Top 10 ASX High Quality Dividend Stocks for FY24

Team Veye | 20.07.2023

1. South32 Limited

South32 Limited is a mining and metals company with a diverse range of operations across multiple segments. These segments include Worsley Alumina, Brazil Alumina, Brazil Aluminium, Hillside Aluminium, Mozal Aluminium, Sierra Gorda, Cannington, Hermosa, Cerro Matoso, Illawarra Metallurgical Coal, Australia Manganese, and South Africa Manganese. The company’s activities span various regions, including Australia, Brazil, South Africa, Mozambique, Chile, the United States, and Colombia. South32 is involved in bauxite mining, alumina refining, aluminum smelting, copper mining, silver, lead, and zinc mining, base metals exploration and development, nickel production, metallurgical coal mining, and manganese mining. With its extensive portfolio of operations, South32 plays a significant role in the mining and metals industry, contributing to the global supply of key commodities.

Stock Performance Profile:

(Source: Trading View) One-Month Performance of S32 compared with Australian-All Ordinaries Index (XAO) and Basic Materials Index (XMJ)

From the Company Reports:

On 8 May, 2023, South32 Limited (ASX / LSE / JSE: S32; ADR: SOUHY) (South32) delivered a confirmatory statement, reporting that the 100% owned Hermosa project, situated in Arizona, United States, has been confirmed by the US Federal Permitting Improvement Steering Council, which is an independent federal agency body, as the first project to be added to the FAST-41 process and scored well in recognition of the project’s potential to supply critical minerals in the local provinces of the US.

Later, to qualify for the FAST-41 process, the project must undergo several tests to justify its worth to the nation, while the Premier Hermosa project currently has enough strength to accommodate two critical minerals: zinc and manganese.

Updates from the quarterly report of March 31, 2023

  • Copper equivalent production surged by 7%, following the investment made in achieving strong growth and additionally comprising an increasing share of low-carbon aluminum in the portfolio.
  • The resurgence in commodity prices drove materializing price realization benefit Q-O-Q for the hard coking coal and manganese products in the given market demand; Manganese ore production has risen by 6% Y-O-Y, with Australia achieving its highest ever manganese production.
  • Aluminum production ramped up by 15% from the combined realization benefit received by ownership in ‘Mozal Aluminium’ and ‘Brazil Aluminium’ mainly contributed to a 6% production hike.

Financial Matrices with Commentary:

(Source: Company Reports)

During the first half of the financial year 2023 (H1 FY23), S32 faced a challenging business environment, witnessing a decline in revenue to US$3,696 million, which represented an 8% decrease compared to the previous corresponding period (PCP). The company’s profitability was significantly impacted, as evidenced by a notable 34% decrease in profit after tax, resulting in a total of US$685 million.

Despite the difficulties, S32 was able to maintain a commendable group operating margin of 31.5%. The company reported underlying EBITDA figures of US$1,364 million. Furthermore, the underlying earnings amounted to US$560

In terms of cash flow, S32 generated US$127 million in free cash flow during H1 FY23. However, the company also had a net debt of US$298 million as of 31 December 2022, indicating its existing financial obligations.

Despite the challenges faced, S32 prioritized its shareholders’ interests, as evidenced by returning US$927 million to them during the first half of the financial year 2023. This return suggests the company’s commitment to rewarding its investors amid the uncertain market conditions.

Dividend Profile:

(Data Source: asx.com) (Graphic: Veye Research)

The Company has exhibited a positive dividend performance over the past five years, indicating a commitment to returning value to its shareholders. In the fiscal year FY22, the company declared a final dividend of 257 US cents per share, fully franked. This dividend payout represents ~54% of the underlying net profit after tax (NPAT), highlighting the company’s profitability and ability to distribute earnings to shareholders. With a full-year dividend yield surpassing 8%, South32 Limited demonstrates its dedication to delivering attractive returns to shareholders while also maintaining a strong balance sheet.

Forecasted Matrices:

(Source: Refinitiv, Thomson Reuters)

S32 foresees a decline in EV/Revenue from 1.5x in FY24 to 1.48x by FY25, while EV/EBITDA is projected to decrease from 4.8x in FY24 to 4.26x in FY25. The company expects an improvement in its PE multiple from 10.46x in FY24 to 8.38x by FY25. Additionally, S32 aims to increase its FCF yield from 10.66% in FY24 to 12.5% by FY25. Furthermore, the company plans to enhance its profitability metrics, with ROA anticipated to rise from 9.12% in FY24 to 10.33% and ROIC from 12.2% in FY24 to 13.5% by FY25. These projections demonstrate the company’s positive outlook and potential for growth in the specified fiscal years.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

S32 stands out among its peers with a significantly lower PE ratio of 5.46x compared to PLS at 9.14x, MIN at 19.24x, and IGO at 14.72x. This suggests that S32’s stock is relatively undervalued compared to its industry counterparts, potentially making it an attractive investment option. Moreover, S32 exhibits a conservative Debt to Equity ratio of 17.6%, which is lower than MIN’s high ratio of 88.9% but slightly higher than PLS at 12.6% and IGO at 18.8%. This indicates S32’s relatively lower reliance on debt to finance its operations compared to MIN but also implies it has a slightly higher debt burden compared to PLS and IGO.

Furthermore, S32’s dividend yield is notably higher at 8.21% in comparison to its peers, with PLS offering a dividend yield of 2.16%, MIN at 3.03%, and IGO at 1.17%. S32’s generous dividend yield suggests a commitment to returning value to its shareholders and may attract income-oriented investors seeking higher dividend payouts.

Overall, when considering its low PE ratio, moderate Debt to Equity ratio, and generous dividend yield, S32 appears to be an appealing investment option with favorable valuation metrics and attractive returns for potential investors compared to its industry peers PLS, MIN, and IGO.

Industry Analysis:

South32 operates in the metal and mining industry; it produces commodities and develops natural resources. These critical minerals and metals are important for EV (Electric Vehicle) market’s growing demand. The global shift towards renewable energy and EVs affects the demand for South32’s coal and other fossil fuel-related products. It operates in a highly competitive market, competing with companies like RIO Tinto, Latin Resources, BHP, Glencore, Anglo-American, and Vale globally. It has diversified itself in North and South America, Australia, and South Africa and has partnerships with junior explorers around the world.

Australia is a leading global player in the metals and mining industry. The country is abundant in natural resources and metals and mining is a significant contributor to its economy generating export based revenues. Value added by the metal ore mining industry is $151.59 Billion and the total income of the metal ore mining industry is $222 Billion. The growth rate expected of the Mining and Metals industry in Australia is 3.7% till year 2025. The metals and mining industry faces increased scrutiny and regulatory challenges related to environmental sustainability, carbon emissions, and mining practices.

Risk Analysis:

Geopolitical events directly impact mining and metals companies as prices are impacted by such events. High inflationary pressures, changing global demand, environmental concerns, and rising commodity prices are some of the other risks South32 faces. This industry is highly sensitive to a shortage of labor or skilled workforce since it is a labor-intensive industry. Supply chain disruptions in recent years, though peaked but still pose a risk to the highly dependent segment. The higher capital required for exploration and development is a going concern for metals and mining companies.

Outlook:

The South32 is well poised, portraying a better outlook as the capital allocation is headed for the next generation of mines with over 25 more exploration opportunities ahead. The next phase of growth is expected to materialise from the development options available in North America.

  • The Hermosa project is the most advanced one and has the immense potential to produce two different critical minerals with differentiated development options: one is the Taylor zinc-lead-silver deposit with an objective of 20 years plus resource life in the first quartile of the cost curve. The feasibility study and FID are expected to commence in 2HCY23, and the other is the Clark battery-grade manganese zinc-silver deposit, where Pilot plant production commenced, started decline construction in 2H CY23, and is under discussion with potential customers to supply battery-grade manganese in North American markets.
  • The regional resource growth potential: highly prospective regional land package availability with copper and base metal targets

Guidance FY-2023

The production was downgraded in the March 2023 quarter because of adverse weather conditions and other temporary obstacles. The company is on track to achieve FY23 production guidance at the majority of their operations, FY2023 Operating unit cost guidance to remain as it is, and Capital expenditure guidance is unchanged. The company has been well directed to provide efficiencies to reduce cost pressures.

  • Mozal Aluminium reduced output; for FY 2023, the production guidance is revised to lower output by 8%.
  • Sierra Gorda resulted in strong volume growth in copper and affirmed that it was on track to achieve FY23 production guidance.
  • Cerro Matoso nickel production is unchanged, with FY23 production guidance lowered by 7%.
  • Cannington’s FY23 production guidance was revised down by 6%.
  • Australia Manganese produced 6% more year-to-date in volumes, underpinning a 3% increase under the FY23 production guidance.
  • South Africa’s manganese production level has increased by 5% year to date and is on track to achieve FY23 guidance.
  • Illawarra Metallurgical Coal’s: Downsizing by 7% in FY23 production guidance.

Technical Analysis:

(Chart source: TradingView) Monthly and Weekly Candlestick Price Chart Pattern)

The stock is exhibiting several bullish signals and showing signs of potential upward momentum. Here is a summary of the observations from each time frame:

Monthly Chart:

  • The stock had been trading in a negative zone since April 2023, but it has now shown signs of reversal.
  • It has completely rejected further lows and engulfed the previous month’s candle.
  • The stock is trading near its high, indicating strength in the upward movement.
  • The indicators are turning upside, further supporting the bullish momentum.

Weekly Chart:

  • The stock has recovered from the lower Bollinger band, a potential sign of a bounce-back.
  • Support has been maintained at the 200-day Exponential Moving Average (EMA), indicating a strong underlying support level.
  • The stock is currently trading at the 14-day EMA, which can act as a dynamic support level.
  • The indicators are positioning upside, signaling a continuation of the bullish trend.

Daily Chart:

  • The stock is trading above the 14-day and 50-day EMAs, suggesting strength and positive momentum.
  • The indicators are well-supported, further bolstering the bullish potential.

Overall, the price movement in all time frames is rejecting the downside, and the indicators are supportive of a bullish scenario.

Veye’s Take:

The South32 augurs well for the higher production volumes anticipated to be accomplished in FY 2023, with operation costs and capital expenditure guidance largely remaining stable. A significant milestone has been achieved as the advanced Hermosa project contains immense potential to develop and supply two critical minerals in the local provinces of the US to benefit the nation. Currently, the company is pursuing an integrated permitting strategy for our Taylor and Clark deposits, which are both placed locally. The requisite need at the current juncture is only for the final approval, which is still awaiting state and federal approval. So far; the company has secured all required permits to finish the critical path dewatering activity, which will give access to both the Taylor and Clark deposits, and the second water treatment plant. The company demonstrated strong fundamentals through its buyback strategy to justify adequate cash on hand on the balance sheet. The company is committed to reorienting its portfolio towards commodities critical to a low-carbon future. Veye recommends a” Buy” on “South32 Limited” at the closing price of $3.815 (As of 21 July 2023).

2. HELIA GROUP LIMITED

Helia Group Limited is an Australia-based company that provides lenders mortgage insurance (LMI) in Australia. LMI protects lenders if a borrower defaults on a home loan and there is a shortfall in the sale proceeds from the secured property. It allows borrowers to purchase a property with a smaller deposit. Home buyers can pay the LMI cost upfront, capitalize it into their loan, or pay a monthly LMI fee. Helia Group Limited offers tools and resources for estimating and comparing options for home ownership.

Stock Performance Profile:

(Source: TradingView) HLI One-Year Performance compared with ASX-All Ordinaries Index (XAO) and Financial Index (XFJ)

From the Company Reports:

Under AASB 17 reduction in Net Assets was $215 million as of

1 January 2023, this is towards the lower end of the advised range of $210 million – $270 million.

As compared to $186.8 million previously reported under AASB 1023, the FY22 Statutory NPAT under AASB 17 was $201.2 million; it was observed that there were large differences in individual constituents that could vary from year on year.

(Graphic Source: Company Reports)

The data submitted for the 1st quarter of 2023 included, NPAT increasing from $17.6 million in 1Q 2022 to $106.7 million in 1Q 2023. The PCA (Prescribed Capital Amount) coverage ratio reduced from 1.98x in 1Q 2022 to 1.73x in 1Q 2023 due to the declaration of dividends.

