Two stocks that shined on ASX - Tatts Group Ltd and Nextdc Ltd

Tatts Group Limited

TTS Details
· Merger with Tabcorp: Tatts Group Limited (ASX: TTS) stock surged over 15.9% on October 19, 2016 as the group is merging with Tabcorp to form a major gambling entertainment group. This transaction is expected to generate at least $130 million per annum of EBITDA synergies and business improvements, net of benefits to the racing industry. The overall Group is forecasted to generate a dividend payout ratio of 90% of NPAT before significant items and amortization of the Victorian Wagering and Betting License. The combined group’s pro forma enterprise value is forecasted to be over $11.3 billion while the revenue is expected to be over $5 billion. This transaction would lead to a long-dated suite of licenses and the merged entity is well positioned to leverage the growth opportunities globally as well as in Australia. After the transaction, the combined Group would undertake a share buyback of $500 million. On the other hand, we believe the recent rally placed the stock at higher levels.

· Recommendation: We give an “Expensive” recommendation on the stock at the current price of $ 4.16, and would review the stock at a later date.
 

Merged entity benefits (Source: Company Reports) 

Nextdc Ltd

NXT Details
· Strong recurring revenues:  Nextdc Ltd (ASX: NXT) stock surged over 4.7% on October 19, 2016 while the group came out with a new issue announcement (284, 072, 434 fully paid ordinary shares). The group recently raised over $45 million via Retail Entitlement Offer which got a very good response from investors. The group is planning a new data center facility at Sydney (S2) adding to its Brisbane and Melbourne facilities to address the growing customer demand. Accordingly, the group would divert their raised funds to build these new facilities as they expect to incur $140 million to $150 million across FY17 and FY18, including ownership of underlying property. NXT generated a solid fiscal year of 2016 performance wherein the revenue from continuing operations surged 52% to $92.8 million while the contracted utilization rose 20% year on year (yoy) to 26.1MW. Operating cash flow enhanced by $15.4 million to $22.3 million. NXT continues to generate growth in revenue per square meter, and estimates this momentum to continue in the first half of 2017 as well.

· Recommendation: We recommend a “Hold” on the stock at the current price of $ 3.77

 
Outstanding recurring revenue (Source: Company Reports)

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