Coles – Valuation Review

Posted on | by Leon Hinde

Coles Group is under Algo Engine sell conditions following the lower high at $12.70.

The group announced their 3Q19 sales growth which came in ahead of market expectations. Food and liquor sales grew at 3.3% in 3Q19, however, management indicated that they expect to see the growth moderate back to 2%, or in line with historical growth rates.

A review of the valuation forecasts show FY20 revenue of $40bn, EBIT $1.34bn, on EPS of $0.68 and DPS of $0.55, placing COL on a forward yield of 4.8%.

We see limited downside risk for the share price and we consider selling at-the -money-call options as an alternative to selling the underlying stock.

 

 

 

REITs in Review

Posted on | by Leon Hinde

A number of REITs announced their 3Q19 operational updates yesterday.

Dexus forecast 5% underlying earnings growth.  reaffirmed its FY19 guidance for 5% growth.

Mirvac indicated their FY19 guidance will be in the 3 – 4% growth range with DPS growth at 5%.

Across the sector it is likely residential and retail remain the weak spots, whilst  office and industrial will continue to provide strong growth. Softening of the retail sector was evident in GPT’s March quarter business update.

Despite GPT’s exposure to retail, the office exposure along with the groups strategy to expand the footprint in logistics, makes the stock one of our preferred opportunities within the REIT sector.

 

 

 

 

 

S32 – Remains Under Sell Conditions

Posted on | by Leon Hinde

South32 has been under Algo Engine sell conditions since forming a lower high pattern back in February at $4.00.

Weak alumina and coal prices saw 3Q19 earnings miss analysts forecasts. We now downgrade the earnings outlook by 15% and remain cautious on the prospects of a near term turnaround.

Ongoing declines in spot alumina and thermal cost prices, combined with rising costs, will translate to weaker earnings over the next  2 -3 years.

 

 

Lendlease – Long-Term Value

Posted on | by Leon Hinde

Lendlease looks attractive from a long-term valuation basis, especially relative to other opportunities within the real estate sector.

Although the share price may remain weak until a solution for Engineering &
Services is achieved, we feel the negatives are already priced in.

Based on FY20 earnings, we have the stock trading on a forward yield of 5%.

 

Evolution Minning – Approaching Support

Posted on | by Leon Hinde

Evolution Mining is under Algo Engine buy conditions and is currently forming a higher low near the $3.00 price range.

The company recently delivered a softer than expected result with lower production and higher operating costs.  These events combined with a softer gold price has seen the share price retrace from $4.00 to $3.20.

We anticipate a pickup in the next quarter which should see overall FY19 production in the upper band of the groups guidance range.

A new round of  “risk off” sentiment by equity investors will also be supportive of gold prices.

Add this one to your watchlist and look for an entry point between $3.00 & $3.20.

The below long term graph of the gold price shows the recent retest of the US$1325 range.