Financial Matrices with Commentary:

The above reporting values are based on the AASB 1023 General Insurance Contract (older one). (Source: Company Reports).

Helia Group Limited delivered a robust financial performance in the fiscal year ending on December 31, 2022. The company achieved impressive growth, with underlying net profit after tax increasing by a significant 21.3% to reach $288.4 million. This strong growth underscores Helia’s ability to generate substantial profits, excluding certain exceptional items or one-time events.

While the statutory net profit after tax experienced a modest decline of 3.1% from the previous year, amounting to $186.8 million, it is important to note that this figure includes the impact of those exceptional items

Helia Group’s performance on a per-share basis was equally impressive. Both the statutory and underlying diluted earnings per share (cps) showed positive growth. The statutory diluted EPS increased by 4.7% to 48.9 cps, while the underlying diluted EPS saw a substantial rise to 75.6 cps. This signifies the company’s ability to generate greater earnings for each diluted share outstanding, reinforcing its strong financial performance.

In addition, Helia Group demonstrated improvement in its net tangible assets per share, which increased to $4.06 from $3.75 in the previous fiscal year. This rise reflects the company’s ability to generate value and strengthen its asset base, which bodes well for the company’s financial stability and growth prospects.

Helia Group’s underlying return on equity experienced a notable increase of 240 basis points to reach 18.7%. This highlights the company’s enhanced profitability in relation to the equity invested by its shareholders.

Dividend Profile:

(Graphic: Veye Research)

The company has recorded significant growth across its dividend distribution profile. The dividend per share increased from $0.05 in August-2021 to $0.24 in March-2022. The dividend payment profile continued its success with a dividend per share of $0.12 in September-2022 and maintaining the DPS of $0.41 for March-2023. The significant growth in the dividend per share provides long-term shareholders with a steady income stream.

Peers Analysis:

(Source: Refinitiv, Thomson Reuters)

HLI appears to have a relatively lower PE multiple of 6.88x compared to its peers. This suggests that HLI is trading at a more attractive valuation in terms of earnings compared to Liberty Financial Group (LFG) and Australian Finance Group Ltd (AFG), but not as favorably as Pepper Money Limited (PPM). HLI’s P/B ratio of 0.78x indicates a lower valuation in terms of its book value compared to LFG and AFG, but is on par with PPM.

In terms of dividend yield, HLI stands out with a significant dividend yield of 15.18%. This is notably higher compared to LFG and PPM, which do not provide a dividend yield. However, AFG offers a dividend yield of 9.28%, which is lower than HLI.

Overall, based on the valuation metrics provided, HLI appears to have a relatively attractive valuation in terms of its PE multiple and P/B ratio compared to its peers. Additionally, the high dividend yield offered by HLI may be appealing to investors seeking income from their investments.

Industry Analysis:

LMI (Lender’s mortgage insurance) market in Australia has experienced steady growth over the years, driven by increasing demand for residential property and tightening of lending standards. New housing loan industry commitments are projected at $345 billion currently growing at 4.8% CAGR since year 2014. The market size is determined by the total loaned amount and insurance is required when the borrowers have a loan-to-value ratio of more than 80%. The Australian LMI industry is dominated by Helia Group (formerly Genworth Mortgage Insurance) with ~36% market share, QBE Lenders’ Mortgage Insurance, Insurance Australia Limited, and Suncorp Group Limited. These companies provide LMI products and services across the country and have moderate competition for market share. The availability of LMI has a significant impact on the housing industry as it allows borrowers to enter the market with comparatively smaller deposits increasing the overall demand. The Australian Prudential Regulation Authority (APRA) regulates the LMI industry and ensures its stability. It sets capital requirements and conducts stress tests. The performance of the LMI industry is related to the overall health of the economy and the housing market.  

Risk Analysis:

Since it involves lending and borrowing mortgages, interest rate risk is one of the most significant risks. Other factors include housing market conditions and government policies affecting lending services. Regulations are also high in financial services; Changes in regulations and lending standards can impact the operations and profitability of the Company. The company manages risk by transferring the risk of a high loan-to-value ratio (more than 80%) to insurance providers and lenders can thus mitigate potential losses in the event of default.

Outlook:

A sustainable ordinary dividend of 26 cps with some scope for dividend yield anticipated to move higher; the current annual dividend yield rate is 15.18%, along with the net interest income, to combine growth rates in a similar fashion. The PCA coverage ratio is expected to return to the target range by the end of FY 2024. In FY 2022, the pro forma PCA coverage ratio was 1.93x above the management target range of 1.4x–1.6x. The delinquency rate will be low, improving the company’s loan book. Insurance revenue is expected to benefit from the gross write-off of premiums and high levels of policy cancellations.

Technical Analysis:

(Chart source: TradingView) Technical Chart-Monthly and Weekly Candlestick Price Chart Pattern

The stock price has been exhibiting strong bullish momentum and is likely to continue its upward trend in the near to medium term. Here’s a breakdown of the analysis based on the monthly and weekly charts:

Monthly Chart:

  • Since March 2023, the stock price has consistently remained above the 14-day Exponential Moving Average (EMA). This indicates that the price has been holding well and rejecting downward movements.
  • The fact that the price pattern is trading above the high of the previous 15 months suggests a strong bullish momentum and a potential upside breakout.
  • Additionally, the indicators positioning upside further supports the strength of the bullish trend.

Weekly Chart:

  • Similar to the monthly chart, the price pattern on the weekly chart is also trading above the EMAs and above the middle Bollinger Band.
  • The fact that the indicators are positioned upside indicates a potential for further upside potential in the stock price.

Considering both the monthly and weekly charts, where the price pattern remains above the EMAs and is supported by the indicators, it suggests that the bullish momentum is likely to continue in the near to medium term.

Veye’s Take:

Helia Group Limited has taken measures for technological upgrades along with the new underwriting system, releasing an incredible, unique self-managed superannuation fund (SMSF). The company has a strong portfolio suite comprised of strategic partnerships and investments of household capital, with a prevailing investment base in TicToc and OSQO. The prescribed capital amount and PCA coverage ratio are well above their target range to remain sustainable. HLI retained strong customer bases, the company with its strong fundamentals quoting fairly valuations of a PE multiple of 6.88x and EPS of $0.506 relatively lower than its peers. Veye recommends a “Buy” on “Helia Group Limited” at the closing price of $3.660 (As of July 21, 2023).

3. AURIZON HOLDINGS LIMITED

Aurizon Holdings Limited is an Australia-based rail freight operator, specializing in the transportation of goods and materials through its Network, Coal, and Bulk segments. The Network segment is responsible for managing and maintaining the Central Queensland Coal Network (CQCN). This network provides access to and operates the infrastructure necessary for the transportation of coal. The segment ensures the smooth functioning of the network and the provision of maintenance and renewal of its assets. The Coal segment focuses on the transport of coal from mines located in Queensland and New South Wales. It plays a crucial role in the coal industry’s supply chain by efficiently moving coal to end customers and ports. This segment is integral to supporting the export of coal from Australia. The Bulk segment offers integrated supply chain services to a diverse range of customers, including those in the mining, metal, industrial, and agricultural sectors. It provides comprehensive solutions that encompass rail and road transportation, port services, and material handling. This segment operates across Queensland, New South Wales, and Western Australia, catering to the logistical needs of various industries. Aurizon Holdings Limited is recognized for its expertise in rail design, engineering, construction, management, and maintenance. They offer specialized services in these areas, demonstrating their commitment to providing efficient and reliable rail solutions to their customers. The company’s operations also extend to bulk rail haulage and general freight assets, indicating their involvement in transporting a wide range of goods beyond coal. This diversified approach allows Aurizon to serve a broader customer base and contribute to the efficient movement of goods across Australia.

Stock Performance Profile:

(Source: Trading View) Three-Month Performance of AZJ compared with the Australian-All Ordinaries Index (XAO) and the Industrials Index (XNJ)

From the Company Reports:

Aurizon Holdings Limited (ASX: AZJ) is focused on adding new capacity in rolling stock, track, ports, and terminals other than its major businesses to take advantage of the opportunity for growth in the business, where the company is investing capital to support capacity expansions.

There are multiple contracts extended for future terms, including Oz Minerals for another 5 years, SIMEC for a 3-year contract, and Gypsum Resources Australia Track Investment for a 10-year term that exhibit a supportive demand scenario for the company. $1.45 billion acquisition deal integrated into bulk business units in the past has provided stable operational performance to date. Wide scope in the commercial pipeline, i.e., approximately 200 opportunities worth $1.5 billion in annual revenue, where the company finds its place with exposure to new economy markets other than its massive existing operational presence in Australian commodity export.

(Source: Company Reports)

Aurizon Holdings Limited is headed full-fledged into the proliferation of containerized services with a probable investment size of $550 million. A national expanded containerized freight service has been commenced with the help of bulk infrastructure, as follows: 11-year term contract begun with Team Global Express (TGE), which is equivalent to approximately 70% of the new capacity in the recent past. Services added in the East-west and north-south wholesale line haul operations with more than 200K TEU annually the expected time frame to accomplish and materialise the ramp-up to a full-fledged operation by 2024.

(Source: Company Reports)

Financial Matrices with Commentary:

(Source: Company Reports)

The company reported a revenue rise of 12% in its half-yearly financial performance that ended on December 31, 2022, at $1,694 million, and lowered its EBITDA by 7% to $673 million. This was mainly attributed to sluggish earnings growth in ‘coal and network’ due to heavy rain fall; but was substantially supported by Bulk earnings, resulting in a NPAT subdued by 34% to $169 million. EPS came in at $9.2 cps, while ROIC reduced by 1.9 ppt to currently 8.5%, which is yet above the estimated weighted average cost of capital (WACC) of 8.18%, a rate percentage applicable from July 1, 2023, under the preliminary reset WACC.

Segment Performance:

(Source: Graphic; VI Research)

The consolidated revenue was up by 12% due to contributions from Bulk central inclusion and inflated fuel and energy prices. The segmented revenue mix of coal was down by 4% to $761 million, the bulk was partly imparted by 51% to $521 million, and Network by 7% to $583 million. Consolidated EBITDA was slashed by 7%, or $54 million, on account of subdued performance in coal, down by 20%, to $230 million, and in network, down by 4%, to 363 million, due to continued heavy rain fall. A 33% growth contribution to the group EBITDA has supported the back drop. The acquisition of Bulk Central, utility costs, and labour costs increased the operating expenses, mainly.

Dividend History:

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

An interim dividend of 7.0 cps, 100% franked, for a payout ratio of 75% appeared on a downward trajectory as the Company has been confronting operational challenges that impact the gross level income, subsequently resulting in a lower net profit. In FY 2022, the total dividend distribution was 0.22 cps; in FY 2021, the total dividend distribution was 0.28 cps; and in FY 2020, it was 0.28 cps. However, the management, with its commitment to benefiting investors, demonstrated an in-line dividend distribution policy.

Forecasted Valuations:

(Source: Refinitiv, Thomson Reuters)

The projected metrics indicate improved valuations for the company, reflecting positive growth prospects. The EV/Revenues ratio is expected to improve from 3.65x in FY23 to 3.23x by FY25, indicating a more favorable market valuation relative to revenues. The EV/EBITDA multiple is projected to improve from 8.69x in FY23 to 7.32x by FY25, indicating increased profitability and operational efficiency. Similarly, the EV/EBIT ratio is expected to decline from 16.09 x in FY23 to 12.19 x by FY25, reflecting improved earnings potential. The PEG ratio, which considers the company’s growth rate, is projected to decrease from 9.93x in FY23 to 7.23x by FY25, suggesting an attractive investment opportunity. Additionally, the price-to-cash flow ratio is expected to decline from 9.97x in FY23 to 5.7x by FY25, indicating stronger cash flow generation relative to the stock price.

In terms of profitability metrics, the Return on Assets (ROA) is projected to increase from 5.42% in FY23 to 6.77% by FY25, indicating improved efficiency in asset utilisation. The Return on Invested Capital (ROIC) is expected to rise from 6.5% in FY23 to 6.97% by FY25, reflecting increased returns on invested capital. Furthermore, the Return on Equity (ROE) is projected to improve from 9.2% in FY23 to 11.69% by FY25, indicating enhanced profitability and shareholder value.

Overall, these projected metrics suggest that the company offers good value to investors, with improving valuations and profitability indicators, indicating positive growth potential and attractiveness as an investment opportunity.

