Decoding Value Investing & Some Of The Best In Class Australian Value Stocks

Decoding Value Investing & Some Of The Best In Class Australian Value Stocks

 Price is what you pay; value is what you get.” – Benjamin Graham, Father of Value Investing.

A Value stock generally trades lower relative to its fundamentals namely, dividend, earnings, sales.  Typically, value stock trade at relatively lesser price compared to its valuation. Some characteristics that define a value stock comprise of a low price-to-book ratio, high dividend yield and maybe low price-to-earnings ratio. Usually, value stocks involve companies with established businesses and tepid growth backed with attractive earnings, these companies are mid to large based on the market capitalisation; however, exceptions are indeed possible depending upon specific cases. Some strategies that investors prefer in value stock is buying on dips – smart investors increase the exposure (buy more) on fundamentally sound companies, which would outperform the market in the long run despite short term volatilities that result in negative price movements in the market.

Let us have a look at a benchmark index to replicate what we read above:

 

MSCI Inc. is a leading provider of critical decision support tools and provides indices on equity, fixed income and covers most of the world markets. MSCI Australia Value Index (USD) constitutes 28 stocks with a market capitalisation of ~USD 480,819.48 Million (as on 31 May 2019).

Sponsored ad by Kalkine

Relative Fundamentals & Returns of Value Index to Normal Indices (Source: MSCI Inc.) 

MSCI Australia Value Index returns had outperformed the other normal MSCI Australia Index in the periods of one month, three months and one year, respectively. Likewise, as mentioned above the value stock generally has a low price to book ratio, high dividend yield and maybe low price-to-earnings ratio.

After looking at the above numbers of these characteristics, with respect to MSCI Australia Value, MSCI Australia & MSCI World Indices, it appears that the dividend yield of the MSCI Australia Value Index (5.57%) is higher than the normal and world index. Furthermore, the P/E Ratio or the price-to-earnings ratio is comparatively lower than the other indices, and same is the case with P/BV ratio or price-to-book ratio, which is lower compared to MSCI Australia and MSCI World indices.

What is Dividend Yield?

Dividend yield of the stock is the portion, of which the dividend was paid by the company annually relative to its market price in percentage terms. For example, if a company pays an annual dividend of $2 and its current market price is $20, the dividend yield would be 10%, as it is paying 10% of the current market price in dividends.

How to evaluate value of a stock?

Stocks trade at a higher or maybe lower range relative to its intrinsic value or real value. Intrinsic value is a calculated value of an investment, company or business and Intrinsic value of a stock can be calculated using dividend discount model, residual income model and discounted cash flow analysis.

Let’s take a quick look at some popular stocks in the Australian value investing space:

Tabcorp Holdings Limited (ASX: TAH) 

Tabcorp Holdings Limited (ASX: TAH) is an Australian Mid-Cap gambling entertainment company, ranked on number two by weight in the S&P/ASX MidCap 50 index, which represents the mid-cap universe for Australia.

TAH is a popular stock in the Australian value investing space. Reportedly, a leading global asset manager is increasing its stake/interest in the company, which is now pegged at 5% of the issued fully paid ordinary capital.

TAH Fundamentals (Source: Thomson Reuters)

The annual dividend yield of the stock is currently at 4.72% (as on 7 June 2019) and the last dividend distributed by the company (on 13 March 2019) was AUD 0.11. Stocks with ability to pay dividend along with steady growth, replicate the strong fundamentals of the businesses of these stocks along with high-quality leadership that drives these businesses. This statement can be backed by, looking at the most recent financials of TAH from February 2019 half-year statutory results, revenue of the group rose to $2,787.4 million from $1,338.1 million, this represents above 100% change on pcp and EBITDA of the group rose to 554.3 million from 290.1 million, which represent change of 91.1% on pcp.

H119 Results Release (Source: Half Year Release, Feb 2019)

After the close of today’s (07 June 2019) trading session on ASX, TAH closed at A$4.480, up by 0.674% from the previous close. The performance of the stock in the long-term period of five years stands at +37.50%. 

National Australia Bank Limited (ASX: NAB)

National Australia Bank Limited (ASX: NAB) is a leading bank in the Australia and NZ market. It is a large cap stock with a market capitalisation of ~75.2 billion (as on 07 June 2019). The stock of the bank is constituent of S&P/ASX 20 index, which hosts up to twenty companies from Australia, which are highly liquid and considered ‘bluechip’ stocks.

The most recent dividend announced by the bank was AUD 0.83 (to be paid by 3 July 2019), the annual dividend yield of the stock currently stands at 6.8% (as on 7 June 2019); the price to earnings (PE)ratio of the stock is 13.04x.

NAB Fundamentals (Source: Thomson Reuters)

Fundamentally talking about this stock – the recent rate cut by Reserve Bank of Australia to 1.25% would boost the confidence of Australian consumers, as the prevailing rates would encourage the aggregate demand and consumption would pick up in the economy underpinned by the bank’s ability to capitalise on probable capital needs of the economy. Purportedly, a rate cut improves the confidence of consumers to borrow more, as the interest payable on borrowing goes down; similarly, banks do not have to pay the same amount interest on the deposits made by customers as the interest rate would be lower after the decision by Reserve Bank of Australia.

