Professional Documents
Culture Documents
Key indices 1 Changes in recommendation/ 2 Companies going ex-dividend 5 Guide to Ord Minnett 8
new stock coverage recommendations
Highlights this week 1-2 Market movements 6
Company snapshots 3-4 Glossary 8
Diary of Events 7
Ord Minnett branches 9
Highlights this week
Initiations and Changes in Recommendations Australand Property Group (ALZ) announced that the group
has entered into a joint venture with privately owned St Hilliers
ASX Recommendation to build $300 million of public housing in Victoria. The JV will
redevelop public housing in Carlton, in inner city Melbourne.
Company Code Old New Risk
The partners expect to finalise documentation by the end of
JB HiFi Ltd JBH Buy Hold Medium July.
Salmat Limited SLM Initiation Accumulate Medium Coffey International Limited (COF) updated investors, saying
Incitec Pivot Limited IPL Accumulate Hold Medium that it expects full-year operating EBITDA to be in the range of
$54 to $57 million. COF noted that it had experienced a
JB HiFi Ltd JBH Buy Hold Medium
significant drop in revenue across its Consulting and Project
Salmat Limited SLM Initiation Accumulate Medium
Management divisions in the March quarter after a strong
performance in the first six months of the financial year.
Keybridge Capital Limited (KBC) brought forward a
Mirvac Group (MGR) announced the successful completion of
preliminary review of the year-end carrying value of its
the $922 million institutional component of its capital
investments portfolio, detailing impairment provisions of around
raising. The $178 million retail component of the capital raising
$120 million would be required. The expected provisions are
is now fully underwritten. MGR noted that the placement and
spread across all of its asset classes, but predominantly apply
institutional entitlement offer were heavily oversubscribed.
to shipping and property transactions.
SLM’s margins are expanding, return on capital is improving and consensus earnings Norm. P/E (x) 18.7 14.7 12.5
growth is largely driven by highly visible, low-risk cost synergies (HPA acquisition). Net Yield (%) 4.9 5.3 6.0
Consequently the earnings outlook for SLM is strong.
Dividend (c) 18.5 20.1 22.7
Our valuation of $4.00 implies a 2010 PE of 13.2x, below SLM’s long term average of
Franking (%) 100 100 100
16.2x. Accumulate for; resilient earnings streams, upside earnings risk, beneficial
change to industry dynamics, 6% fully franked yield and market multiple PE (ASX
300 Industrials).
exclusivity to CSL when the legal process is so uncertain in terms of outcome and CSL.AX share price (A$)
timing. In this light, terminating the deal seems logical, despite CSL believing it has a ASX100 (rebased)
strong case.
Year to Jun ‘08A ‘09F ‘10F
On a cash basis, the favourable currency benefit on the equity raising proceeds
offsets the break fee and transaction costs. However, CSL’s 5-year plasma supply Norm NPAT ($M) 701.8 998.7 1193.1
contract with Talecris remains on-foot despite terminating the merger agreement.
Norm. EPS (c) 126.8 166.8 207.5
It is possible the FTC may initiate a new investigation into anti-competitive behavior
in the plasma industry, though it likely depends on the strength of the evidence in the Norm. P/E (x) 24.1 18.3 14.7
FTC’s possession (especially on signaling). We rate this as a relatively low Net Yield (%) 1.5 1.9 2.3
probability, but cannot rule it out.
Dividend (c) 46.0 59.5 70.7
CSL also announced an on-market share buyback of up to 54.9 million shares. We
assume a $1.6 billion buyback over 9 months, at an average share price of $32.50, Franking (%)
50.0 16.3 33.0
resulting in ~5% earnings per share (EPS) accretion in 2010 and ~7% accretion in
2011. At the current share price, that implies CSL is trading on a 12-month forward
PE of ~14.9x, which we think is attractive given its strong EPS growth outlook (EPS
growth is 24% in 2010, 10% in 2011 and 12% in 2012).
At the divisional level - Rail: the Public Private Partnership project remains on track Year to Jun ‘08A ‘09F ‘10F
and final acceptance of the project's design is still expected in July 2009; demand for
freight locomotives has softened recently, but the passenger market remains Norm NPAT ($M) 165.8 179.5 181.5
resilient. Works: the core Aust and NZ businesses are performing well although the
Norm. EPS (c) 44.3 47.6 47.2
recently acquired UK businesses will be loss-making in 2009 (management hope
they will break even in 2010). Mining: DOW has installed new management in this Norm. P/E (x) 11.1 10.3 10.4
division; operating conditions remain reasonably tough, although management are
Net Yield (%) 5.2 5.5 5.5
now starting to see early evidence of improving confidence among its key customers.
Engineering: The division is already benefiting from early-adoption of a number of Dividend (c) 25.5 27.0 27.0
cost saving initiatives and this should help maintain margins at current strong levels.
Franking (%)
0.0 0.0 0.0
We see at least two potential positive catalysts in the near term – acceptance of the
PPP project’s design (July) and possible success on the Melbourne train franchise
(July/August). At current levels, we can identify valuation support and we retain our
Accumulate recommendation with a December 2009 price target of $5.68.