Industry Analysis:

The Australian rail Freight Transport market is anticipated to reach US$4.45 billion in 2023 and is predicted to touch $6.63 billion by 2028, a CAGR of 6.63% by 2028. The Market has shown a growth rate of 17.8% in 2022. In 2021, the industry achieved a market value of USD 33.8 billion. The global railway system market size was $27.2 billion in 2021 and is forecast to reach $42.4 billion by 2031, a CAGR of 4.6% by 2031. Aurizon Holdings Limited is the largest rail freight operator in the industry.

Risk Analysis:

  • Challenging operating environment:Heavy rains badly hit the coal volume and also impacted bulk operations in the recent quarter as well.
  • Labour shortages: shortagescaused disruption in the operations.
  • Rail/road safety
  • Compliance with regulations.
  • Developing market presence and adaptability.
  • Technical failure/cybersecurity, Both impact service delivery.
  • Strategic alliance risk.

Outlook:

(Source: Company Reports)

Aurizon Holdings Ltd. has the unique advantage of price protection through CPI-linked securities; therefore, in any given circumstance of inflation or interest rate risk, revenue is secured in the court of the company. In the company’s update, WACC and forecasted inflation contributed $120 million to adjusted revenue for FY 2024. Despite many obstacles, including heavy rain and labour shortages, the company remains affirmed in its outlook for FY2023 in the range of $1,420 million to $1,170 million. The acquisition of Bulk Central track infrastructure and Darwin port are the key aspects of capacity expansions, as is the establishment of a strong foot print across the market segments. Along with investing in rolling stock, track, port, and terminals, this will lead to better Containerized freight service delivery. The Australian domestic freight task is envisaged to rise by 26% in 2020–2030, and there are specific opportunities to meet rail transportation demand and increase supply chain efficiency. The recent binding agreement with TGE will boost the containerized fright business of Aurizon Holdings Ltd. and simultaneously strengthen its presence across the market.

(Chart source: TradingView) Technical Chart-Monthly and Weekly Candlestick Price Chart Pattern

On the monthly chart, the higher highs pattern suggests upward momentum. Additionally, the price trading above the 14-day and 50-day Exponential Moving Averages (EMA) indicates strength in the stock. The RSI at 52 suggests a neutral position, providing room for further upside potential. The proximity to the upper Bollinger Band also indicates bullish sentiment.

On the weekly chart, the price pattern is above the 14-day, 50-day, and 200-day EMAs, indicating a bullish trend. The fact that the price is also trading above the upper Bollinger Band suggests an extended rally. The indicators positioning upside further support the bullish outlook.

Considering these factors, it can be inferred that the stock is displaying a bullish trend across different time frames.

Veye’s Take:

A triumphant status, post-recognition of a successful pact with ‘One Rail, positions Aurizon Holdings Ltd. as a prominent market player. Multiple contract extensions to longer-term periods, investing in new capacity, and consistency in in-line operational performance delivery, despite the many challenges faced, remain stabilised for a positive operational income outlook. Understanding the growth opportunity prevailing in the existing business, Aurizon Holdings Ltd. is taking an extra chance in rolling stock, track, port, and terminals, indicating management’s confidence in profitability. The longer-term contract with TGE provides stability and revenue certainty. Aurizon Holdings Ltd. is trading at a PE multiple of 18.67x, in line with the industry median, an ROE of 12%, and a dividend yield of 4.57%. The management is well-focused on delivering value to its investors. Veye recommends a “Buy” on “Aurizon Holdings Limited” at the closing price of $3.735 (As of 21 July 2023). 

4. JINFOMEDIA LTD

Infomedia Ltd is a leading provider of automotive solutions, offering DaaS and SaaS platforms. With a focus on the data-driven automotive ecosystem, the company provides products like Microcat EPC, Microcat Partsbridge, and Superservice Menus. Their platforms empower automakers and dealers with efficient catalog management, customer relationship management, and digital marketing support. Infomedia’s advanced data analytics and insights platform, Infodrive, enables predictive marketing and dealer performance programs. With a commitment to innovation and customer satisfaction, Infomedia is transforming the automotive industry.

(Source: Company Reports)

Stock Performance:

(Source: Trading View) Six-Month Performance of IFM Compared with the Australian All-Ordinary Index (XAO) and Technology Index (XTX)

From the Company Reports:

On 22 March 2023, Infomedia Limited (ASX: IFM) in its investor presentation presented 1H FY23 results. Recurring Revenue was $62.3m, up 9.8% from 1H FY22 and up 6.9% from 2H FY22. Exit ARR was $127.1m representing strong growth of 10.8% from 1H FY22 and up 6.5% from 2H FY22.

The company witnessed growth in Underlying EBITDA (from $24.11 million to $24.55 million) and Underlying PBT (from $8.10 million to $8.67 million) in the half. Underlying NPAT decreased slightly (from $8.25 million to $7.10 million) reflecting a larger tax charge in the half. Reflecting reduced net non-underlying items such as earn-out payments, 1H FY23 reported NPAT grew 39% over 1H FY22 and grew 2% over 2H FY22.

1H FY23 results show recurring revenue up by 9.8% relative to PCP and underlying free cash flow of $ 10.7 million up by 19.7%. Underlying cash EBITDA is down by 13.3% on PCP to $11.5 million and is in line with 2H FY22.

Growth in recurring revenue reflects the strategy to focus on moving away from one-off revenue which dropped to $0.6 million and growing the recurring revenue. For 1H FY23 reported NPAT (net profits after tax) of $4.8 million, up by 38.5% on 1H FY22 which was mostly due to condensed acquisition earn-out expense. This resulted in EPS up by 38.7% to 1.29 cps and growth in EPS is a positive sign of the company’s profitability. However, Company declared an interim dividend of 2.2 cents per share (CPS) franked at 36% down by 15.4%. Infomedia has $57 million of cash on hand and remains debt free reflecting a strong balance sheet position.

Financial Matrices with Commentary:

Infomedia Ltd (ASX: IFM) released its 1H23 financial results, showcasing both positive and challenging aspects.

(Graphic Source: Company Reports)

The company experienced a 6.7% increase in total revenue, reaching $62.9 million. Additionally, the company’s Exit ARR reached $127.1 million, reflecting a growth of 10.8%. However, there was a decline in underlying cash EBITDA, which decreased by 13.3% to $11.5 million, despite an improvement in recurring cash EBITDA margins from 15% in 2H22 to 17% in 1H23. On the bright side, Infomedia achieved a significant improvement in NPAT, with a 38.5% increase to $4.8 million, and earnings per share rose by 38.7% to 1.29 cents per share. Furthermore, the company generated an underlying free cash flow of $10.7 million, a 19.7% increase, and maintained a healthy cash position of $57 million while remaining debt-free.

Segment Performance:

The projected (next year), current (this year) yield and historical yield (previous year) is shown in the chart below.

(Graphic Source: Refinitiv, Thomson Reuters)

APAC region, recurring revenue contributed 15.11% growth at $19.8 million in 1H,23. While the underlying cash EBITDA consistent with prior half at 72%. Infodrive and super service growth in revenue mainly added due to new customer addition i.e. Nissan motor, Thailand.

American region, recurring revenue up by 14% from1H22, and underlying cash margin reported at 62%. New customer service, maintenance added Microcat top line growth; along with, simple part revenue contributed growth in America region.

APAC region, recurring revenue was marginally higher at $19.2 million. While the underlying cash margin reported subdued by 1% at 81% in the 2H 22. Increase in data product usage drove the increase in Infodrive revenue in the respective region.

Dividend History:

Infomedia has exhibited a positive dividend performance over the past three years, indicating a commitment to returning value to its shareholders. In the previous fiscal year (FY22), the company has declared a final dividend of 56 cents per share, 42% franked. While in financial year’23, the Company provided dividend of 22 cents till now. The dividend highlights the company’s profitability and its ability to distribute earnings to shareholders. The total dividend yield for year amounts to 3.35%. With a full-year dividend it demonstrates its dedication to delivering attractive returns to shareholders while also maintaining a strong balance sheet.

Relative Valuation:

According to the provided information, the table indicates the expected performance of a company between 2023 and 2025. The improved valuation multiples, such as EV/Revenue, EV/EBITDA, and EV/EBIT, show a positive trend with decreasing multiples over the projected period. This suggests that the company’s value is expected to improve, offering good investment potential. The PE multiple, which is currently at 61.8x, is projected to decrease to 28.95x by FY24 and further to 23.11x by FY25, indicating a more favorable valuation. The PEG multiple, which takes into account earnings growth, is also expected to decrease from 3.84x in FY23 to 2.41x by FY25, reflecting improved growth prospects. The company anticipates enhanced earnings growth and profitability. The projected FCF yield, a measure of cash flow generation relative to market value, is expected to increase from 1.86% in FY23 to 4.12% by FY25, indicating improved cash flow efficiency. Moreover, the profitability metrics, such as ROA (Return on Assets) and ROIC (Return on Invested Capital), is projected to increase, demonstrating operational excellence and efficient use of resources. Overall, these factors suggest that the company presents good value and improved prospects for the specified period.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

IFM is currently trading at a PE (Price-to-Earnings) ratio of 62x. When compared to its peers, RDY has a higher PE ratio of 87.71x, PPS has a PE ratio of 23.04x, and DSE has a significantly higher PE ratio of 130x. This suggests that IFM’s stock may be relatively undervalued in terms of earnings when compared to its peers.

Looking at the price-to-sales (P/S) multiple, IFM has a ratio of 4.86x, which is slightly higher than RDY’s P/S ratio of 4.54x, slightly lower than PPS’s P/S ratio of 5.17x, and significantly lower than DSE’s P/S ratio of 8.73x. This indicates that IFM’s stock is relatively valued in line with its peers based on sales figures.

Examining the Return on Equity (ROE), IFM has an ROE of 5.5%, which is lower than RDY’s ROE of 10.2%, higher than PPS’s ROE of 4.09%, and lower than DSE’s ROE of 6.3%. This indicates that IFM’s profitability, in terms of generating returns from shareholders’ equity, is lower than RDY but higher than PPS and DSE.

In terms of dividends, IFM provides a dividend yield of 5.29%, while PPS offers a higher dividend yield of 7.75%. On the other hand, RDY and DSE do not provide any dividends.

Industry Analysis:

The global automotive software market presents a huge opportunity with a 13.3% CAGR from US$8.5b in 2020 to US$18.0 in 2026.  The global automotive big data market presents another big opportunity with a 16.3% CAGR from US$3.6b in 2020 to US$8.9b in 2026. The global connected car solutions market is also an ample opportunity with a 19.0% CAGR from US$23.6b in 2021 to US$56.3b in 2026. The total addressable market expected is US $83b by 2026.

Infomedia’s software solutions are widely used by OEMs and dealerships, enabling efficient cataloging, ordering, and distribution of automotive parts. By leveraging its established relationships with OEMs, it has pursued opportunities to provide software solutions to automotive manufacturers and dealerships worldwide.

The automotive industry is undergoing significant transformation with the advent of Electric Vehicles (EVs), autonomous driving, technologies, and the rise of mobility services. The industry is becoming more digitalized with emphasis on online platforms. Infomedia can leverage this trend by providing integration between its software solutions and online ordering platforms, enhancing the efficiency of parts procurement and distribution.

Market Risk:

Increased risk of falling margins and rising investment, long-term market volatilities, new disruptive business models, and vehicle retreats from globalization pose notable challenges to growth. With high dependence on technology based software solutions, Company has a risk of facing a disruption caused by the tech industry. Consumer discretionary spending and preferences change and pose a risk to the company’s products and services. Since the Company is dependent on technology there is a risk of cybersecurity and data theft.

Outlook:

Infomedia operates in an industry continuously evolving with advancements in technology. As vehicles become more complex and interconnected, demand for sophisticated software solutions is rising. The company’s ARR and ARC are beginning to trend in the right direction; it is focused on growing the ARR pipeline and cost control measures.

The company is implementing scalable execution of IFM’s new global roadmap led by product innovation. It is leveraging on a more efficient integrated operating model known as Biz-Dev-Ops (Business Development Operations). It is deriving unique combination of benefits across the ecosystem of OEMs/NSCS, partners, and dealers. It is invested into automotive data monetization platform.

