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Will these two stocks add feathers to your investment cap?

Oct 21, 2015 | Team Kalkine
Will these two stocks add feathers to your investment cap?

Breville Group Ltd



Improving US business: Breville Group Ltd (ASX: BRG) reported a revenue decline of over 2.7% year on year (yoy) to $527 million during fiscal year of 2015 due to challenging market conditions, while its NPAT fell 4.3% yoy to $46.7 million during the period.  In Australia and New Zealand, the group operates through Breville brand in premium kitchen segment, Kambrook brand as well as Philips brand in personal and garment care. But Australia and New Zealand revenues fell 6.3% yoy during the period impacted by ERP implementation costs while discount department store retailers chose home brands against Group’s Kambrook/Ronson brands. The group operates under Breville brand in North America under premium kitchen channels and online retail platforms. Breville Group improved its North America revenues by 24.1% yoy in the second half driven by better performance across its core categories leading to the overall segment revenue growth of over 1.4% yoy in fiscal year of 2015, offsetting the first half of 2015 revenue pressure. The group operates through Sage brand in UK while operates via non-Breville branded 3rd party strategic partners supplied from Hong Kong in the rest of the Europe excluding UK. Breville Group’s UK business under Sage brand continued to deliver improved revenue growth during the period. Meanwhile, Breville Group maintained its final dividend at 13 cents in fiscal year of 2015, in line with the last year’s dividends. But the group’s cash fell to $32.8 million during the period from $47 million in FY14.


Breville Group Financial performance (Source: Company Reports)
               
Stock Performance: The shares of BRG fell over 16.67% in the last six months impacted by the challenging market conditions. On the other hand, the group’s shares increased over 7.57% in the last four weeks (as of October 21, 2015) driven by the group’s better than estimated results, and the group’s improving performance in North America since second half of 2015. The group is also trading at a relatively reasonable valuation, with a P/E of 17.42x, as compared to its peers like SUL, which are trading at a P/E of 21.84x. Breville Group also has annual dividend yield of 4.3%. Based on the foregoing, we give a “HOLD” recommendation to the investors at the current price of $6.43.
 
 
BRG Daily Chart (Source: Thomson Reuters)
 

Downer EDI Limited



Building solid pipeline of projects despite tough market conditions: Downer EDI Limited (ASX: DOW) reported a revenue decline of 3.9% yoy to $7,430.1 million during fiscal year of 2015 on the back of volatile conditions in Queensland road services as well as poor performance by the group’s rail infrastructure business which had offset the better performance at NSW and Victorian road services. Consequently, the group’s Earnings before Interest and Tax fell by 9.2% yoy to $309.7 million in FY15, while its net profit after tax declined by over 2.7% yoy to $210.2 million during the period. Meanwhile, Downer’s New Zealand transport services business performance has improved during FY15 despite the tough conditions. The group acquired VEC Civil Engineering, during the period which is a specialist in bridges and structures, to further boost its infrastructure projects capabilities. The Group’s industrial and commercial construction and maintenance revenues fell by $1,889.3 million in FY15, from $2,040.6 million in FY14 impacted by $11.4 million of losses incurred for QCC and MT, and project underperformance in WA. Therefore, DOW is restructuring this segment by decreasing management layers overheads. With regards to the Mining sector, although the sector’s Revenue and EBIT were impacted during the fiscal year, DOW won many contracts during the period, which includes Blackwater coal mine extension (BMA) worth over $100 million over two years, Cobar copper mine (Cobar Management) worth of $70 million for two years as well as won Christmas Creek iron ore mine (Fortescue) expanded contract ($500 million per annum). Rail revenues also declined during the period impacted by the passenger manufacture contracts. But DOW won a 10 year $1.0 billion contract with Pacific National for offering asset management services to over 300 locomotives. Recently, DOW reported about the termination of its contract with Tecnicas Reunidas S.A owing to failure to remedy a breach of contract by latter.

 
Work in progress projects pipeline (Source: Company Reports)

Stock Performance: Downer continues to expect a subdued 2016 financial year performance with NPAT to be over $190 million. DOW shares fell over 22.38% in the last three months impacted by the poor financial performance in 2015. On the other hand, the group’s shares rallied over 6.3% in the last four weeks, partly driven by its ongoing additions of its projects pipeline. Hughes drilling recently entered into a long term contract with Downer, while the group even won two contracts from BHP Billiton Mitsubishi Alliance (BMA) at the Blackwater coal mine in Bowen Basin at Central Queensland. We believe that the recent correction has placed the stock at a considerable valuation with a P/E of 7.96x and DOW has a decent annual dividend yield of 6.47%. Accordingly, we give a “HOLD” recommendation for the stock at the current price of $3.77.

 
DOW Daily Chart (Source: Thomson Reuters)
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