Will these 5 Income Stocks be the Star Stocks for 2018 – ANZ, WBC, MQG, BLD & RWC?

Australia and New Zealand Banking Group Ltd (ASX: ANZ)

ANZ Details

Strategy to simplify business: ANZ recently announced that it has completed the simplification of its Wealth Australia division with the sale of its life insurance business to Zuric Financial Services and the sale comprised of two transactions with total proceeds of $2.85 billion and $1 billion inclusive of upfront reinsurance commission from Zurich and this was followed by the sale of its OnePath pensions and investments to IOOF in October for $975 million. This will make ANZ, a simpler and a balanced bank which will focus on retail and business banking in Australia and New Zealand. ANZ expects completion in late 2018 but the transaction of reinsurance remains subject to regulatory approval.
 

Performance (Source: Company Reports)
 
It is a large business and is operating in many countries and its FY17 statutory profits were $6.4 billion which were up by 12% and cash profits which excluded non-core items from statutory profit were $6.9 billion, up by 18%. The final dividend of 80 cents per share was paid to shareholders which brought the total dividend for the year to $1.60 per share fully franked. It paid $3.2 billion of taxes and became the largest contributor to corporate tax in Australia. At present, ANZ Bank’s shares provide a trailing fully franked 5.5% dividend. We think the above and the long-term potential make ANZ worth sticking around with, even-if its shares go a bit sideways in 2018 owing to financial sector headwinds. We maintain a “Buy” at the current price of $28.74


ANZ Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation (ASX: WBC)

WBC Details

Sector Headwinds: Along with other key financial stocks, Westpac Banking Corporation’s stock was hammered lately as the government announced plans for a Royal Commission into the alleged misconduct of Australia’s banking and financial services sector’s players. This step has been taken by the government to ensure that the financial system is working efficiently and effectively. On the other hand, Chief Risk Officer, Alexandra Holcomb will retire in 2018.Meanwhile, the group has a relatively low risk profile due to its loan book positioning and low earnings dependence on treasury and markets income. Its statutory profits were $7,990 which were up by 7% with 3% rise in earnings. Further, an increase in investor home loan interest rates might help the bank. Whilst its shares could still climb up a bit, the upside potential looks limited.The revenue performance might improve in 2018 but WBC seems to be impacted by customers switching from interest-only (IO) to principal & interest (P&I) and from slowing mortgage growth trends. We give an “Expensive” recommendation on the stock at the current price of $31.35


WBC Daily Chart (Source: Thomson Reuters)
 

Macquarie Group Ltd (ASX: MQG)

MQG Details

Trading at higher levels: Macquarie Group has issued 6,917 fully paid ordinary shares in the month of November 2017. As on 30 November 2017, there were 81, 663 unlisted Exchangeable shares issued by Macquarie Capital Acquisition (Canada) Limited, a subsidiary of MQG pursuant to the retention agreements entered with key Orion Financial Inc. employees after Macquarie completed the acquisition of Orion. Return on Equity increased by 14.7% from prior year and the group indicated to buy-back its shares depending upon the market conditions. Its acquisition of UK Green Investment Bank for £2.3 billion is considered a key driver for its growth. Further, economic data on business conditions and expectations is robust.Macquarie Group was now found to be selling its 11.5% stake in ASX-listed toll-road company Macquarie Atlas Roads Group and announced a block trade. Macquarie was calling for the bids for 76 million shares starting from $5.80 per share to a maximum of $6.10 per share. This was due to the reason that Macquarie group is set to lose the rights to manage the toll-road company.The market expects MQG to offer a yield of about 5% over 2018 if it lifts the 2018 final dividend. On the other hand, lower management fees might impact performance going forward. Its stock price has increased by 10.8% in last six months and the stock is trading at higher levels. We give an “Expensive” recommendation at the current price of $99.63, and will review the stock at a later date.


MQG Daily Chart (Source: Thomson Reuters)
 

Boral Ltd (ASX: BLD)

BLD Details

Positive FY18 Outlook: Shares of Boral Ltd climbed by 43% this year to date and the company’s Australian division exceeded managements’ expectations because of unseasonably dry weather along the major East Coast markets and this weather led to an unexpected surge in construction activity which more than offsets difficulties in Western Australia. Group’s outlook is very positive for FY18 and it expects a better EBIT from FY17 including property and forecasts for a high single-digit EBIT growth in next year in Australia while Sheetrock would deliver on price, volume and cost benefits across all the markets.
 

Shareholder Returns against ASX100 Companies (Source: Company Reports)
 
For Boral North America, the group forecasts a major growth in EBIT in FY18 from the full year contribution of Headwaters coupled with US$30 to 35 million of year 1 synergies. The financial impact of the natural disaster is expected to be between US$5 million to $10 million. The stock is trading at an above average market multiple in terms of forward earnings; however, the long-term potential, growth catalysts and company’s North American division which is expected to do well at the back of an improved US housing scenario, we put a “Buy” recommendation at the current price of $7.79


BLD Daily Chart (Source: Thomson Reuters)
 

Reliance Worldwide Corporation Ltd (ASX: RWC)

RWC Details

Slightly uncertain scenario at Home Depot: RWC might deliver profit growth over the years ahead with business growing strongly overseas. Tremendous growth has been seen in few segments in 2017 with office building growing by 11%, warehouse by 9%, Education by 9%, Healthcare by 2% and Transportation by 135%. As far as the financial performance is concerned, it performed well as Net Profit after tax was up by 26% and Net sales from Americas was up by 19% as compared to the last year. It is planning to expand its manufacturing and distribution facilities in Tennessee and Nevada. It was observed that there was a reduction of 84% in injuries in the last 14 months. The HOLDRITE acquisition also resulted into strong earning growth rate and it will bring further sale to the wholesale sales channel in the Americas and the group will also enter into residential and commercial sector.On the other hand, SharkBite PTC is no longer distributed to the Home Depot’s Pacific Northwest locations. Some level of uncertainty prevails as destocking of SharkBite’s PTC product at Home Depot is expected to impact FY18 EBITDA. Meanwhile, the stock looks “Expensive” at the current price of $3.90, We are keeping an eye on this stock and will keep evaluating any possible buying opportunity going forward.


RWC Daily Chart (Source: Thomson Reuters)

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