The Company’s recurring revenue guidance is between $64M – $67M in 2H FY23 while the FY23 guidance is between $126M – $129M. Exit ARR (annual recurring revenue) is expected to be between $129m to $132m as of 30 Jun 2023. Infomedia re-affirms its total revenue guidance of FY23 to be between $127 million to $131 million.

(Graphic Source: Company Reports)

Technical Analysis:

(Chart source: Trading View) Monthly and Weekly Candlestick Price Chart Pattern

The stock has been displaying a robust bullish trend, supported by multiple indicators and favorable price patterns. Since October 2022, the 200-day Exponential Moving Average (EMA) has served as a resilient base, indicating a positive and enduring long-term trend. Furthermore, the stock currently trades above the 14/50-day crossover, a signal of strong upward momentum. It has consistently closed higher than the previous 10 months, showcasing sustained bullishness. The upward positioning of indicators provides further confirmation of the stock’s positive trend. Additionally, the weekly candlesticks reveal a significant rejection of downside movements, characterized by long wicks. The stock demonstrates solid support at the 14-day EMA and continues to trade comfortably above the 14/50/200-day EMAs. Collectively, these factors contribute to a highly favorable outlook, indicating substantial upside potential for the stock.

Veye’s Take:

Infomedia has demonstrated steady revenue growth over the years driven by its strong customer base and increased demand for automotive software solutions. It witnessed recurring revenue growth across all regions and all products. Due to which it has delivered consistent dividends over the past several years with a payout ratio of 130% for last fiscal year. The company’s financial performance is closely related to the overall health of the automotive industry as its technology relies on vehicle sales and aftermarket demand. It has been expanding its global footprint by targeting international markets. The expansion strategy enables the diversification of revenue streams and reduces its dependence on any single market. Factors such as technological advancement, global economic conditions, and industry trends can influence the growth trajectory of Infomedia. Veye recommends a “Buy” on “Infomedia Limited” at the closing price of $1.650 (As of 21 July 2023).

5. BENDIGO AND ADELAIDE BANK LTD

Bendigo and Adelaide Bank Limited is an Australian banking and financial services company. They offer a variety of services, including consumer and business lending, deposit-taking, payments, wealth management, and foreign exchange. The company operates through two main segments: Consumer and Business/Agribusiness. The Consumer segment focuses on serving individual customers and includes services such as branch banking, digital banking through the Up platform, mobile relationship managers, wealth services, and customer support functions. The Business and Agribusiness segment caters to small and medium-sized businesses, providing relationship banking services, portfolio funding, and banking services specifically designed for agribusiness and rural communities. This segment also includes Delphi Bank, which serves business customers in the Greek Australian community. 

Stock Performance Profile:

(Chart Source: Trading View) Six-Month Performance of BEN compared with the Financials Index (XFJ) and ASX- All Ordinary Index (XAO).

From the Company Reports:

Bendigo and Adelaide Bank Limited (ASX: BEN) on 16 June 2023, notified dividend distribution with security BENPH of $1.418 to be payable on 15 Sep 2023, and on 14 June 2023, with security BENPG of $1.406 to be payable on 13 Sep 2023.

On 3 April 2023, BEN made an announcement that the Company had integrated and completed the acquisition of ANZIL (ANZ Investment Lending Portfolio). Completion of this acquisition enabled bank to further grow Leveraged Equities Limited – its margin lending business which is one of the leading and most established margin lenders in Australia. The value of the portfolio acquired is ~$558 million. Leveraged Equities post-acquisition is expected to service 37,000 customers with a portfolio value of greater than $1.9 billion.

On 20 February 2023, BEN announced its results for the half year ending 31 December 2022. The company recently declared an interim dividend of 29.0 cents with a record date of 7 March 2023, and to be paid on 31 March 2023.

As on 31 December 2022, BEN’s revenue from ordinary activities was at $907.8 million down 5.9% from the previous corresponding period. This resulted in a decline of 22.5% in net profit after tax to $249.0 million.

For the full year ended on 31 December 2022, the company reported a ‘cash earnings’ increase of 13.0% to $294.7 million i.e., 11.1% increase in cash earnings per share to 52.2 cents attributable to owners and maintained liquidity. Its continuous focus on returns led to an increase of 145bps in ROE (Return on Equity) to 54.6% for 1H 23. Other increase in interest rates contributed positively further to the increase in Net Interest Margin which rose by 19bps as per the previous corresponding period. With an active management of volumes and margins, Bank saw a decline in cost to income ratio to 54.6% for the 1H 2023.

Financial Matrices with Commentary:

According to the update provided by CI1 for the full year ending on June 30, 2023, the Group experienced a significant decrease in its financial performance. The unaudited consolidated loss attributable to members of the parent entity was $1.5 million. The decrease in financial performance is substantial, as it represents a 165% decrease compared to the corresponding period in the previous year.

(Source:Refinitiv,Thomson Reuters)

In the fiscal year ending on 30 June 2022, Bendigo and Adelaide Bank Limited (BEN) faced some challenges with a decrease in statutory net profit after tax by 6.9% to $488.1 million. However, there were several positive aspects of its financial performance.

Loans and receivables increased by 7.9%, indicating growth in the bank’s lending activities. Total investments saw a significant surge of 123% compared to the previous year, indicating a focus on investment opportunities. Although deposits showed a marginal increase of only 0.3%, it still reflects stability in the bank’s deposit base.

Total assets grew by 10%, demonstrating the bank’s expansion and increased scale of operations. The cost-to-income ratio (CTI) continued to improve, falling 90 basis points to 59.4% for the year. This reduction aligns with the bank’s strategic goal to bring the ratio down to 50% in the medium term, indicating progress in cost management and efficiency.

Profitability measures, such as net margins, remained strong at 305, surpassing the average value observed between 2018-2022. Return on equity (ROE) and return on assets (ROA) were both above the average values for the same period, indicating favorable returns for shareholders and efficient utilization of assets.

(Source: Refinitiv, Thomson Reuters) (Graphic-Veye Research)

Bendigo and Adelaide Bank also demonstrated financial strength and regulatory compliance. The Common Equity Tier 1 (CET1) ratio, a measure of financial strength, increased by 11 basis points to 9.68%, surpassing the regulatory benchmark. Additionally, the bank maintained a Liquidity Coverage Ratio (LCR) of 142.2%, well above the average value observed from 2018 to 2022, ensuring sufficient liquidity to meet obligations. The net stable funding ratio of 134.1% also indicated a strong funding position.

Overall, while Bendigo and Adelaide Bank faced a decline in net profit, they showed positive growth in key areas such as loans, investments, and total assets. They also made progress in cost management and efficiency. The bank’s profitability matrices remained robust, and its financial strength and liquidity management were in line with regulatory requirements, highlighting its resilience in the market.

Dividend History:

Bendigo and Adelaide Bank has exhibited a positive dividend performance over the past three years, indicating a commitment to returning value to its shareholders. In the last fiscal year (FY22), the company had declared a final dividend of 53 US cents per share, fully franked. This dividend payout represents 62.1% of the underlying net profit after tax (NPAT), highlighting the company’s profitability and ability to distribute earnings to shareholders. The interim dividend FY23 is up 9.4% on last three halves to a total of 29 cents (dividend levels continue to be managed across the year). With a full-year dividend yield approx. 6.5%, BEN demonstrates its dedication to delivering attractive returns to shareholders while also maintaining a strong balance sheet. In terms of Dividend per Share (TTM), BEN reported $0.53 DPS for the shareholders.

Relative Valuation:

(Source: Refinitiv, Thomson Reuters)

Based on the forecasted figures provided, it suggests that Bendigo and Adelaide Bank (BEN) is expected to deliver positive outcomes in terms of dividend yield and price-to-book (P/B) ratio.

Dividend Yield: The forecast indicates that BEN’s dividend yield is projected to increase from its current level to 7.06% in FY23 and further to 7.12% in FY24. A rising dividend yield implies a higher return on investment for shareholders in relation to the stock price. These projections suggest that BEN is expected to generate more significant returns for its shareholders through dividend payments over the specified periods.

Price-to-Book (P/B) Ratio: The forecast suggests an improvement in BEN’s P/B ratio from 0.7x in FY23 to 0.67x in FY25. The P/B ratio compares the market price per share to the book value per share, reflecting the market’s valuation of a company in relation to its net assets. A declining P/B ratio indicates that the market is valuing the company more favorably relative to its book value. In this case, the projected improvement in BEN’s P/B ratio implies an increasing market valuation for the bank relative to its book value over the specified periods.

*Forecasted Twelve Months or NTM (Next Twelve Months): of any financial metrics measure such as EV/Sales, EV/ EBITDA, or P/B, PCF, P/E is the calculation forecasted for the immediate next twelve months from the current date based on projections applied to the revenues, EBITDA, etc.

 *TTM or Trailing Twelve Months refers to a company’s past 12 consecutive months of performance data from the current date used in financial reporting

Peer Analysis:

Bendigo and Adelaide Bank (BEN) has a PE ratio of 12.89x, indicating its stock is valued at 12.89 times its earnings. It offers a dividend yield of 6.48%, which represents the return on investment through dividends. The P/B ratio, measuring the stock’s price relative to its book value, stands at 0.71x for BEN.

In comparison, the Bank of Queensland (BOQ) has a higher PE ratio of 18.22x and a dividend yield of 7.94%. MyState Limited (MYS) has a slightly higher P/B ratio of 0.75x and a dividend yield of 7%. Auswide Bank Ltd (ABA) has a lower PE ratio of 8.91x and a higher dividend yield of 7.99%.

These figures suggest that BEN has a competitive dividend yield compared to its peers, while its P/B ratio is within a similar range.

Industry Analysis:

The banking industry in Australia is highly competitive and well-established with four large players dominating the market. It operates as a retail bank providing a range of banking products and services to individuals, SMEs and rural communities. Its regional focus differentiates it from larger national banks and gives it a niche market. It is known for nurturing long-term relationships that helped build loyalty and attract customers. The banking industry is going through a significant digital transformation with a shift towards mobile and digital banking. Bendigo can capitalize on this opportunity by enhancing its digital capabilities to improve customer experience and reach a wider customer base. Bank can leverage its understanding of local businesses and communities with SME lending service capability. Bendigo Bank faces the regulator’s scrutiny considering the industry is subject to compliance, regulations, or government policies.

Market Risk:

Compared to larger banks and national banks, it has a relatively smaller share and may face a risk in competing with them and their economies of scale. The economic fluctuation in a specific region poses another risk exposing bank to geographic risk where economic downturns in regional areas may impact their profitability. Interest rates are another risk all Banks face, and any small movement in interest rates could impact lending of smaller institution to a larger extent.

Outlook:

Bank is attracting customers by its products, digital capability, service levels and longstanding purpose of the prosperity of the community. Building further on its leading position the addition of portfolio into ‘Leveraged Equities’ business will see BEN’s market share of the margin lending business rise to 13 percent. Bank’s acquisition is aligned to its strengthened focus on returns, execution and sustainability. The bank has contained costs and is focused on simplification of business in the transformation agenda. It has more e-banking customers than before with digital channels accounting for 8.9% of home loans. The digital home loan ‘Up Home’ reached the $100 million milestone by adding loans of $38 million for the half. Bendigo and Adelaide Bank Ltd maintained a healthy balance sheet and retained its credit quality, promising a better second half.

Technical Analysis:

(Chart source: TradingView) Daily and Weekly Candlestick Price Chart Pattern

The stock’s weekly chart exhibits a bullish double-bottom formation, signaling a potential recovery from a support area. A significant bullish catalyst would be the breach of the resistance level at $8.81, which could trigger further upward movement. The Relative Strength Index (RSI) positioned upside and the presence of a bullish price pattern on the weekly chart provides additional evidence of the stock’s upside potential. Moreover, on the daily chart, the stock price remains above the 14-day Exponential Moving Average (EMA), indicating sustained bullish momentum, with “higher highs” being formed. These collective factors suggest a positive outlook for the stock, implying potential upside and recovery.

