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Reporting Season road map: 27 February 2019

Andrew Tang

Following our assessment of results and market announcements, here are our three top picks for today (Wednesday 27 February 2019):

Wagners Holding Company (WGN) – Cycle fears driving discount

We see expectations of a hard landing for the construction cycle in South East Queensland (SEQ) as driving the current discount in Wagners. Meanwhile we see enough planned infrastructure spend in SEQ, growth in Composite Fibre Technologies (CFT), and potential offshore LNG work to offer plenty of upside potential beyond our base case assumptions. A steady 1H result, with WGN reaffirming FY19 EBIT guidance of A$35-$38m.

We retain our Add recommendation. Morgans clients can login to view our share price target and detailed research note.

Origin Energy (ORG) – Where will the cash flow?

We believe ORG's free cashflows will strengthen in the next few years as the company reaches its gearing target (2.5 x EBITDA). ORG hasn't flagged any large capex commitments and we believe capex spending will be at or around A$500m. We don't think ORG will target as high a payout ratio as we'd previously assumed (75% of underlying profit) but could still manage a dividend yield of approximately 7% while keeping gearing below 2 x EBITDA.

We retain our Add rating. Morgans clients can login to view our share price target and detailed research note.

FlexiGroup Limited (FXL) – Trying to get the business humming

FXL reporting 1H19 Cash NPAT of A$31.9m, down 22% on the previous corresponding period. Excluding a large (arguably one-off) impairment, underlying earnings were down 3% to A$41.9m. FXL's main strategy announcement was the launch of a new interest free product brand (humm), which will merge the existing Certegy and Oxipay offerings. A A$25m (5%) placement has been made to Tanarra Capital (John Wylie). Whilst FXL's turnaround faces regulatory challenges and requires execution, we view the risk reward as positive given the group's existing level of profitability; a solid level of demand and relevance reflected in origination volumes; and the stock's valuation at approx. 5.5x FY20F.

We retain our Add rating. Morgans clients can login to view our share price target and detailed research note.

More information

Morgans clients can access our further analysis in our latest reports on Wagners Holding Company, Origin Energy and FlexiGroup Limited. Alternatively, please contact your nearest Morgans office for access.

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.