Two stocks that have surged on ASX – Alumina Limited and Sonic Healthcare Limited

Alumina Limited

AWC Details
· Improving alumina supply demand balance on a long-term perspective: Alumina Limited (ASX: AWC) stock surged over 6.5% on November 07, 2016 driven by the commodity prices rally, leading to a total rally of about 20% in the last three months. Management reported that their efforts of portfolio restructuring and cost improvements have paid off which enhanced cash generation in AWAC. AWAC’s third quarter production of alumina was in line with the last quarter at 3.2 million tonnes. The group got US$91.8 million of dividends, distributions and capital returns from AWAC during the third quarter (generating over US$175.5 million for the year to date). Alumina Limited’s net debt was over US$81 million as of September 2016. With regard to the industry dynamics, the group expects China to spend more on capital costs to lower opex while Alumina pricing might witness ongoing change outside China to alumina spot-based indices.

· Recommendation: Trading at a decent dividend yield, we give a “Hold” recommendation at the current price of – $ 1.64



Industry metrics (Source: Company Reports) 

Sonic Healthcare Limited

SHL Details
· Acquiring Staber Laboratory group: Sonic Healthcare Limited (ASX: SHL) stock surged over 6.4% on November 07, 2016 as the group signed binding agreements to acquire the Staber Laboratory group, from Munich, Germany. The group is buying the Staber Laboratory for €120 million (cash and debt free), which will be funded in Euro from the group’s current cash and debt facilities. This acquisition is a part of Sonic’s growth strategy of expansion. Sonic expects this acquisition to be accretive by 3-4% of earnings per share for the first year. Sonic forecasts their return on invested capital (ROIC) to exceed the cost of capital and be accretive to Sonic’s ROIC from year 2. Staber Laboratory group is now managed by Staber family´s second generation of partners, while the firm has over 50 medical doctors (pathologists) and 1,000 staff. Staber generates an annual revenue of over €80 million. On the other hand, SHL stock fell over 7.8% in the last four weeks (as of November 04, 2016) ahead of US elections.

· Recommendation: We maintain our “Expensive” recommendation on the stock at the current price of – $ 21.57

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