Chorus Ltd (ASX: CNU)

CNU Details

Rise in share of UFB net connections: Telecom Player, Chorus has been able to benefit from the Government’s extensions to the UFB (ultra-fast broadband) rollout in January and September 2017. The group has increased its share of the additional UFB phases. UFB Penetration seems to be in line with expectations and has been up from 35% in June 2017 to 38% as at 30 September 2017 while Chorus was seen to outpace with penetration at 39% at the back of 309k connections (October 2017). Further, group’s share of UFB net connections in 2017 have been up from 68% to 72% at the back of the active wholesale strategy with less line loss. The group’s share of UFB connections appears to be peaking towards FY20 before declining by FY25 with gradual decrease in penetration creeping in next couple of years.

Rollout Schedule (Source: Company Reports)
 
In FY17, the group’s fixed line and broadband connections have been low while fibre connections have been significantly up. For Q1 FY18, total fixed line connections declined by 20k to 1,582,000 and total broadband connections declined by 2k to 1,184,000. However, the broadband connections grew in UFB areas, while local fibre companies continued to gain fibre connections in their areas and some retailers promoted their wireless networks more widely. With some level of softness seen, Chorus’ half year results for the six months ended 31 December 2017 to be released on 26 February 2018, can be a mixed bag. Lately, Chorus has been advised by Crown that L1 Capital Pty Limited have been granted approval (if chosen to exercise in future) for certain funds, to acquire a relevant interest in 10% or more (but not exceeding 15%) of Chorus’ shares. In 2012, AMP Capital Holdings was granted approval to acquire a relevant interest in 10% or more (but not exceeding 15%) of Chorus’ shares. The group has also made some changes in its executive team. Given the scale of potential and near-term catalysts already factored in stock price (up over 10% in last three months as at December 15, 2017), we put a “Sell” recommendation on the stock at the current price of $3.91


CNU Daily Chart (Source: Thomson Reuters)
 

Breville Group Ltd (ASX: BRG)

BRG Details

Increased R&D investment: Breville Group has continued to successfully gain traction in its big offshore markets that include the US, the UK, Continental Europe and Asia. The group has demonstrated strong sales momentum throughout FY17 in key markets with sales in the ‘Rest of World’ region being particularly strong. FY17 revenue was up 5% with growth coming in from global product segment; while distribution segment revenue dropped by 8.8% and some level of volatility might prevail considering the year on year numbers though the group expects slight improvement in segment’s earnings. The group’s inventory is also yet to revert to system wide equilibrium point.

BRG’s net cashflow was up 19.9%. On the other hand, the group is increasing its R&D investment in view of the expanding business base and goal of spending 12% of net sales on R&D and marketing efforts. Fees charged on group’s debt facility and moves to support working capital needs are also playing a role and can impact FY18 earnings, while group’s geographic diversification and improved performance might add to earnings. Amazon in Australia might also establish a new distribution channel for BRG. The group has delivered well on operating metrics with high return on equity and cash flow. Given the price to earnings ratio relative to peers and a year-to-date run-up of over 44.8% (as at December 15, 2017), we believe investors can take profits on the group. We give a “Sell” recommendation at the current price of $12.67


BRG Daily Chart (Source: Thomson Reuters)

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