Category: Technical Picks
Well it is very important to look at the momentum, price action and volume weighted average price of a stock other than fundamental screeners.
This is what our team has come up with another important feature for selecting the stocks on the basis of more than 10 technical screeners, which can help our investors & members to look for short term positional investing, short term trading and identifying the long term price action trends of their favourite stocks.
Growth is driven by mineral commodities volumes and quarrying. Fertilisers are a cyclical business, and despite a strong domestic market position, earnings are volatile and subject to competition from imports. Demand for fertilisers could, however, increase to meet growing food requirement from Asia. The balance sheet was somewhat stretched, but cash flow is increasing since the Louisiana ammonia plant ramped up in 2017.
Key Points
• Incitec Pivot offers growth prospects linked to demand for mineral commodities. Earnings from explosives are expected to grow based on an organic growth strategy.
• Fertiliser earnings are volatile and driven by international market pricing. The impact on group earnings diminishes as the explosives business grows but continues to weigh on overall returns.
• The key risk for Incitec Pivot is that a weak global economic environment could lead to lower mining volumes and/or a collapse in fertiliser prices.
• Investors enjoy bumper dividends at peak cycle times.
• Continued growth of the explosives business will reduce earnings volatility.
• Over the longer term, explosives earnings are favourably leveraged to mining volumes rather than prices, and mine strip ratios are expected to increase over time.
• Fertiliser prices are volatile, leading to earnings volatility. Incitec Pivot has no pricing power in this market.
• Incitec Pivot built the Louisiana ammonia plant at at time when demand is likely to fall.
The main downside risks are related to excessive falls in fertiliser and explosives prices that inevitably occur from time to time. Since the Dyno Nobel acquisition, there is more currency risk, but Incitec Pivot has an active hedging program, including the use of U.S.-dollar-denominated debt. Explosives earnings are also subject to mining sector demand and a slowdown in resources volumes will hurt earnings. As the firm manufactures hazardous chemicals, leakages are a potential risk, and unplanned plant shutdowns can mean lost earnings. Earnings volatility will reduce as the proportion of earnings from explosives increases, but we regardless have a high uncertainty rating on Incitec Pivot.
(Source: Morningstar)
Disclaimer
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Reported EBITDA rose 6% to AUD 662 million. Adjusted EBITDA rose 7% to AUD 627 million, tracking slightly ahead of our full-year forecast mainly because of higher-than expected electricity demand. More people working from home benefited volumes and saw the firm earn AUD 21 million above its regulatory cap. This will be returned to customers via lower tariffs mainly in fiscal 2022. As AusNet is regulated, there is no lasting impact on our longer-term earnings forecasts or valuation from demand fluctuations.
Electricity distribution performed well, with revenue up 4% to AUD 502 million and adjusted EBITDA up 11% to AUD 288 million. The strong result benefited from tariff increases and stronger residential demand, but the outlook isn’t as rosy. This asset undergoes a regulatory reset in early 2021, which will likely reduce allowed returns on equity to under 5% for the next five years, from over 7% currently. We forecast average annual revenue growth of just 1% over the next five years, despite ongoing reinvestment and growth in regulated asset base. Gas distribution also benefited from tariff increases and stronger residential demand, helping revenue increase 4% to AUD 149 million and adjusted EBITDA increase 8% to AUD 117 million. The next regulatory reset for the gas network is in early 2023. Overall, we expect revenue to grow at about 3% for the next two fiscal years, before resetting about 5% lower from 2023.
EBITDA in the electricity transmission network rose 1% to AUD 181 million. We forecast revenue grows 1% per year for a couple of years, before falling a few per cent in fiscal 2023 following the next regulatory reset in 2022. The main growth opportunity for AusNet is transmission connections to new wind and solar farms and between states. Some will be unregulated, some regulated. All will be capitalintensive, but we think the firm can fund without an equity raising.
(Source: Morningstar)
Disclaimer
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
There is an approximate one-month delay between shipping the iron ore and prices being finalised. Higher profit versus last year was driven primarily by price, which rose 21% to USD 79 per tonne. Volumes were mildly positive, with iron ore shipments up 6% to 177 million tonnes. The strong result saw Fortescue increase total dividends by 54% to AUD 1.72 per share, slightly ahead of our AUD 1.60 forecast.
We make no change to our AUD 7.70 per share fair value estimate. While the fiscal 2020 result was strong, we struggle to see how the buoyant iron ore price can be sustained. It’s hard to imagine external conditions getting materially better, and we see longer-term downside. On the demand side, we see a coming headwind as infrastructure spending to offset the COVID-19 downturn in China abates and as urbanisation and infrastructure requirements
generally reduce. The peak of urbanisation has passed, and China’s stock of housing and infrastructure is now relatively mature. We expect China’s steel consumption to slow accordingly and for a growing proportion of steel to come from recycling at the expense of iron ore demand.
We see modest supply additions from Fortescue’s Iron Bridge, Vale’s planned 20 million tonne S11D expansion, and the 7 million-8 million tonne Samarco restart. Longer term, the restart of production from Vale’s mines interrupted by the 2019 Feijao tailings dam failure is material. Production in 2020 is likely to be almost 100 million tonnes lower than we expected before the failure, or about 6% of global supply.
Admittedly, the outlook for near-term earnings is very strong. We expect only a 9% decline in earnings in fiscal 2021 from fiscal 2020’s record level. However, the iron ore price is way above its marginal cost, reflecting the dual shocks to supply–primarily from Vale since 2019 –and demand from China’s stimulus.
Year-to-date steel production in China is up a remarkable 2.8% with a sharp recovery from the February COVID-19- related downturn. In July 2020, steel output in China was up 9.1% on the same month in 2019. The uptick in iron ore imports has been even stronger with China imports up 12% to 659 million tonnes in the year ended July 2020. And for the month of July, imports were a record 102 million tonnes and up 24% on July 2019. With China the dominant source of demand for iron ore, accounting for more than 70% of seaborne consumption, strength there has more than offset any weakness everywhere else.
(Source: Morningstar)
Disclaimer
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
The stock suits investors seeking exposure to the food and beverage sector. Australia can still increase its store base by around 40% over the next decade. European growth is much more substantial, with potential to substantially increase the existing store base to around 2,850 outlets during the next decade. In its capacity as a master franchisee, Domino’s capital requirements are limited, which means that royalty payments should continue to be paid as dividends.
Key Considerations
- Domino’s was an early adopter of digital. By migrating orders online, the company has been able to save costs, establish a customer database, and up-sell to customers.
- Japan and Europe are underpenetrated markets. Replicating its success in Australia abroad presents a significant growth opportunity.
- Short-term drivers can materially affect year-to-year earnings, including currency movements, raw material input costs, and changes to foreign government policies related to sales taxes and wages.
- Domino’s is a highly visible brand based on a successful U.S. business model. Across Domino’s three regions, sales have increase at a CAGR of 14% over the past four years. We expect annual growth rates to continue in the low teens over the next five years.
- The pizza market in Europe is highly fragmented, presenting significant opportunity for Domino’s to take market share with an attractive value proposition, increased convenience to the customer, and a differentiated product offering.
- The company’s large network size has positive implications for discounted supplier arrangements.
- There is a high level of competition, stemming from independent pizza stores and other quick-service restaurants.
- The company might evaluate its target markets in new countries incorrectly, given the geographical distance and cultural variances.
- The low-price business model may still be affected by slowing retail and discretionary spending.
(Source: Morningstar)
Disclaimer
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