Using this figure and applying it to FMG’s production capacity of 55Mt yields an
implied share price of $2.22 per share, after netting off FMG’s debt. We actually
believe that the lower quality of FMG’s reserves and resources, as evidenced by
the price discounts it suffers, dictates that a more appropriate transaction value is
the construction cost of US$100/t with a 30% premium added for optionality of
expansions. This results in an implied FMG valuation of $1.37 per share, after
netting off FMG’s debt.
Market movements
US - PPI, MAY
UK - CPI, MAY
US - CPI, MAY
EURO AREA - ECB GOVERNING COUNCIL MEETING. NO INTEREST RATE ANNOUNCEMENT SCHEDULED
BUY The stock’s total return (nominal dividend yield plus capital appreciation) is expected to exceed 15% over 12
months.
ACCUMULATE The stock’s total return is expected to be between 5% and 15%. Investors may add to existing holdings, or
initiate holdings on share price weakness.
HOLD The stock is fairly priced, and its total return is expected to be between 0% and 5%.
LIGHTEN The stock’s total return is expected to be less than 0% and possibly down 15%. Investors should consider
selling into share price strength.
SELL The stock’s total return (nominal dividend yield plus capital appreciation) is expected to exceed -15% over
12 months.
RISK ASSESSMENT Classified as High, Medium or Low, denotes the relative assessment of an individual stock’s risk based on
an appraisal of its disclosed financial information, volatility, nature of its operations and other relevant
quantitative and qualitative criteria.
Glossary
ACE – Adjusted common equity FED – US Federal Reserve P&L – Profit and loss statement (income
statement)
APRA – Australian Prudential Regulation FOMC – Federal open market committee
Authority PAX – Passenger
Franking % - The % of the dividend that is
BBSR – Bank bill swap rate franked. pcp – Previous corresponding period.
BOE – Bank of England Gearing – Net debt to shareholders’ equity. PEG – Price earnings ratio / EPS growth
BOJ – Bank of Japn GICS – Global industry clasification standards PER – Price earnings ratio.
CAGR – Compound annual growth rate IBES – International broker’s estimate system PMI – Purchasing Manager’s Index
CAPEX – Capital expenditure IFRS – International financial reporting PPI – Producer Price Index
standards
CDO – Collaterised debt obligation QTD/YTD – Quarter/Year to date
IRR – Internal Rate of Return
CFO – Chief Financial Officer REIT – Real Estate Investment Trust
ISM – Institute of supply management
CMO – Collaterised mortgage obligation ROA – Return on assets
LFL – Like for like (comparable)
cps – Cents per share. ROCE – Return on capital employed
MBS – Mortgage backed security
DDM – Dividend discount model (valuation ROE – Return on equity
technique) MD&A – Management discussion and
ROIC – Return on invested capital
analysis
DPS – Dividend per share, in cents.
RWA – Risk weighted assets
Mkt Cap – The company’s market
DRP – Dividend reinvestment plan
capitalisation. S&P – Standard and Poors (Rating agency)
EBIT – Earnings before interest and tax.
MSCI – Morgan Stanley Captial International Sum-of-the-parts-basis – Valuing the
EBITDA – Earnings before interest, tax Index company’s various assets and liabilities
depreciation and amortisation. separately and then adding them together
Net Present Value – Valuation using
EPS – Earnings per share, in cents. discounted cashflows. TSR – Total shareholder return
EV – Enterprise value NPAT – Net Profit After Tax – before VWAP – Volume weighted average price
abnormals.
F/Y – The company’s month end financial WALE – Weighted average lease expriy
year. OPEX – Operating expense
YLD – Dividend per share divided by the
FCF – Free cash flow market price.
Head Office
Level 8
NAB House
255 George Street
Sydney NSW 2000
Australia
Tel: (61-2) 8216 6300
Fax: (61-2) 8216 6311
Disclosure: Ord Minnett is the trading brand of Ord Minnett Limited ABN 86 002 733 048, holder of AFS Licence Number 237121 and an ASX Market
Participant. Ord Minnett Limited and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage
from, any securities referred to in this document. Further, Ord Minnett and/or its affiliated companies may have acted as manager or co-manager of a
public offering of any such securities in the past three years. Ord Minnett and/or its affiliated companies may provide or may have provided corporate
finance to the companies referred to in the report. This document is not available for distribution outside Australia and New Zealand and may not be
passed on to any third party or person without the prior written consent of Ord Minnett Limited.
Disclaimer: Ord Minnett Limited believes that the information contained in this document has been obtained from sources that are accurate, but has not
checked or verified this information. Except to the extent that liability cannot be excluded, Ord Minnett Limited and its associated entities accept no
liability for any loss or damage caused by any error in, or omission from, this document. This document is intended to provide general securities advice
only, and has been prepared without taking account of your objectives, financial situation or needs, and therefore before acting on advice contained in
this document, you should consider its appropriateness having regard to your objectives, financial situation and needs. If any advice in this document
relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure
Statement for that product before making any decision.
Analyst Certification: The analyst certifies that: (1) all of the views expressed in this research accurately reflect their personal views about any and all
of the subject securities or issuers; and (2) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendations
or views expressed herein.