RIO – Approaching The Buy Zone
Our Algo Engine generated a buy signal in RIO and the chart below highlights the indicated “buy zone”.
Investors can look to accumulate within $68 – $74 range.
Rio Tinto
APA – Takeover Update
The CKI consortium has completed its due diligence and has now entered into a binding Implementation Agreement to acquire 100% of APA’s stapled securities for an all cash offer of $11.00 per share.
The offer is still subject to a number of conditions including approval from the ACCC and the FIRB.
APA goes ex div $0.21 on the 28th December.
APA
REA – Algo Update
Our Algo Engine generated a buy signal in REA last week at $80.50.
Since then the stock has rallied almost $5.00, following a solid FY18 earnings result which met consensus forecasts.
Revenues were reported at $808m, EBITDA $464m and NPAT from core operations $280m.
In FY19, the market is looking for 15% revenue growth, flowing through to similar underlying earnings growth. This places REA on an FY19 forecast yield of 1.8%.
Despite, risks in soft listings and developer pipeline, we recommend maintaining long exposure to REA and applying a stop-loss below the recent $80.50 low.
REA
James Hardie Industries – FY19 outlook
During last week’s earnings update, James Hardie provided an FY19 EBIT outlook in the range of US$300-340m. This was slightly below market consensus, suggesting 20% growth will not be achieved and it could be more in the range of flat to 10%.
With the stock trading on a high PE and an FY18 yield of only 2%, there’s not much room for disappointment.
JHX is a current holding within our ASX50 & 100 model portfolios, we’ll watch for the next Algo Engine buy signal and revisit the “buy side” case and update our readers.
James Hardie
AMP’s 1H18 Result
AMP’s 1H18 result was underpinned by effective cost management offsetting
weaker revenue performance.
The Australian Wealth Management division saw net outflows of $673m in the quarter.
Going forward, we expect well managed costs to offset weaker revenue. There is longer-term value here for patient investors, who are willing to hold the stock through to the appointment of a new permanent CEO.
In 2019, AMP’s board will likely outline a plan to split the funds management business away from the traditional advice side model, unlocking value for shareholders.
We have AMP now trading on a 6.8% yield and expect FY19 reported profit to remain around $800m.
AMP
Star Entertainment – Buy “high conviction”
Our Algio engine generated a recent buy signal in SGR and we continue to have a positive outlook on the stock and rate this as a “high conviction” buy opportunity.
SGR is set to report FY18 results on Friday 24th August and we see potential upside to market expectations for VIP growth. The new VIP room in Sydney, (which opened in April), should further add to positive revenue growth.
With underlying earnings growth running at 8 – 10%, we expect FY19 EBITDA to increase from $570m to $620m, placing SGR on a forward yield of 5%.
Star Entertainment Group
Crown – Looking Fully Valued
Crown was a “high conviction” call coming into yesterday’s FY18 earnings result. EBITDA increased by 6% and NPAT was up 13% to $378m.
VIP gaming revenue was up almost 70% on the same time last year. At the peak in 2015, Crown VIP was turning over $52 billion and it now stands at $44 billion.
Although, we see scope for cost control and share buybacks as net positives for the share price, we also feel the 23x FY19 multiple is starting look too expensive.
Crown goes ex div $0.30 on the 20th September and the stock now trades on a forward yield of 4.3%.
Note: Crown’s Sydney project is due for completion in 2021 and total project cost is estimated to be $2.2 billion.
Crown Resorts
Tabcorp – High Conviction
Tabcorp has been a “high conviction” buy idea, following the recent Algo buy Signal at $4.20. The high conviction was based on the benefits of the Tatts merger showing up in the FY18 earnings results.
Yesterday, TAH reported FY18 earnings slightly ahead of consensus and importantly reaffirmed synergy guidance of “at least $130m”.
FY18 EBITDA came in at $736m & allowing for 5% growth into FY19 we now have the stock on a forward yield of 5%.
We now consider the stock full value and recommend investors lock in profit or sell covered call options.
Dominos – Watching the lower high structure
Dominos reports their FY18 earnings on the 14th August and consensus expectations is for underlying earnings to grow 15%, to $266m. This places the stock on a yield of 2.2%.
At 31 times earnings and a low yield, DMP can’t afford any material slow down in EPS growth into FY19. It feels that industry disruption and slow growth rates in new international markets, may come together to weigh on the FY19 numbers.
We’re mindful of the “lower high” sell structure the algo engine is pointing to, and we’ll be interested to review the numbers, post the upcoming earnings result.
We remain cautious on this one!
SEEK – Waiting For Value
SEEK has yet again pushed out the timing of its earnings growth, committing to another huge uplift in operational and capex spending to grow market share in China, South East Asia and Australia.
The market has downgraded earnings forecasts to reflect the FY18 result and the guidance for FY19. This now leaves FY20 and 21 as the growth opportunity with forecast EPS set to accelerate to 20%+ p/a.
With the stock now on 2% dividend yield and questions over short-term growth and large capital expenditure, we feel investors should be patient and wait for our next ALGO buy signal.
SEEK offers investors exposure to the global hiring cycle and increasing migration of employment advertising to the online market.
SEEK
Level 17 Chifley Tower
2 Chifley Square
Sydney, NSW 2000
1300 614 002
Investor Signals Pty Ltd
ABN 44 143 555 453