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An Extraordinary Reporting Season For An Extraordinary Time

By UBS (Jakov Males)Market OverviewAug 21, 2017 14:32
au.investing.com/analysis/an-extraordinary-reporting-season-for-an-extraordinary-time-200196282
An Extraordinary Reporting Season For An Extraordinary Time
By UBS (Jakov Males)   |  Aug 21, 2017 14:32
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Originally published by UBS Asset Management

Insurance Australia Group Ltd (AX:IAG)

  • Yet to report but share price depressed by Suncorp (AX:SUN) and AMP (AX:AMP), despite former having positive read through and latter minimal operational overlap.

  • We expect the result to signal the beginning of a multi-year cash earnings growth story as the industry cycle normalises lifting premiums and margins as the company focuses on claims inflation.

  • The general insurance industry is our highest conviction overweight with research via various industry players confirming the irresistible momentum.

AMP Ltd (AX:AMP)

  • Finally met expectations and displayed some operational stability.

  • Far inferior companies that similarly satisfied forecasts after challenging periods, have seen re-ratings to multiples 35% above AMP's.

  • Unfortunately defeat was snatched from the jaws of victory when management under-delivered on capital management expectations.

Tabcorp Holdings Ltd (AX:TAH)

  • Met guidance although weakness in peripheral businesses distracted from core operating strength.

  • Lack of sell side coverage (due to Tatts transaction restrictions) ensured focus on historic competitive pressures.

  • Selling by large shareholders also weighed on the price.

  • Company remains a well-managed, defensive and strong cash flow business.

  • Earnings growth from current one-off depressed levels and major catalysts (Tatts (AX:TTS) and regulation) materially bias outlook to the upside.

Oil Search Ltd (AX:OSH)

  • Yet to report but sector refuses to budge even after the underlying commodity has bounced 15% off lows.

  • Despite delays, certainty of growth options off a cost base amongst the lowest in the world, provides low risk exposure to a uniquely suppressed commodity.

  • Peaking rig additions, capex and inventories are encouraging.

Link Administration Holdings Ltd (AX:LNK)

  • Yet to report

  • No change to thesis focused on massive low cost and large scale operating leverage to secular super fund consolidation.

Caltex Australia Ltd (AX:CTX)

  • Yet to report

  • No change to thesis of multiple earnings drivers for this neglected and misunderstood company.

  • While technology is a longer term risk, mix shift is an offset near term and regulatory risk around acquisitions favours the company.

  • Management are pro-actively exploiting their infrastructure footprint with impressive initial retail results and potentially 20% upside.

  • Operating simplification and absorption of underperforming franchises offers another 10%.

  • Recent transactions for similar sites in the US occurred at 13x EV/EBITDA compared to Caltex (AX:CTX) at 7.5x.

James Hardie Industries (AX:JHX)

  • Ongoing plant issues pressured manufacturing costs and conceded volumes, which disappointed investors conditioned to more rapid recovery from operational challenges.

  • Near term earnings were downgraded as time to correct these problems were extended.

  • We retain our trust in management given their transparency.

  • Conviction only slightly tempered given recent turnover at time requiring management focus.

  • Product superiority remains unchallenged in market normalising from depressed levels.

  • Remains a high conviction position.

An Extraordinary Reporting Season For An Extraordinary Time
 

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An Extraordinary Reporting Season For An Extraordinary Time

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