Four ASX100 stocks to buy in June

About the author:

Author name:

By Andrew Tang

Job title:

Analyst - Equity Strategy

Date posted:

03 June 2016, 8:00 AM

Sectors Covered:

Equity Strategy and Quant

May has defied the weight of investor apathy and continued its positive run through what is normally a seasonally weaker period. We hold onto the view that the broader macro backdrop for equities remains supportive. We think the downside risks are overplayed, and while we don't discount near-term stocks, we think the fundamentals driving earnings are sound.

In June we add CYBG and remove AMP. For an explanation of the changes watch the summary below: 

Here are our four ASX100 high conviction stock picks this month:

CYBG (CYB)

CYBG is a leading mid-sized UK retail and SME bank with a long established customer franchise across its core regions (Scotland, North East England, North West England, Yorkshire and the Humber). It was demerged from NAB in February 2016.

Key reasons to buy CYBG

• Removal of the EU referendum on 'Brexit' and inclusion in the FTSE 250 will provide meaningful catalysts for the stock in the short term.
• CYB recently revised down its cost guidance for FY16 and have further stated that cost will be capped at FY16 levels over the medium term. This helps to bring forward its cost-to income goal of <60% in five years (currently 71.0%).
• It appears to us that CYB already has much of the infrastructure in place to achieve IRB accreditation for its mortgage portfolio, which will reduce CET1 capital required to be held against mortgages thus increasing return on equity.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for CYBG (CYB).

Orora (ORA)

Orora Limited (ORA) is focused on fibre packaging and beverage packaging in Australia and packaging distribution in North America. ORA has manufacturing plants in 83 sites across seven countries.

Key reasons to buy Orora

• Since demerging from Amcor (AMC) in December 2013, ORA has experienced strong double-digit earnings growth in both the Australasian and North American divisions.
• We estimate ORA derives around 60% of its revenue from highly defensive sectors such as food and beverage. Given the volatile market, we think the stock should receive support.
• ORA has made a number of growth investments over the last two years that should set it up for solid earnings growth over the medium term (forecast 3-year EPS CAGR of 12%).

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for Orora (ORA).

Sydney Airport (SYD)

Sydney Airport is the 100% owner of Kingsford Smith Airport, Australia’s busiest airport.

Key reasons to buy Sydney Airport

• SYD provides exposure to a premier infrastructure asset and prime retail space leveraged to Asian travel growth, as well as commercial property and parking.
• We expect interest costs to fall materially, as out-of-the-money interest rate swaps expire and are replaced at lower interest rates.
• The combination of solid earnings growth and falling interest costs should generate strong distribution growth and potential for capital management initiatives, although over the near term, the potential development of the second airport at Badgerys Creek will be a key capital allocation decision.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for Sydney Airport (SYD).

Westpac (WBC)

Westpac (WBC) is Australia’s oldest banking and financial services group, with branches and operations throughout Australia, New Zealand and the near pacific region.

Key reasons to buy Westpac

• Relatively low risk profile in terms of loan book positioning and low reliance on treasury and markets income.
• Westpac stands to benefit most from re-pricing of investor home loans.
• Relatively low risk of dividend cut as a result of strong regulatory capital position and good organic capital generation capacity.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for Westpac (WBC).

More information

Morgans clients can access the full list of high conviction stocks (including our nine small to mid-cap high conviction picks) by viewing our latest High Conviction Stocks research report. If you would like more information, please contact your adviser or nearest Morgans office. 

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.