Veye’s Take:

Bendigo aspires to be the bank of choice for its customers in Australia. It is Australia’s most trusted bank with satisfaction scores and market-leading customer advocacy. The company’s continuous investments made in technology reflect the Group’s focus on migrating toward the cloud and reducing complexity in business. These transformation efforts will ensure the long-term sustainability of the mid-cap bank and add value for its shareholders. The bank seems to be provisioned adequately for its underlying debt with total provisions of $374.0 million. The company has consistently provided dividends for the past 5 years establishing its financial position. With increasing operating expenses for the half, the risk of a tighter EBITDA margin remains. The company has a good price-to-earnings multiple of 12.89x making it a good value proposition. Veye recommends a “Buy” on “Bendigo and Adelaide Bank Limited” at the closing price of $9.155 (As of 21 July 2023).

6. TABCORP HOLDINGS LIMITED

Tabcorp Holdings Limited is an Australian company that operates in the gambling and entertainment industry. It has two main segments: Wagering and Media, and Gaming Services. The Wagering and Media segment provides totalizator and fixed odds betting, operates retail wagering networks, and manages global racing media businesses. TAB, Sky Media, and Premier Gateway International (PGI) are key operations in this segment. TAB offers omnichannel wagering experiences, Sky Media is a racing and sports broadcaster, and PGI operates a global tote pooling hub and distributes international racing content. The Gaming Services segment focuses on gaming machine monitoring in certain regions and provides venue services nationwide. The MAX brand includes MAX Regulatory Services and MAX Venue Services.

Stock Performance:

(Chart Source: Trading View) One-Year Performance of TAH compared with the Australian All Ordinaries index (XAO)

From the Company Reports:

On 31 May 2023, Tabcorp Holdings Limited (ASX: TAH) in the investor presentation reported its commitment to deliver on Tabcorp’s FY25 strategy.

The company is restructuring the business to deliver customers, market-leading products, pricing, offers, and customer experience. It announced 8 product releases since launch and a successful new app launch.

The company formed new content partnerships in the racing and sports segment to enhance digital product offerings. By eBET sale it introduced pivot gaming services to integrity services.

It introduced new products as part of its June 2022 goals namely – Same Race Multi (SRM), upgraded Same Game Multi (SGM), Bets Friends, and Sports Stats Centers.

It is leveraging its unique betting ecosystem and winning the market with acquire, retain, and ARPU (acquire punter) strategy.  The company has differentiated and desirable content, insights, and form connection and communities to create the best entertainment and betting experience. It also provides real-time alerts/offers.

The company also integrated in-venue experience with store-discovery, tab pop-ups, marquee experience, integrated venues, and integrated venues essentials.

It is modernizing the brand tab and since Q2, the tab is leading the sector in the volume of features released to customers. The company is constantly using data analytics to improve its end results.

On 29 May 2023, Magellan Financial Group Limited announced, representing a total of 5.16% of the issued fully paid ordinary capital with a relevant interest in 117,886,888 ordinary shares became a substantial shareholder in Tabcorp on 25 May 2023.  

(Graphic Source: Company Reports)

Half-Yearly Highlights with Divisional Performance:

On 21 Feb 2023, Tabcorp Holdings announced its 1H FY23 financial results as of the end of 31 December 2022. The growth in revenue was up by 11% to $1,275 Million in 1H 23 compared to $1,152 M PF (Pro Forma) in 1H 22 on PCP. There was continuous Opex growth of 4% from $311 Million PF in 1H 22 to $323 Million in 1H 23.

The gross margins were resilient which increased by 24% over the said period. The EBIDTA was $159 Million in 1H 2022 with the group’s EBITDA margin improving to $197 Million in 1H 2023. The EBIT was $16 Million in 1H 2022 PF with the group’s EBIT margin improving to $73 Million in 1H 2023 representing an improvement in financial performance. The statutory NPAT was $52 Million in 1H 2023 due to a growth in earnings. Tabcorp Holdings Limited recorded solid sales growth across all its brands. Its balance sheet remains strong.

Tabcorp Holdings Limited held digital revenue market share and delivered on business commitments in 1H 23 with a new TAB app and new products. The company remains on the level playing field in QLD, ACT, VIC, and TAS, in progress in NSW, and made a strategic investment in Dabble in 1H 23 ending six months on 31 Dec 2022.

Financial Matrices with Commentary:

(Source: Company Reports)

In FY22, Tabcorp Holdings reported a group revenue of $2,373 million, which represented a 4.3% decrease compared to the previous year. The company’s EBITDA from continuing operations was $382 million, and the pro forma EBITDA stood at $361 million. These results were influenced by external factors, notably the impact of COVID-19. Despite these challenges, Tabcorp managed to deliver solid financial performance under its pre-demerger operating structure.

The Group Statutory Net Profit after Tax (NPAT) for FY22 was $6,776 million, a significant increase compared to the previous year’s $269 million. This rise in NPAT was primarily due to a gain on the demerger amounting to $6,514 million.

Tabcorp maintains a solid financial position, with a net debt of $20 million. The gearing ratio, which measures net debt relative to EBITDA, stands at 0.5x, indicating a conservative level of leverage and a stable financial structure.

Overall, despite the external challenges, Tabcorp’s financial results in FY22 demonstrate resilience and a strong financial position. The company’s solid performance and commitment to shareholder returns indicate its ability to navigate through difficult market conditions.

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

Tabcorp Holdings (TAH) experienced significant growth in cash flow from operating activities between 2018 and 2022, indicating improved profitability and efficiency. The company also witnessed a year-on-year decrease in the percentage of total debt to total equity, demonstrating reduced reliance on debt financing and a stronger financial position. These positive trends contribute to improved financial performance and stability for Tabcorp Holdings.

Dividend Profile:

(Source: Refinitiv, Thomson Reuters)

Tabcorp Holdings consistently prioritizes its shareholders by distributing a significant portion of its earnings as dividends. In 2022, a fully franked final dividend of 6.5 cps per share was announced, resulting in a total dividend of 13.0 cps for the year. This equated to an 80% payout ratio of NPAT before significant items. Furthermore, during the first half of 2023, Tabcorp declared a fully franked dividend of 1.3 cps per share, with a payout ratio of 61% of NPAT before significant items and equity accounted loss. Tabcorp’s commitment to delivering value to its shareholders is evident in its consistent and substantial dividend distributions.

Forecasted Multiples:

(Source: Refinitiv, Thomson Reuters)

The forecasted multiples for Tabcorp Holdings point to an improved earnings profile and offer a compelling value proposition. Over the forecast period from FY23 to FY25, key multiples such as EV/Revenue, EV/EBITDA, PE, price-to-book, and price-to-cash flow are expected to show significant improvements. These improvements reflect a more favorable valuation, indicating the potential for higher profitability and increased operational efficiency. Furthermore, the projected growth in profitability matrices, including ROA and ROIC, suggests enhanced returns on assets and invested capital. Overall, these forecasts present a strong financial outlook for Tabcorp Holdings, reinforcing its potential to deliver substantial value.

Industry Analysis:

Tabcorp Holding is a market leader in community and customer cares, three segments of its industry are:

Wagering Industry: Its wagering division is a major player in Australia’s sports and horse race betting industry. It has been growing steadily driven by factors such as increasing disposable income, technological advancements, and the popularity of mobile and online betting platforms. Tabcorp faces challenges from online-only players and may need to continue investing in digital capabilities to stay competitive.

Media Industry: Media division of Tabcorp operates sky racing providing thoroughbred, harness, and greyhound racing broadcasting services. The media landscape including sports media has been evolving rapidly with the rise of streaming services and digital platforms. Traditional broadcasters like TAH face challenges in maintaining viewership and advertising revenues due to changing consumer behaviour.

Gaming Industry: It operates electronic gaming machines in various venues including hotels and clubs. The government has implemented measures to address problem gambling and promote responsible gaming practices. Shifting consumer preferences and competition from online gaming platforms pose challenges to the traditional gaming sector.

Outlook:

The company anticipates delivering 30% as digital revenue market share and reducing Opex to $600-620M by FY 2025 and forecasts FY23 Capex up to $150M. It plans to double its ROIC (Return on Invested Capital) to 10% in FY25. The wagering market has been quite resilient during economic uncertainty and is changing due to higher costs of funding and competing, and increasing govt. and community expectations. The Company’s positive direct-to-consumer sales trends continue to grow. The Group is well positioned and increasingly needs scale to stay competitive. Its competitive advantage in this current market environment comes from a quality customer base, Omni -channel offering, regulatory capability, and TAB25 transformation. Driven by early momentum, the company upgraded FY23 Opex guidance to +2-3% growth from +3-4% on FY22 PF. With a solid business foundation, clear growth strategy, and KPIs demonstrating an ability to deliver, a genesis program delivering disciplined cost management and operational efficiency, it is well positioned for growth and attractive shareholder returns.

Technical Analysis:

(Chart source: TradingView) Monthly and Weekly Candlestick Price Chart Pattern

On a monthly chart, Tabcorp Holdings’ stock price has shown a consistent long-term trend with a price pattern trading above the 14-day Exponential Moving Average (EMA) since December 2020. This indicates a positive trajectory for the stock. Furthermore, the presence of a “Higher Highs” pattern, with the price at the current juncture trading at the close of the previous month, suggests potential for further upside in the stock.

On a weekly chart, the stock price is experiencing minor selling pressure as it trades near its 52-week high. However, the indicators on the weekly chart remain strong and in positive territory, indicating a bullish sentiment and potential for further upward movement in the stock.

Overall, both the monthly and weekly charts suggest positive prospects for Tabcorp Holdings’ stock, with the potential for upward price movement in the future.

Veye’s Take:

Tabcorp faces competition from online-only companies and may need to continue investing in digital capabilities to stay relevant. Tabcorp is making targeted investments that position Tabcorp for accelerated and diversified growth. The company witnessed strong revenue growth with solid Australian Recovery and declared a dividend of 1.3 cents per share accounting for 61% of the dividend payout ratio. The group saw a substantial increase in active digital customers after the launch of its new App and remains the 1st choice for digital betting and addresses the gap in the multi-betting experience. The company has targeted investments for growth and aims to double ROIC to 10% by FY 2025. Having a strong balance sheet and availability of funds, the company expanded further into international markets and invests in digital platforms, leveraging on operational excellence and standing out in the industry through sustainability and product innovation. Veye recommends a “Buy” on “Tabcorp Holdings Limited” at the closing price of $1.123 (As of 21 July 2023).

7. BHP GROUP LIMITED

BHP Group Limited is a leading Australian resources company focused on the production of commodities such as iron ore, copper, nickel, potash, and metallurgical coal. Its operations span across Australia, Europe, China, Japan, India, South Korea, and the Americas. BHP plays a significant role in supplying resources for industries including renewable energy, electric vehicles, sustainable farming, and steel production. The company’s diverse portfolio and global presence make it a key player in the resources sector.

Stock Performance:

(Chart Source: Trading View) Five-Year Performance of BHP compared with the Australian All Ordinaries index (XAO) and Materials Index (XMJ)

From the Company Reports:

(Graphic Source: Company Reports)

On 2 May 2023, BHP announced the implementation of the scheme

of arrangement for BHP Lonsdale Investments Pty Limited to acquire 100% of the shares in OZ Minerals Limited, and the completion of the OZ Minerals acquisition. To support the energy transition, in line with the strategy to meet the increasing demand for the critical minerals needed for EVs (electric vehicles), solar panels, and wind turbines, this acquisition strengthens BHP’s portfolio in nickel and copper. OZL shareholders received total cash consideration of $28.25 per OZL share.

On 21 April 2023, releasing its operational review, it announced that the 2023 financial year FY production guidance remained unchanged for energy coal, iron ore, and metallurgical coal. Production guidance at Escondida had been lowered to between 1,050 and 1,080 kt. Full-year total copper production guidance remains unchanged at between 1,635 and 1,825 kt, given the strong performance of the other copper assets. Full-year nickel production had been lowered to between 75 and 85 kt.

WAIO (Western Australia Iron Ore) achieved record production of 212.6 Mt for the nine-month period. From the half-year period ended 31 December 2022, full-year unit cost guidance remained unchanged. Escondida and WAIO were anticipated to be at the top of their respective ranges.

For the next phase of exploration drilling at Oak Dam, the South Australian government had granted environmental approval.

Financial Matrices with Commentary:

BHP Group, the Australian mining company, has shown impressive financial growth over the past five years. Gross profit margins have increased significantly from 47% in FY2018 to 58.5% in FY2022, indicating improved efficiency in generating profits from its operations. Similarly, EBITDA margins have also seen a similar pattern of growth and reached 61.5%.

