Reporting Season Road Map: 21 February 2020

About the author:

Andrew Tang
Author name:
By Andrew Tang
Job title:
Analyst - Equity Strategy
Date posted:
21 February 2020, 11:40 AM
Sectors Covered:
Equity Strategy and Quant

Westpac Banking Corp - 1Q20 Pillar 3 Update

WBC's 1Q20 capital, funding and credit quality update shows credit quality to have remained sound in overall terms. The Dec-19 Level 2 CET1 capital ratio is slightly lower than we expected due to an overlay having been applied for Interest Rate Risk in the Banking Book (IRRBB). Our base case remains one of no further capital raisings by WBC over our forecast period. WBC remains our preferred major bank.

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SYD Airport - Buying tickets in advance

The 2H19 result was solid. Developments in commercial were positive. Delay in providing FY20 DPS guidance was a surprise (we ultimately expect 40 cps). Pay looks likely to be materially impacted over coming months by the Coronavirus, but history indicates pax should rebound strongly once the epidemic passes. We downgrade FY20 forecasts for the Coronavirus, but upgrade later years reflecting the FY19 information. 12 month target price lifts 12 cps to $9.10ps. While cheaper entry points may occur if sentiment to the stock weakens, we think there is sufficient value at current prices and upgrade from HOLD to ADD

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The Star Ent Grp - Doing well in a tough environment

SGR reported an in-line 1H20 result and provided commentary on 2H20 performance to date that was ahead of market expectations and should alleviate some investor concerns about the outlook for the group. Management have done a commendable job stripping ~$45m of annualised cost savings out of the business with no apparent impact to guest satisfaction levels. We continue to view SGR as an attractive long-term play and with ~17% upside to our revised target price of $5.08/share, we retain an ADD rating. 

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Super Ret Rep Ltd - Trading update shows better start to 2H

SUL's 1H result was in line with the recent trading update, with revenue +2.9% and EBIT -7.3% reflecting a weaker Macpac performance and store labour inflation/higher D&A in all divisions. The 2H20 LFL sales growth trading update was solid for SCA/Rebel (~90% of EBIT) despite cycling a strong base, while BCF and Macpac remain in negative LFL territory (bushfires). Management is clearly targeting EBIT growth in the key SCA/Rebel businesses in the 2H, offsetting a break-even result from BCF. With an undemanding valuation (12.5x FY21 PE/5.2% yield), we maintain an ADD rating. We think that a meaningful re-rate from here requires a 'steadying of the ship' approach from the new management (bushfires aside) and a clean set of numbers in 2H20. 

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IRESS Limited - Quiet achiever

IRESS delivered another year of solid growth in FY19, with underlying earnings coming in ~3% above our forecasts. IRESS continues to win new clients at an impressive rate. While FY20 will be a year of steady growth, FY21 is poised to be a stellar year as a raft of new client wins will contribute for the first time. We maintain an ADD recommendation. IRESS remains the cheapest technology platform stock in our coverage universe and has a good growth runway.

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Ebos Group Ltd - Supercharged result as CWG comes online

EBO posted a strong 1H20 and ahead of our forecasts. A stronger than expected performance in the community pharmacy division was the standout due mainly to the Chemist Warehouse Group (CWG) contract commencing 1 July 2019. EBO has guided to continued profit growth (not quantified) for FY20. We expect NPAT growth of 18.8% for FY20 and note EBO has significant funding capacity of ~$350m for further acquisitions. We make modest upgrades to forecasts resulting in an upgrade to our TP. We upgrade our recommendation to ADD from Hold.

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Whitehaven Coal  - Market debt jitters a familiar contrarian signal

Soft 1H financials reflected sharply lower coal prices and the heavy 2H production skew which we under-estimated in our forecasts. We think the market may also have been startled by the skinny divided and jump in net debt but we explain why both we and WHC's lenders have comfort in the balance sheet. Re-confirmation of the 2H operational recovery today offers comfort however investors do face fresh uncertainties in coal markets. We apply additional conservatism in revising our valuation. WHC looks far too cheap, and suits patient value investors willing to accumulate through current uncertainty.

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More information

Morgans clients can access our latest reports on Westpac Banking Corp (WBC), Sydney Airport (SYD), The Star Entertainment Group (SGR), Super Retail Group (SUL), IRESS (IRE), EBOS Group (EBO) and Whitehaven Coal (WHC) in the research section. 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.


 

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