of earnings, and similar profit attributable to non-controlling interests to H1FY2017.

Recommendation: BSL stock rose over 20.8% in the last six months, while it was up 81.2% in the last one year (as of June 09, 2017) and trading at high levels. We give an “Expensive” recommendation at the current price of $12.01

Qantas Airways Limited

QAN Details

Challenging business conditions in international operations: For Q3FY17, Qantas Airways Limited (ASX: QAN) reported a 1.4% year-on-year decline in revenue to $3.96 billion due to tough conditions in the international market. QAN’s overall revenue per unit decreased by 1.8% led by 5.6% decline in international operations, while the domestic unit revenue increased by 4.6% yoy against Q3FY16. Going forward, the positive trend in unit revenue for the group’s domestic operations is expected to continue into the Q4FY17, while there might be continued de-growth for international operations. For FY17, the group is expected to report an underlying profit before tax in the range of $1.35 billion - $1.40 billion, driven by improving performance from the group’s domestic and Qantas Loyalty program partially offsetting a relatively weaker International performance in a highly competitive market.Recently, Moody’s Investors Service has upgraded the QAN’s rating with senior unsecured debt and backed senior unsecured bank credit facility ratings to Baa2 from Baa3 with a stable outlook.

Recommendation: The stock has moved up 52.4% and 39.0% over the past six months, three months, respectively (as on June 09, 2017). Given the trading scenario and continued challenges in international market, we give an “Expensive” recommendation on the stock at the current market price of $ 5.32

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