The company’s net profit margins have shown substantial improvement, increasing by 1,110 basis points between FY18 and FY22. This indicates that BHP Group has been able to effectively manage its expenses and generate higher profitability.

While BHP Group experienced a temporary decline in earnings-per-share in 2020 due to the impact of the Covid-19 pandemic, the company has generally reported improved earnings-per-share every year.

BHP Group has also been focused on reducing its debt burden, successfully decreasing it by over 39% from US$27,048m in FY20 to US$16,428m in FY22. This reduction in debt enhances the company’s financial stability and presents a low-risk investment option.

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

Furthermore, BHP Group’s free cash flow has shown a positive trend, increasing by 15% from FY21. This demonstrates the company’s ability to generate cash from its operations, which can be utilized for investments, dividends, or debt reduction.

The company’s profitability matrices, such as return on equity (ROE) of 42% (up by 80% from FY21) and return on invested capital (ROIC) of 44.1%, highlight BHP Group’s effective utilization of capital and ability to generate profits from its equity and invested capital, respectively.

Overall, BHP Group’s financial performance showcases its strong growth, improved profitability, debt reduction efforts, and effective capital utilization, making it an attractive investment option.

Dividend Profile:

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

BHP Group has a long-standing history of rewarding its shareholders with regular dividends, which makes it an appealing choice for investors seeking reliable and low-risk investment opportunities. The company has demonstrated its commitment to shareholders by continuing to declare dividends even during the challenging period of the Covid-19 pandemic.

In FY22, BHP Group declared a final dividend of $2.5518 per share, fully franked.

On February 21, 2023, the Board of BHP Group announced the decision to pay an interim dividend of 90 US cents per share, which amounts to a total of US$4.6 billion. This dividend payment represents a payout ratio of 69%, indicating that 69% of the company’s earnings are being distributed to shareholders as dividends. The high payout ratio suggests that BHP Group is sharing a substantial portion of its profits with investors, which can be attractive to those seeking regular income from their investments.

By paying out a sizable interim dividend, BHP Group demonstrates its strong financial position and ability to generate cash flows. This not only indicates the company’s profitability but also its dedication to rewarding shareholders for their investment.

Investors who prioritize dividend income may find BHP Group’s interim dividend announcement appealing. The substantial payout ratio and the size of the dividend payment reflect the company’s commitment to providing attractive returns to its shareholders.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

BHP presents a compelling investment opportunity supported by several strong financial indicators. Firstly, its price-to-earnings (P/E) multiple of 12.18x is favorable compared to its industry peers, suggesting an attractive valuation. This implies that investors are willing to pay a reasonable price for BHP’s earnings potential.

Additionally, BHP’s debt-to-equity ratio of 33.7% indicates a healthy balance between debt and equity. With a moderate level of debt, the company is better positioned to manage financial obligations and mitigate risk. This stability enhances the overall investment proposition for shareholders.

BHP’s return on equity (ROE) of 44.3% is noteworthy, indicating that the company efficiently utilizes shareholders’ equity to generate profits. This high ROE signifies management’s ability to generate substantial returns for investors, further bolstering the investment case.

Furthermore, BHP’s dividend yield of 8.9% is considerably higher than that of its peers. This implies that shareholders can expect a significant return on their investment through dividend payments. The attractive dividend yield makes BHP an appealing choice, particularly for income-seeking investors.

In conclusion, BHP’s favorable P/E multiple, healthy debt-to-equity ratio, impressive ROE, and attractive dividend yield collectively indicate a promising investment opportunity

Industry Analysis

(Source: Refinitiv, Thomson Reuters)

BHP Group extracts and produces commodities; it has a global presence and operates across Australia, the United States, Chile, Peru, and Brazil. It is a major player in the resources industry and competes with other mining and resources companies like Rio Tinto, Vale, South 32, Pilbara Minerals, and more. The company’s size and scale give it a competitive advantage in terms of access to resources, operational capabilities, and economies of scale. Its portfolio includes Iron ore, Copper, Coal, Petroleum, and Nickel among other minerals. BHP Group has made commitments to sustainable practices and reducing its environmental footprint. Australia is well known for its mining industry on a global platform and recognized for its strong and growing mining industry. The next few years are likely to be transformative years with mining and metal companies resorting to fast new advances in technology and exploration. Efficiency gains and productivity improvements help BHP maintain its competitiveness in the industry.

Market Risk:

While China’s demand for iron ore is expected to be lower with the crude steel production stabilising and an increasing scrap to steel ratio, volatile prices of some commodities have always been the challenging issue.

Copper, though appearing to be in demand over a long term, recently experienced fall in prices during second half of previous year.

Both Nickle and Potash prices have declined significantly as these commodities witnessed a decrease in affordability.

Effect of Weather: Inclement weather in the coal assets has impacted the production and unit costs.

Safety at the workplace and Labor shortage issue remain other potential risks.

Outlook:

BHP’s long-term success depends on factors like maintaining cost discipline, adapting to market dynamics, and managing social and environmental risks. It is likely to continue investing in technology and innovation to maintain its competitive position. BHP has strong fundamentals as global commodity demand is underpinned by population growth, rising living standards, and urbanization. The global economy is projected to increase 2.5x times by the year 2050 while the global population and urbanization to become 1.5x times by the year 2050 and per IMF and UN estimates. In addition, a decarbonizing world intensifies the need for mining and substantial additional investment required to meet growing demand, large cumulative demand increases across commodities, and more specifically, Copper potentially needs around US$250 billion by 2030. As Copper supply challenges increase, BHP is in a good position as currently, Goldman Sachs and others expect copper prices to soar. Immediate opportunities available and increasing productivity should drive potential volume growth supported with Jansen’s and WAIO projects advancing.

Technical Analysis:

(Chart source: TradingView) Monthly and Weekly Candlestick Price Chart Pattern

On a monthly chart, the stock price is forming a “Bullish Piercing” pattern after trading in negative territory. This pattern suggests upside momentum in the medium to long term. Additionally, there is a minor resistance at $44.5, and once breached, it could trigger further upward movement in the stock. The current price pattern is also trading above the 14-day EMA, which is a positive indication. On the weekly chart, the stock price has closed the previous week with a “Hammer” pattern, indicating downside rejection and a potential trend reversal. This pattern suggests that buyers are stepping in to support the stock which could lead to upward movement. There is a resistance level at $44.73, and if this level is broken, it could trigger the stock to trade higher.

Veye’s Take:

The company has a track record as a reliable operator and project developer. It is aspiring to deliver growth with stable operational performance, project execution, and social values. Along with attractive returns and operational excellence, Company maintains a strong capital allocation discipline. As supply chain conditions improve, positive near-term indicators from China and the rest of the world provide BHP with a source of stability. In the Miami-Globe copper district in Arizona, United States, the Company, has identified a new copper porphyry mineralized system, Ocelot. BHP shareholders will benefit with the company’s increased exposure to commodities future demand, attractive potential synergies, and a pipeline of exponential growth opportunities. Veye recommends a “Buy” on “BHP Group Limited” at the closing price of $45.135 (As of 21 July 2023).

8. GR ENGINEERING SERVICES LIMITED

GR Engineering Services Limited is an Australia-based engineering consulting and contracting company. The Company is specializing in providing engineering design and construction services to the mining and mineral processing industries. The Company operates through two segments: Mineral Processing and Oil & Gas. The Mineral Processing segment includes Engineering, Procurement & Construction (EPC) contracts and Engineering, Procurement & Construction Management (EPCM) Contracts. The Company’s services include design and construction, project management, project management and asset management. The Company offers design, construction, commissioning, and operational support for various projects. The Company’s projects include Andy Well Gold Project, Ardmore Phosphate DFS, Bellevue Gold Project, Carosue Dam Expansion Project, Carosue Dam Paste Backfill Project and more. It has provided services in over 20 countries for a range of precious, bulk and industrial commodities.

Stock Performance Profile:

(Chart Source: Trading View) GNG has outperformed the Australian Market Index (XJO) and Basic Materials Index (XMJ) over a one year period delivering a return of 2.67%.

From the Company Reports:

On 3 May 2023, GR Engineering Services Limited (ASX: GNG) (GR Engineering or Company) announced entering into a binding term sheet with a wholly owned subsidiary of Hastings Technology Metals Limited (ASX: HAS) – Yangibana Pty Ltd. for the EPC (engineering, procurement and construction) of the beneficiation plant and associated infrastructure for the project in Western Australia.

Hastings reduces Yangibana delivery risk by awarding EPC process plant contract to GNG. Under the current EPC model, the $210 million EPC contract is lower than cost estimates for an equivalent scope.

On 14 April 2023, it announced two contracts with a wholly owned subsidiary of OZ Minerals Limited (ASX: OZL) – OZ Minerals Musgrave Operations Pty Ltd for the design and construction works of the West Musgrave Project in Western Australia. Over a two year period, the estimated revenue from the delivery of these contracts will be $312 million.

GNG on 21 February 2023 announced its financial results for the half year ended 31 December 2022 (HY23).

The Company reported revenue of $331.9 million in HY23 compared to $302.3 million in HY22. The EBITDA was $20.6 million (HY22: $24.3 million).

GNG on 21 November 2022 announced its appointment as preferred tenderer by Boab Metals Limited (ASX: BML) regarding the engineering, procurement and construction (EPC) contract for the processing plant and non-process infrastructure for the Sorby Hills Lead-Silver Project situated in Kununurra, Western Australia.

GNG on 31 October 2022 announced the increase in the scope of work related to the engineering, procurement and construction (EPC) contract with Australian Nickel Investments Pty Ltd, a wholly owned subsidiary of IGO Limited (ASX: IGO), for the upgrade of the existing nickel concentrator at the Cosmos Nickel Operations.

It also secured an award, a variation by IGO to further raise the throughput of the nickel concentrator at the Project from ~750 ktpa to 1,100 ktpa, bringing the contract sum to $76 million

Investment Thesis:

Apart from managing risk, GNG’s new EPC term sheet for the beneficiation plant offers guarantees on cost, time and product quality. GNG is accredited with achieving project executions on time and on budget. The safe and successful delivery of such projects has reinforced its reputation as a proven and reliable process engineering design and construction contractor. The Company continues to focus on cash generation and the strong operating cash flow achieved during FY22 has significantly strengthened its financials enabling it to pay increasing and consistent fully franked dividends. Coupled with its ongoing growth, it makes a dependable investment.

Financial Matrices with Commentary:

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

GNG revenue grew at a CAGR of 23% between 2018-2022 while gross profit increased at a CAGR of 13.7% between 2018-2022. Cash flows from operations increased by 40% from $49.5 million in FY21 to $69.42 million. Improved free cash flow matrices indicating sufficient cash to invest in growth opportunities. Profitability metrics such as ROE growth from 48.7% in FY21 to 61% in FY22 and ROIC growing from 41.7% in FY21 to 55.4% in FY22 demonstrates operational excellence and a good investment proposition for the shareholders. Total Debt-to equity profile improved from 16% in FY21 to 6.9% in FY22, reducing the risk profile.

The group reported net profit margins of 5.35% well above the average net profit margins of 3% between 2018-2022. EPS profile has improved year-on-year growing from $0.13 in FY21 to $0.21 in FY22, demonstrating the company’s excellent operational capabilities in generating profits.

Dividend Profile:

(Graphic: Veye Research)

The company has recorded significant growth across its dividend distribution profile. The dividend per share increased from $0.07 in September-2021 to $0.09 in March-2022. The dividend payment profile continued its success with a dividend per share of $0.1 in September-2022 and maintaining the DPS of $0.09 for March-2023. The significant growth in the dividend per share provides long-term stockholders with a strong income stream.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

GNG at a price-to-earnings multiple of 9.89x and debt-to-equity maintained at 6.9% sits relatively well above its peers. The company reporting a dividend yield of 9.87% is the highest among its peers offering a good investment option to gain significant return.

Industry Analysis:

As the global economy recovers from the waves of the COVID-19 pandemic, the outlook for Australia’s mineral exports continues to improve. Mining and mineral processing is an important industry globally and certainly a key sector in Australia. In addition to generating significant income from export of commodities, it is a prime contributor to the country’s economy. GNG is working on a high volume of studies across a wide range of commodities besides offering design and construction services to the mineral and mining processing industry. The engineering and construction industry, which is its backbone depend upon companies like GNG to have favourable outcomes.

