Estia Health Ltd

EHE Details
· Raising funds to improve balance sheet: Estia Health Ltd (ASX: EHE) stock lost over 8.9% on December 13, 2016 as market sentiments went in the red with a downgrade in price targets on the day following the announcement for a highly-dilutive capital raising. Further, the group raised over A$72 million via Institutional Entitlement Offer at A$2.10 per New Share. EHE reported that they got good response from institutional shareholders who would take up 93% under the Institutional Entitlement Offer. EHE is raising more A$65 million via Retail Entitlement Offer from December 19, 2016 to January 11, 2017. The group intended to drop the interim dividend and its debt has reached around the bank borrowing facility. Other shortcomings impacting the stock include the group’s ability to forecast its financial performance given prior earnings downgrade and government funding cuts.

· Recommendation: EHE already stock lost over 44.7% in the last six months (as of December 12, 2016)due to concerns over Refundable Accommodation Deposits (RADs) funding. There is limited prospect expected from the group. We maintain our “Expensive” recommendation on the stock at the current price of – $ 2.44

BlueScope Steel Ltd

BSL Details
· Commodity prices pressure: BlueScope Steel Ltd (ASX: BSL) stock fell over 4.44% on December 13, 2016 due to correction in commodity prices. On the other hand, the group continues to focus on productivity and cost cutting despite the recovery in the commodity markets. BSL’s Orrcon Steel is a leading Australian distributor and manufacturer of steel. The associated project has a competitive cost of production and generated incremental volume growth. BSL’s Australian Steel Products (ASP) is also performing better against the performance seen five-years’ back. Western Sydney COLORBOND® steel project is focusing on residential and commercial building markets and even catering to specific customer needs, including small orders/coils. The project even launched new products via WSCSF (branded CORSTRIP®, COLORBOND® steel Matt, Metallics, custom colours, colour travel). BlueScope’s Building Components division continues to be profitable business with cost structure that delivers acceptable returns.

· Recommendation: BSL stock surged over 52.4% in the last six months (as of December 12, 2016). We remain bullish on the stock as the group’s cost cutting efforts coupled with recovering commodity prices would boost their margins. We give a “Hold” recommendation on the stock at the current price of - $ 9.26

Australian Steel Products cost saving targets (Source: Company Reports)

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