UGL Ltd


UGL Details

Project uncertainty: UGL Ltd (ASX: UGL) has secured $594 million agreement for the supply and maintenance of locomotives to Pacific National increasing the order book to $4.7 billion. UGL also announced that NSM, a JV with Babcock Pty Ltd, entered into warship Asset Management agreement with Commonwealth of Australia to provide long-term maintenance support services for the ANZAC class ships. On the other hand, the group updated that its progress on SMP and CCPP projects, is behind schedule due to delay from client side and likely to incur additional costs. In case of SMP, the project is 41% complete and substantive negotiations are yet to be concluded.
 

Guidance (Source: Company Reports)
 
With this uncertainty, the earlier projection for FY16 and FY17 is little hazy and might affect the potential future earnings. UGL stock fell over 23.15% in the last three months (as of July 25, 2016) and we believe that the pressure on the stock would continue in the coming months. Based on the foregoing, we give a “Sell” recommendation on the stock at the current price of $2.40
 

UGLDaily Chart (Source: Thomson Reuters)
 
Sigma Pharmaceuticals Ltd


SIP Details

Strong earnings and extension of Government rule:Sigma Pharmaceuticals (ASX: SIP) would benefit from recent extension of the Government rule which would restrict new pharmacies from opening near existing pharmacies and this would be extended for another five years. Meanwhile, for fiscal year of 2016, the company reported a 10.2% rise in revenues to $43.5 billion while NPAT was up 11.6% to $59.2 million. Its RoCE is at 14.6% while the group has declared a final dividend of 3 cents per share making it a total of 5 cents for FY16. Sigma Pharmaceuticals has minimum debts of $56.6 million and undertook a buyback program. The group forecasts EBIT growth of at least 5% p.a. for next two years.
 

Financial Performance (Source: Company Reports)
 
Accordingly, the stock rose over 58.43% in the last six months (as of July 25, 2016) placing it at higher levels and is currently trading close to its 52-week high price. The stock is also trading at a higher P/E. Moreover, the company expects a one off $8.8 million impact on reported net profit after tax, on account of contingent liability of 2012 becoming an actual liability. Hence, we give a “Sell” recommendation on the stock at the current market price of $1.325
 

SIP Daily Chart (Source: Thomson Reuters)

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