Market Risk Analysis:

  • Shortage of labor/workforce
  • Higher Inflationary environment
  • Disruption of supply chains
  • Higher turnover of site-based personnel
  • Natural calamities
  • A workplace accident or incident

Outlook:

Under the $210 million contract, GNG will design and construct the Yangibana beneficiation plant over a period of less than 18 months. With a rare earth concentrate output capacity of 35,000t per annum and a feed capacity of 1mt per annum, mobilization and construction commencement is targeted in Q3 CY2023. GR Engineering is progressing to build its contracted and near term potential pipeline of work over a diverse commodity base and also grow its revenue and earnings visibility for FY23 and future years. GR Engineering has forecast its revenue guidance of $500 million – $530 million for FY23. The EBITDA margin % is expected to return to historical levels in the second half of FY23. GR Engineering has a strong track record of successful project delivery which is instrumental in its selection in highly competitive EPC tender processes.

Technical Analysis:

(Chart Source: Trading View) Technical Chart-Monthly and Weekly Candlestick Price Chart

On a monthly time frame, the formation of the “morning star” pattern with downside rejection and maintaining support of $1.825 indicates a possible bullish reversal. The price pattern at the current juncture is trading close to the middle Bollinger band. The minor resistance at $2.04 acts as monthly resistance, which once breached will trigger the stock to trade further upside.

On a weekly time frame, the stock, though experiencing some selling pressure but is trading above the major EMAs. The overall chances of reversal remains intact and well above the 200 days EMAs and MACD (Moving Average Convergence and Divergence) crossover in near term indicates upside momentum in the stock.

Veye’s Take:

The stock has a low debt to equity ratio compared to its peer group signifying the strength in the balance sheet. The Company’s HY23 period was distinguished by firm operational performance and the successful execution of multiple key projects. GNG has in its pipeline of project work, the Thunderbird Mineral Sands Project, West Musgrave Project, Bellevue Gold Project, Cosmos Nickel Concentrator Facility Upgrade Project and Mt Ida Gold Project. GR Engineering has maintained its focus on building its funnel of ongoing project work and is working on a high volume of studies across a wide range of commodities. Negligible bank debt, minimal ongoing capital requirements (reviewed cost) and strong project delivery on schedule can support its growth in short term. Veye recommends a “Buy” on “GR Engineering Services Limited” at the closing price of $2.12 (As of 21 July 2023).

9. WOODSIDE ENERGY GROUP LTD.

Woodside Energy Group Ltd is an Australia-based global energy company. The Company’s segments include Australia, International, and Marketing. The Australia segment engaged in the exploration, evaluation, development, production, and sale of liquefied natural gas, pipeline gas, crude oil & condensate, and natural gas liquids in Australia. The International segment engaged in the exploration, evaluation, development, production, and sale of pipeline gas, crude oil & condensate, and natural gas liquids in international jurisdictions outside of Australia. The Marketing segment engaged in trading of liquefied natural gas (non-produced) and optimization activities generating incremental value from produced liquefied natural gas via scheduling, shipping, and/or contract management. The Company’s projects include Pluto LNG, Northwest Shelf project, Wheatstone and Julimar-Brunello, Macedon, Bass Strait, Calypso, Browse, Wildling, Atlantis, Woodside Solar project, and Scarborough & Pluto Train 2.

Stock Performance Profile:

(Chart Source: Trading View) WDS outperformed the Australian All Ordinary Index (XAO) and Australian Energy Index (XEJ) delivering a one-year return of 19.79%.

From the Company Reports:

(Graphic Source: Company Reports)

Its enlarged portfolio and strong operational performance, allowed it to capitalize on sustained high oil and gas prices across the year. This led to an increase of 228 percent i.e., a record annual net profit after tax of $6.5 billion in 2021.

Providing them with a strong balance sheet, underlying NPAT was $5.2 billion which positions Woodside for returning value to shareholders and provides significant capital investment in future years.

Earnings per share in 2022 more than doubled to 430 US cents. While the total full-year dividend was an 87 percent increase on the previous year of 253 US cents per share. Woodside returned $4.8 billion to shareholders at a full-year yield of more than 10 percent representing maintenance of an 80 percent payout ratio in 2022.

The company is delivering strong returns through payments to governments in Australia reflected in record profit in 2022.

On 21 April 2023, Company announced the first quarter report for the period ending 31 March 2023.

Woodside delivered quarterly production of 520 Mboe/day (total 46.8 MMboe) down by 9% in Q4 2022. Due to lower production, it delivered a sales volume of 50.4 MMboe, down by 4% in Q4 2022. Due to lower production and realized prices, it delivered revenue of $4,330 million, down by 16% in Q4 2022.

Operating revenue increased to $16.8 billion up by 142 percent, due to which FCF (free cash flow) increased more than six-fold to $6.5 billion.

The company achieved high LNG reliability of 98.3% at the North West Shelf (NWS) project and 99.9% at Pluto LNG. It achieved a portfolio average realized price of $85 per barrel of oil equivalent and sold 32% of produced LNG at prices linked to gas hub indices.

Financial Matrices with Commentary:

(Source: Refinitiv, Thomson Reuters)(Graphic: Veye Research)

Woodside Energy Group has delivered exceptional financial performance, demonstrating robust growth and improved profitability. The company’s revenue has experienced a remarkable increase of 142%, reaching US$16,817 million. This substantial growth reflects Woodside’s successful operations and strong market demand.

The company’s profitability metrics have shown significant improvement. The net margin has increased from 29.2% to 39.1%, indicating Woodside’s ability to generate higher profits from its activities. The EBITDA margin has also improved to 72.5% from 59.4%, showcasing enhanced operational efficiency and profitability.

Woodside’s financial strength is further highlighted by its impressive earnings per share (EPS) profile, which witnessed a substantial increase of 109%. This indicates higher profitability and earnings generated per share, benefiting the company’s shareholders.

Moreover, Woodside has demonstrated strong cash flow performance, with free cash flow increasing from US$1,297 million to US$5,665 million. This reflects the company’s ability to generate significant cash from its operations, providing ample resources for investments and obligations.

Woodside’s focus on efficient capital allocation is evident through improved profitability ratios. The return on equity (ROE) has increased to 26.1%, surpassing the industry average of 22.2%. The return on invested capital (ROIC) has also risen to 20.1%, indicating effective utilization of invested capital.

Additionally, Woodside has made substantial progress in managing its debt, with a significant reduction in the debt-to-equity ratio from 47.8% to 18.2%. This demonstrates a healthier balance sheet and reduced financial risk for the company.

Overall, Woodside Energy Group’s financial performance showcases its ability to capitalize on market opportunities, drive profitability, and efficiently manage its resources. The company’s strong growth, improved profitability metrics, and prudent financial management position it favorably for future success in the energy industry.

Dividend History: 

(Source: Refinitiv, Thomson Reuters)(Graphic: Veye Research)

Woodside Energy Group has exhibited a positive dividend performance over the past five years, indicating a commitment to returning value to its shareholders. In the current fiscal year (FY22), the company has declared a final dividend of 144 US cents per share, fully franked. This dividend payout represents 80% of the second-half underlying net profit after tax (NPAT), highlighting the company’s profitability and ability to distribute earnings to shareholders. The total dividend payout for the year amounts to $4.8 billion, with the interim dividend contributing $2.1 billion and the final dividend accounting for $2.7 billion. With a full-year dividend yield surpassing 10%, Woodside Energy Group demonstrates its dedication to delivering attractive returns to shareholders while also maintaining a strong balance sheet.

Relative Valuation:

(Source: Refinitiv, Thomson Reuters)

Woodside Energy Group Ltd presents an appealing investment opportunity based on several valuation metrics. The company’s EV/Sales ratio of 3.1x for the upcoming 12 months is attractive compared to the sector and industry averages of 21.4x and 7.4x, respectively. Additionally, its price-to-cash flow ratio of 5.4x indicates higher profitability than its sector and industry peers. The price-to-book value ratio of 1.2x suggests a favorable valuation when compared to the relevant sector and industry. Furthermore, the stock’s dividend yield for the next twelve months is higher than the industry and sector averages of 5.4%. Overall, Woodside Energy Group appears to be a strong investment prospect within its industry and sector.

*Forecasted Twelve Months or NTM (Next Twelve Months) is the calculation forecasted for the immediate next twelve months from the current date based on projections applied to the revenues, EBITDA, etc.

*TTM or Trailing Twelve Months refers to a company’s past 12 consecutive months of performance data from the current date used in financial reporting

Peer Analysis:

Woodside Energy Group demonstrates strong financial performance and valuation metrics compared to its competitors. The company’s debt-to-equity ratio of 18.2% is deemed acceptable, highlighting its prudent financial management. With a return on equity (ROE) of 26.1%, Woodside surpasses the industry peer average of 22.2%, indicating efficient utilization of shareholder investments.

Woodside’s price-to-book multiple of 1.19 is relatively favorable, suggesting the stock is reasonably valued in relation to its net asset value. Additionally, the company’s price-to-earnings (PE) multiple of 8.12 x is sitting reasonably well among its peers, such as STO, BPT, and KAR, which have PE multiples of 11.75x, 6.43x, and 10.25x, respectively. This offers an attractive valuation for investors considering Woodside shares.

Furthermore, Woodside outperforms its peer group with a dividend yield of 10.89%, indicating a generous return to shareholders. This highlights the company’s commitment to providing income to investors.

Overall, Woodside Energy Group exhibits strong financial metrics, attractive valuation, and a competitive dividend yield, positioning it favorably in the market compared to its industry peers.

Industry Analysis:

(Graphic Source: Refinitiv, Thomson Reuters)

Woodside has managed to surpass the average dividend yield (10.96%) of both the sector (8.65%) and industry (8.64%) over the years.

To support industry in more places than ever, like heat and cool homes, and keep lights on, Woodside is providing energy with its diverse global portfolio. Woodside and industry performance are demonstrated by total royalty payments and an Australian tax of $2.7 billion in 2022.

The company recognizes the importance of a smooth and stable energy transition in which energy is reliable, affordable, and lower carbon amidst the troubled geo-political events of the previous years and the resulting volatility seen in global energy markets. These factors are driving Woodside to continue building a resilient, low-cost, lower carbon, diversified and profitable portfolio providing energy to the world across different energy transition scenarios.

In particular, the crucial role gas will play in supporting the world’s de-carbonization goals, providing firming capacity to support intermittent wind and solar and replacing coal as a source of power generation.

Market Risk:

Geopolitical events directly impact energy companies as energy prices are impacted by such events. High inflationary pressures and rising commodity prices are some of the other risks Woodside faces. This industry is highly sensitive to a shortage of labor or workforce since it is a labor-intensive industry. Supply chain disruptions in recent years peaked and still pose a risk to the highly dependent segment. The higher capital required for exploration and development is a going concern for energy companies.

Outlook:

In November 2021 the board took the decision, to invest USD 12 billion in the Scarborough and Pluto Train 2 projects in Western Australia. Construction of these projects is progressing well, and Company is on target for the first LNG cargo in 2026.

Internationally, Woodside is making progress on the Sangomar project offshore Senegal and remains on track to deliver the first oil later in FY 23. The Company is expected to take an FID (final investment decision) this year for working towards investments on the H2OK hydrogen project in Oklahoma and the Trion oil project offshore Mexico.

A feature of Woodside’s next wave of growth opportunities includes:-

  • Development of major gas fields such as Calypso, Browse, and Sunrise
  • Expansion of existing fields in the US Gulf of Mexico, and
  • Execution of lower carbon and new energy opportunities including ammonia and hydrogen, solar, and carbon capture utilization and storage.

Company maintained low levels of net debt and gearing well below its target range.

Technical Analysis:

(Chart source: TradingView) Monthly and Weekly Candlestick Price Chart Pattern

On the monthly chart, the stock price is exhibiting strong rejection of downside moves and is trading above the previous month’s close. This indicates positive market sentiment and suggests potential bullish momentum. The stock price is also trading above the middle Bollinger Band, which can be seen as a bullish signal. Additionally, the stock price is above the 14-day Exponential Moving Average (EMA), further supporting the bullish outlook. The major resistance level at $36.65, once breached, is expected to trigger further upward movement in the medium to long term. Overall, the indicators positioning to the upside indicate strength in the bullish trend.

