Telstra Corporation Ltd
TLS Details
· Weak half year results dragged the stock lower: Telstra Corporation Ltd (ASX: TLS) stock fell over 6.5% on February 16, 2017 impacted by the weak results. Overall income excluding finance income fell 0.7% to $13.7 billion for half year of 2017 while EBITDA dipped 1.6% to $5.2 billion. Weak hardware revenue contributed to this performance. The group’s overall revenue from fixed business fell 4.7% to $3.3 billion during the period even though fixed data revenue rose 1.8% to $1.3 billion. The group witnessed a fall of fixed voice revenue by 9.4%. Moreover, the group’s guidance is weak for fiscal year of 2017 which forecasts a mid to high-single digit income growth and low to mid-single digit EBITDA growth. Given the weak first half income growth management reported that their income growth would be at the bottom end of their mid to high-single digit range for FY17. Free cash flow is forecasted to be in the range of $3.5-4 billion while capital expenditure is forecasted to be over 18 per cent of sales.
· Recommendation: We maintain our “Expensive” recommendation on the stock at the current price of - $ 4.85
Slater & Gordon Ltd
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SGH Details
· Disappointing update over their UK and Australia business: Slater & Gordon Ltd (ASX: SGH) stock crashed over 25.92% on February 16, 2017 on the back of their disappointing market update. SGH is working with its lenders to agree on a recapitalisation plan. The group’s UK business is recovering at a slower pace than expected as the group’s productivity improvement initiatives are slower than anticipated case settlement profiles. The group would be recognizing impairment related to the UK domiciled goodwill assets. Slater and Gordon’s Australian business is affected by negative sentiment about the business and rising competition across the key segments. For first half of FY17, fee and services revenue in Australia is lower than forecasted impacted by lower Personal Injury Law (PIL) and General Law (GL) businesses. Even net operating cash flow is improving but will remain a net cash outflow.
· Recommendation: We give a “Hold” recommendation on the stock at the current price of – $ 0.20
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