Earnings Season is Underway

Posted on | by Leon Hinde

This week we have the resource companies providing production guidance. With OSH and RIO today, BHP Wednesday, S32 and WPL on Thursday.

Next Wednesday we have ILU, followed by FMG on Thursday.

We also have earnings season starting and of interest will be CIMIC 1H19 earnings tomorrow. RMD on Friday 26th July and RIO’s half year earnings on the 1st August.

By the first week of August we’re in full swing with earnings season and i’ll look to update opportunities on the blog, ahead of the earnings results.

Graph – XJO ASX 200

 

 

 

 

 

 

CIMIC Reports 1H19 Earnings

Posted on | by Leon Hinde

Cimic Group reports 1H19 earnings tomorrow and the market is looking for  NPAT of $390m.

Full year NPAT should maintain within guidance at $790m to $830m.

The CIMIC share price has been trading at the lower end of the valuation band following allegations of creative accounting. CIMIC has pushed back against the claim and maintained that their accounts meet the required auditing standards.

We’ll wait to see what’s in tomorrow’s result, but we continue to like the industry thematic in which CIMIC operates. We expect CIMIC to report a strong net cash position of $1.4bn+.

Based on FY20 earnings we have CIMIC trading on a forward yield of 4%.

 

 

GrainCorp Limited – MaltCo divestment

Posted on | by Leon Hinde

GrainCorp is a current holding in our ASX100 model portfolio.

We continue to follow the developments regarding the demerger or divestment of the MaltCo entity from the main Graincorp listed business. Either outcome is likely to unlock value for Graincorp shareholders.

GrainCorp’s proposed MaltCo would be the world’s fourth-largest independent maltster with assets in Australia, the United States, Canada and Britain. It made $170 million EBITDA in the 2018 financial year.

We see upside potential for the GNC share price supported by a share buy-back or capital return in early 2020.

Evolution – June Quarter Results

Posted on | by Leon Hinde

Evolution Mining reported June quarter production in-line with market estimates and FY20 guidance remains flat at $725koz – $ 775koz.

The reversal in yesterday’s share price action can be attributed to flat production growth and higher operating expenses. FY20 all-in costs increase by 5% to A$890 – $915oz.

Production capex increases to support development at Cowal and Mt Calton.

We have EVN trading on 3% forward yield and continue to see opportunities for NST, EVN, OGC and GOR within the gold space.

 

Origin Energy – Valuation Review

Posted on | by Leon Hinde

Origin Energy is under Algo Engine sell conditions, however, we see value emerging from a  fundamental analysis perspective. This should lead to a switch in the algo model from sell to buy in the near future.

The key positive is the strong cash generation from the APLNG project, which has led to the de-gearing of the company balance sheet. The next key driver will be the reinstatement  of the dividend policy which will have the stock trading on a forward yield of 4.5%.

We expect the future dividend payments to steadily increase, which will help support the share price.

Pendal Group – Valuation Review

Posted on | by Leon Hinde

Pendal Group is under Algo Engine buy conditions and is a recent addition to our ASX 100 model portfolio.

The current 13x forward earnings multiple offers a discounted entry level.

FY20 revenue is set to increase by 10% to $550mn, EBIT +10% to $230mn, DPS increases by 10% to $0.50, placing the stock on an attractive 6.6% yield.

We are not applying a high conviction call to PDL, due to structural challenges facing the business, however, we highlight that the current share price reflects a more bearish scenario, than what is likely to playout over the next 1 – 2 years.

 

 

CIMIC – Valuation Review

Posted on | by Leon Hinde

Cimic Group is under Algo Engine sell conditions and with the group reporting 1H19 earnings later this month, we will be looking closely at the underlying growth trends.

We expect guidance to be at the top end of the $800-$840mn range, with mining related income to be strong, and construction to be flat.

CIM’s exposure to resources and infrastructure growth should lead to FY20 Revenue of $19bn, EBIT $1.3bn and underlying profit growth of 5%+.

CIM trades on a 3.8% forward yield, based on FY20 DPS growth from $1.65 to $1.75.

 

 

 

Crown Resorts – up 10%

Posted on | by Leon Hinde

Crown Resorts has been a high conviction buy expressed on the blog. The share price made a low at $11.69 and is now trading at $12.80.

Following Melco Resorts (NASDAQ listed) buying 50% of James Packer’s holding in Crown at $13 per share, we see scope for increased VIP flow from Melco’s large high roller customer base.

Whilst there is scope for Melco to make a full takeover of Crown, it is not our base assumption. We suggest investors hold Crown for the 4.5% yield and for those seeking greater cash flow, selling an out of the money covered call option will boost the annualised cash flow to 10% plus.