After the close of today’s (07 June 2019) session on ASX, NAB closed at A$26.9, up by 0.56% from the previous close. Performance of the stock in the periods of one-year, six-month, three-month and one-month are +1.40%, +11.74%, +5.07% and +3.20%, respectively.

Macquarie Group Limited (ASX: MQG)

Macquarie Group Limited (ASX: MQG) is a globally diversified financial services company, with offerings that include asset management, leasing and asset financing, retail banking and wealth management, market access, commodity trading, investment banking and principal investment.

Group Overview (Source: Macquarie Group FY19 Presentation)

In May 2019, the group released its FY19 full-year results wherein the net profit attributable to ordinary equity holders (MQG) of $A2,982 million (FY19) depicted 17% growth in year-over-year terms.

Reportedly, the second half-year net profit of $A1,672 million (2HFY19) was up by 28% in 2HFY18. Also, the businesses of the group are diversified globally, resulting in an International income of approximately 66 per cent of total income or $A8,317 million in FY19, which is up by 17% from FY18. Meanwhile, a growth of 20% in FY18 to A$4,235 million in FY19, represent a 34 percent contribution to total income from the Australian franchise.

MQG reported an increase of 11% from $A496.7 billion (on 31 March 2018) to $A551.3 billion (on 31 March 2019) in its Assets Under Management (AUM), and this was due to investments made by Macquarie Infrastructure and Real Assets (MIRA) managed funds, contributions from business acquired during the period, foreign exchange impacts. Notably, asset realisations by MIRA-managed funds and net flows in Macquarie Investment Management (MIM) helped to offset market movements.

As per the full year results, the EPS of A$ 8.83 was up by up 17% on FY18 and MQQ announced a dividend per share of A$3.60 (45% franked) payable by 03 July 2019. Also, the total dividend distribute by MQG was $A5.75 (FY19) and MQG distributed $A5.25 per share in FY18. Importantly, the annual dividend yield of the stock is currently at 4.9% (as on 7 June 2019)

MQG is a large cap stock with a market capitalisation of ~39.91 billion (as on 07 June 2019), it constitutes to S&P/ASX 20 index, which hosts to twenty companies from Australia, which are highly liquid and considered ‘bluechip’ stocks.

In addition to this MQG, constitutes to S&P/ASX Dividend Opportunities Index, also ranked at fifth position with respect to its weight in the &P/ASX Dividend Opportunities Index.  Furthermore, the stock is likely to benefit from the recent rate cut by the Reserve Bank of Australia.

After the close of today’s (07 June 2019) session on ASX, MQG closed at A$ 119.20, up by 1.67% from the previous close. Performance of the stock in the long-term period of five years is +95.09% and in the past one-year is +3.61%. In the short-term periods of six-month, three-month and one-month the returns are +4.64%, -9.56% and -6.66%, respectively.

Super Retail Group Limited (ASX: SUL)

Super Retail Group Limited (ASX: SUL) is a leading retail group which hosts four brands and 688 stores across Australia. The stock of the company constitutes to various indices including primary Australian ASX 200 index and notably, SUL constitutes to S&P/ASX Dividend Opportunities Index, which depicts the company’s renowned and acknowledged ability to distribute income.

Industry Overview

In April 2019, the group released itself on Macquarie Securities Australia Conference 2019. As per the presentation, the group shared the trading update for its business wherein auto retailing business had witnessed a growth of 4.2% in the first 17 weeks of H2 and year-to-date growth of 2.7% to 27 April 2019.

Also, the outdoor retailing business of the company host BCF and Macpac as the brands wherein BCF has been witnessing competitive pricing pressure and margin pressure continue in H2; however, BCF had like for like sales growth of 5.3% in the first 17 weeks of H2; meanwhile, Macpac witnessed like for like sales growth of 2.0% in the first 17 weeks of H2.

Reportedly, sports retailing business saw Like for like sales growth of 4.0% in the first 17 weeks of H2. Importantly, the Group observed like for like sales growth of 3.3% YTD change to 27 April 2019, and SUL expects unallocated costs to be circa $21m along with capital expenditure circa $85m.

The last dividend paid by the company was AUD 0.215 (paid on 28 March 2018), the annual dividend yield of the stock is currently at 5.15% (as on 7 June 2019).

After the close of today’s (07 June 2019) session on ASX, the stock of the company closed at A$9.34, down by 1.89% from the previous close. Performance of the SUL in the long-term period of five years is +11.61% and in the past one-year +12.40%. In the short-term periods of six-month, three-month and one-month the returns are +27.61%, +30.95% and +25.93%, respectively.


Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

Facebook Comments

Join Our Discussion

Start discussion with value Investors for ASX Stock Market Investment and Opinion.


6 Cannabis Stocks under Investor’s Limelight…

Cannabis companies that sell both medicinal weed and recreational pot. Marijuana stocks to look at. Marijuana mergers and acquisitions. Dispensary data analytics. Upcoming marijuana IPO’s Those phrases have become increasingly common as marijuana legalization spreads.

Global spending on legal cannabis is expected to grow 230% to $32 billion in 2020 as compared to $9.5 in 2017, according to Arcview Market Research and BDS Analytics. As of June 29, 2018 the United States Marijuana Index, despite a lot of uncertainty around regulations, has over the past 1 year gained 71.49%, as compared to about 12% gain seen by the S&P 500.

Click here for your FREE Report

LEAVE A REPLY

Please enter your comment!
Please enter your name here