Investment Matters

Company News: numerous

We have a few weeks of news to catch up for your equity holdings (in alphabetical order below). 

In addition, a small investment was made in a company called Deep Yellow (ASX Code: DYL).  Please click here for our investment thesis regarding uranium.  Further information on this specific investment will be provided in coming weeks.

BHP released a tailings management investor briefing.  Tailings dams contain the by-products of mines such as water, unrecovered solids, and chemicals.  The purpose of the briefing was to address the safety and management of tailings dams, which has come into focus across the industry following the Samarco dam failure (Nov-15 in Brazil; an operation which BHP co-owned under a joint venture).

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Challenger provided an update to financial outlook as part of an Investor Day.  The company affirmed its FY-19 guidance, albeit at the lower end ($545m - $565m NPBT).  It noted impacts associated with the Royal Commission (for instance in regard to adviser movement / churn impacting sales).

Additionally, it has changed its Return on Equity (ROE) target from 18%, to the RBA cash rate + 14%.  We assess this as reflecting the reality of a lower interest rate environment (in which many financial companies, including Challenger, naturally earn lower returns).  This has dampened market earnings expectations from FY-20. We assess Challenger has a sustainable gross dividend yield of 7% at its current price.  The Australian superannuation system is forecast to double over the next 10 years, making the short-term capital weakness annoying, but the medium- and long-term future bright.

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Coronado held its Annual General Meeting (AGM).  FY-19 (=CY for Coronado) guidance is set to beat expectations, supported by a small exceedance in production versus Prospectus (from IPO) guidance, and a strong metallurgical coal price.

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Emeco released a positive update.   FY19 guidance was affirmed (operating earnings before interest, tax, depreciation and amortisation, for EBITDA $211m - $213m, vs $153m in FY-18). In addition, the company indicated that the outlook for FY-20 remains strong, with a tight equipment market on the cards.

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MMA Offshore released a positive trading update: it affirmed FY-19 guidance (EBITDA ~$27m), it advised vessel utilisation is trending up (49% at the end of May, vs 39% at 31-Dec-18 and it has been awarded a number of contract extensions into FY-20.

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Southern Cross Media released a corporate presentation.  Some important factors the company noted about the outlook: advertising markets were generally weak in Q3 but Southern Cross increased market share, Q4 is trading ahead of last year, podcasting revenues are well up on prior year, and the company continues its cost discipline (full year costs expected to be flat).  

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Worley held an Investor Day (which was attended by First Samuel).  The integration of the large Jacob’s ECR acquisition is progressing well – with synergies now expected to be higher than first thought (when the acquisition was proposed), customer response has been positive, and a broadened offering is creating opportunities.  Backlog (which provides an indication of future revenue growth) remains strong and the company has cautious optimism – trade wars and developments in the Middle East have weighed, however backlog is not falling away.

- Fleur Graves