On the weekly chart, the stock price is forming “Higher Highs,” which is a positive sign indicating upward momentum. The stock price is also trading above the EMA’s, reinforcing the bullish sentiment. Furthermore, the indicators on the weekly chart are well supported, further suggesting a potential upside in the stock.

Based on these observations from both the monthly and weekly charts, there is a favorable indication of bullish potential in the stock.

Veye’s Take:

The company has evolved into a truly global company following the merger last year with BHP’s petroleum business as the company delivered record profit and became an even bigger supplier of energy to the world. The numbers of projects that progressed in 2022 and are in the pipeline reflect the product mix and diversity of location. Woodside can maximize prospects for long-term success against an uncertain energy transition through the continued development of its diverse portfolio and consistent strong operational and financial performance. Increasing its access to global capital markets, Woodside is also listed on the New York and London stock exchanges. The company is trading at an earnings multiple of 8.12x, which is attractive for a company predicted to grow its business at an ROE of 10.70% for FY 2023. Veye recommends a “Buy” on “Woodside Energy Group Limited” at the closing price of $36.38 (As of 21 July 2023).

10. STOCKLAND CORPORATION

Stockland Corporation Limited is an Australia-based creator and curator of connected communities. The Company is focused on developing, funding, owning, operating, and managing its residential and commercial property assets. The Company operates through five segments: Commercial Property, Residential, Land Lease Communities (LLC), Retirement Living and Other. The Commercial Property segment invests in, develops, and manages Retail Town Centres, Workplace, and Logistics properties. The Residential segment delivers a range of master-planned and mixed-use residential communities in growth areas, and townhomes and apartments in general metropolitan areas. The LLC segment invests in, designs, develops, manages, and delivers communities for over 50s. The Retirement Living segment invests in, designs, develops, manages and delivers communities for over 55s and retirees. Together, Residential, Land Lease Communities and Retirement Living represent the Company’s Communities business.

Stock Performance Profile:

(Chart Source: Trading View) SGP outperformed the Australian All Ordinary Index (XAO) and Australian Real Estate Index (XRE) delivering a Six- month return of 23.76%.

From the Company Reports:

On 27 April 2023, in the investor report, Stockland provided an update on Land Lease Communities (LLC). With 14 longer-dated LLC development sites already identified on the existing land bank and ~1,130 homes currently in development, the Company has accelerated its pipeline. Stockland scaled its LLC operations and portfolio into a market-leading platform by leveraging its strong residential capability. It broadened the LLC platform’s reach geographically and across product segments. In May 2022, SRRP (Stockland Residential Rental Partnership) recognized a high-quality capital partnership with MEA (Mitsubishi Estate Asia). The company generated cash-backed profit with the transfer of LLC development communities into SRRP.

(Graphic Source: Company Reports)

LLC is positioned to be a key growth driver for SGP with attractive development margins and high-quality recurring income. LLC’s strategy is taking advantage of structural drivers, delivering MPC synergies and a dual-delivery model, and scaling and broadening platform outreach.

On 26 April 2023, the Group provided its quarter update as of March 2023. With an additional $600m of hedging over 3Q23, and $250m medium-term note (MTN) issuance, the Company strengthened the balance sheet. As of March 2023, the total available liquidity is ~$0.9bn and by June 2023 is expected to increase to ~$1.4bn. With high occupancy levels across the portfolio and 98% rent collection, Company demonstrated its strength operationally. Leasing spreads remained positive at 2.9% for Town Centers and accelerated to 20.5% for Logistics. With total comparable MAT specialty sales growth of 21.8% and comparable MAT growth of 15.9%, the Company reported strong performance from the essentials-based Town Centre portfolio.

(Graphic Source: Company Reports)

In the communities segment of the Company, MPC net sales of 1,049 in 3Q’23 with inquiries recovering to pre-COVID-19 levels. With contracts on hand at 18.2% higher average pricing compared to 1H23, Company witnessed resilient LLC demand with inquiries up quarter on quarter.

Financial Matrices with Commentary:

(Source: Refinitiv, Thomson Reuters)(Graphic: Veye Research)

In the financial year FY22, Stockland Corporation Limited (SGP) experienced significant growth across various financial metrics. The company’s revenue increased by 7.8% to $2,847 million compared to the previous year. Operating profit saw a 3.83% increase to $704 million, and Group EBITDA rose by 4.7% to $732 million.

The company’s net profit after tax (NPAT) witnessed a substantial growth of 28% from FY21. This indicates a strong earnings performance for the year. Total assets also grew by 5.7% compared to the previous year, while group debt reduced by 5.9%. This reduction in debt improved the company’s debt-to-equity profile from 50% in FY21 to 43.6%, providing a lower risk opportunity.

Stockland Corporation Limited demonstrated a favorable earnings profile, with a notable 33.3% growth from FY21. The company maintained gross and net margins well above the previous year’s levels, indicating effective cost management and profitability.

Additionally, profitability ratios showed positive trends. Return on Equity (ROE) increased from 11.9% in FY21 to 14.3%, reflecting improved returns for shareholders. Return on Assets (ROA) increased from 5.8% in FY21 to 7.2%, indicating effective utilization of company assets. Return on Invested Capital (ROIC) also improved from 8.4% in FY21 to 9.9%, further demonstrating efficient capital allocation and utilization.

Overall, the financial performance of Stockland Corporation Limited in FY22 indicates significant growth, improved profitability, and effective management of capital and assets. These positive metrics reflect the company’s strong financial position and its ability to generate returns for its shareholders.

Dividend History:

(Source: Refinitiv, Thomson Reuters) (Graphic: Veye Research)

Stockland Corporation Limited adopts a shareholder-friendly approach by regularly distributing dividends to its shareholders. The company pays out two dividends annually, an interim dividend and a final dividend, providing investors with a consistent income stream. While the dividends are unfranked, meaning they do not come with tax credits, they still offer a reliable source of income for long-term investors.

In the first half of 2023 (1H23), Stockland Corporation Limited distributed a dividend of 11.8 cents per security. This distribution represents a payout ratio of 80%, which aligns with the company’s target range of 75-85% of Funds From Operations (FFO). By maintaining a payout ratio within this range, Stockland Corporation Limited ensures that it strikes a balance between providing shareholders with a sustainable dividend and retaining sufficient funds for future growth and investment opportunities.

Overall, Stockland Corporation Limited’s commitment to regularly distributing dividends and managing its payout ratio demonstrates its dedication to rewarding shareholders while also maintaining financial stability and pursuing long-term growth.

Relative Valuation:

(Source: Refinitiv, Thomson Reuters)

Stockland Corporation Limited presents an appealing investment opportunity based on various valuation metrics. The company’s EV/Sales on a next twelve months (NTM) basis is highly attractive compared to the industry and sector averages. Additionally, the EV/EBITA ratio of 15.6 times is below the sector average and in line with the industry, indicating a favorable valuation. The company’s dividend yield surpasses the average for both the industry and sector, making it an attractive choice for income-oriented investors. Furthermore, the price-to-book multiple of 1x, below the industry average of 1.1x, further enhances the value proposition. Taking these factors into account, Stockland Corporation Limited appears to offer promising prospects for the next twelve months and represents a good investment decision within its relevant sector and industry.

*Forecasted Twelve Months or NTM (Next Twelve Months): of any financial metrics measure such as EV/Sales, EV/ EBITDA, or P/B, PCF, P/E is the calculation forecasted for the immediate next twelve months from the current date based on projections applied to the revenues, EBITDA, etc.

*TTM or Trailing Twelve Months refers to a company’s past 12 consecutive months of performance data from the current date used in financial reporting.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

Stockland Corporation Limited has a price-to-earnings (PE) ratio of 12.18x, indicating that the company is relatively undervalued compared to its peers such as MGR (Mirvac Group) with a PE ratio of 16.55x and GPT Group with a PE ratio of 18.16x. This lower PE ratio presents a potential investment opportunity for investors, as Stockland may offer a more attractive valuation. The company also maintains a reasonable debt-to-equity ratio within the range of its peer groups, indicating a sound balance sheet. However, Stockland’s focus on reducing debt further would enhance its financial stability in the future. Additionally, Stockland Corporation Limited offers the highest dividend yield among companies with a similar business profile, which can be appealing to income-seeking investors. Considering a relative price-to-book value for the company would provide further insights into its value proposition, potentially highlighting its attractiveness as an investment.

Industry Analysis:

The real estate industry in Australia has seen steady growth over the years due to growth in population, urbanization, and strong demand from communities and commercial properties. However, the industry is subject to cyclical fluctuations in the economic environment, interest rates, government policies, and demand-supply dynamics. Stockland holds a strong position in the Australian property market. It has diversified its portfolio across sectors including residential, commercial, and retirement living. This diversification helps in risk mitigation and stabilizes company earnings. In this industry, the Company’s performance depends on various other factors like property valuations, occupancy rates, rental income, and property sales. Tightening in the credit market can affect the Company’s revenue and sales.

Market Risk:

Interest rate risk is one of the key risks the real estate sector faces as interest rates directly impact consumer preferences. Other than this it faces risks from the economic downturn, fluctuation in property prices, and competition from other developers and high-net-worth investors. Also, changes in government policies and regulations can impact the operations of a company and ultimately its profitability.

Outlook:

(Graphic Source: Company Reports)

SGP has approx. ~$5.2bn in development pipeline end value with ~7,200 homes. Stockland has seven new communities expected to be launched by the end of FY24. To take effect in mid-2023 it is committed with Mitsubishi Estate Asia (MEA) to invest in master planned communities. It redeployed capital from the ‘Retirement Living business into higher-returning ‘LLC businesses. It is targeting FY23 settlements of ~350 and LLC development operating profit margin of 22-27% from the communities segment.

With FY23 targeted completions of more than $500m – now 92% pre-leased, it is on track to deliver Logistics development completions by the end of FY24 of ~$1.2bn. In the communities’ segment, with a noteworthy settlement skew (of ~3,000 lots) to 4Q23, the Company is targeting an FY23 development operating profit margin of ~26% and ~5,500 settlements in MPC. With 6,443 MPC contracts on hand in 3Q23 it is providing good visibility into 4Q23 and FY24. Maintaining optionality over the ~$5.8bn workplace pipeline bodes strongly for the company. With 15 new projects expected to launch across Communities increasing activation of the land bank is anticipated by the end of FY 24.

Technical Analysis:

(Chart source: TradingView) Monthly and Weekly Candlestick Price Chart Pattern

Since November 2021, the stock of Stockland Corporation Limited experienced a bearish move but found support in September 2022 around $3.13. This level has acted as a solid support, as indicated by the horizontal line on the monthly chart. From October 2022 onwards, the stock has shown a significant recovery.

Currently, the price pattern is trading above the 14-day, 50-day, and 200-day Exponential Moving Averages (EMAs), which suggests a positive trend. The stock is rejecting the downside and displaying strength. To further validate the bullish scenario, the stock needs to breach the major resistance level at $4.79. Once this resistance is overcome, it is likely to trigger a higher upward movement.

On the weekly chart, the formation of “Higher Highs” confirms the bullish trend, with the price trading above the EMAs. The indicators also support the upside momentum, indicating that the bullish trend is expected to continue in the medium to long term.

Overall, the price pattern across different time frames, the rejection of the downside, and the closing above the 14-day, 50-day, and 200-day EMAs with significant volume growth all point towards an upward momentum in the stock. 

Veye’s Take:

The Company maintained FY23 FFO per security guidance range of 36.4 to 37.4 cents on a pre-tax basis with distribution per security within its target payout ratio of 75% to 85% of post-tax FFO. With this, the Company can be termed as dividend Aristocrat as it has a history of paying consistent dividends. Delivering greater FFO contribution from 2H23, the Company is expected to make logistics completions of more than ~$500m by FY23. To take advantage of market opportunities, the company has a strong balance sheet, liquidity position, and redeployment capability providing flexibility. Demonstrating the strength of its diversified portfolio against continued macroeconomic uncertainty, the Company delivered a strong operational result for the 3Q23 quarter.  The company has maintained sustainable growth with the execution of its business strategy high-quality diversified income streams and generating new business lines. Veye recommends a “Buy” on “Stockland Corporation Limited” at the closing price of $4.115 (As of 21 July 2023).

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