2 Christmas Picks on ASX – CVW and FLT

  • Dec 19, 2019 AEDT
  • Team Kalkine
2 Christmas Picks on ASX – CVW and FLT

Reserve Bank of Australia (RBA) recently advised that financial market conditions have become more positive, as market participants' concerns about downside risks had receded slightly. In light of this scenario, let’s take a look at two stocks which are looking good for this Christmas season.

ClearView Wealth Limited (ASX: CVW)

ClearView Responding Well to Challenging Market Conditions

ClearView Wealth Limited (ASX: CVW) is a diversified financial services company with three business segments: Life Insurance, Financial Advice and Wealth Management. Due to the prevailing tough market condition in the Australian financial industry, ClearView has become more focused on resetting its business.

CVW New Focus

The company’s business is now focused on effective cost management and a reinvigorated IT strategy and road map. The company expects that its substantial investment in technology, alongside the ongoing expansion of its distribution footprint, will support medium- to long-term growth, notwithstanding short-term headwinds. In FY19, ClearView undertook a comprehensive IT strategy review as a result of which the company is now exploring a new life insurance Policy Administration System (PAS) and Underwriting Rules Engine (URE), with a formal tender process underway. In FY19, the company also implemented the direct consumer remediation program and the life insurance advice remediation program. The company also terminated certain poor performing life insurance distribution relationships (lapse rates above acceptable norms) with the product pricing and repositioning of ClearView LifeSolutions implemented in the last quarter of FY19.

In addition to this, the company has also positioned its life insurance business to capitalise on opportunities arising from the breakdown of vertical integration and the opening up of Approved products Lists (APLs).

FY19 Results Highlights

Due to the extremely challenging market conditions and higher-than-expected life insurance claims and lapse rates, the company’s FY19 NPAT declined by 22% to $25.1 million as compared to last year. For FY19 the company reported an Embedded value of $0.99per share or $672.7 million, impacted by the assumption changes and removal of financial advice client book, partially offset by the reduction in discount rate. It is to be noted that ClearView’s results does not reflect its key strategic priorities and actions taken in FY19 especially key actions completed in 2H FY19 including a reset of the business strategy to position it to take advantage of structural changes in the market which could have a positive effect on the emergence of sustainable long-term profit growth from the material increase in the life insurance in-force premium.

ClearView Outlook

ClearView expects that it might get benefit from the industry disruption and the subsequent opening up of life insurance APLs, which will see previously aligned financial advice businesses gain access to its suite of products and services. The company also expects that the additional distribution relationships, combined with the maturation of its existing life insurance APLs, will lead to a material increase of in-force premium, noting the shorter-term focus on business quality.

Strong Market Fundamentals

The company believes that there is an underlying fundamental need for life insurance products. This need is underwritten by the Household debt to income levels. With regard to the wealth management business, the company believes that it is inherently attractive given there is also an underlying fundamental need for the product. Pre-retirement, compulsory super drives inherent demand as well as other society demands such as school fee funding; home deposits and other savings needs. Thirdly, in financial advice notwithstanding the likely material reduction in adviser numbers, there is an ongoing need and demand for goals-based advice due to Australia’s compulsory superannuation system; complex tax and social security rules; and ageing population.

It is expected that in the next 20 years, $3.5 trillion in wealth will be transferred from one generation to the next. Baby Boomers will need help planning and executing the smooth transfer of assets while beneficiaries will need advice on how to properly structure and prudently invest and protect their wealth.

By AEST 2:30 PM, CVW stock was trading at $0.425.

Flight Centre Travel Group Limited (ASX: FLT)

Travel solutions provider, Flight Centre Travel Group Limited’s core businesses include Corporate travel; Leisure travel; and in-destination travel experiences (TTG). In order to increase its focus on leisure and corporate travel growth, the company recently expanded its global leadership team by appointing three new regional managing directors (MDs), effective from 1st January 2020.

Strong TTV Growth

At the recently held AGM, Managing Director Graham Turner highlighted that first quarter TTV (total transaction value) increased 11.4% globally, well above the company’s longer-term goal of 7% growth, and reached record levels in each of the geographic sectors – Australia-New Zealand, the Americas, EMEA and Asia. The first four months of FY20, Corporate TTV globally increased by a very healthy 18% as its corporate brands generated about 40% of the group’s first quarter TTV.

The company believes that its corporate brands are now on track to become a $10billion business this year as it continues to out-perform in this sector. Further, the company is rapidly gaining share in the world’s largest corporate markets as evidenced by first quarter corporate TTV.

In Australia, online leisure sales in Australia doubled to more than $250 million during the first quarter, representing solid market-share growth for flightcentre.com.au and for the Jetmax brands, BYOjet and Aunt Betty.

Outlook

The company continues to witness several challenges which include continuing disruption in the Australian leisure business; downturn in travel to the Dominican Republic; Ongoing Brexit-related uncertainty in the UK; Unrest in Hong Kong, Underperformance in in-destination businesses. As a result of these challenges, the underlying PBT for the first half of FY20 is expected to be lower than the underlying $140.4million first half result achieved last year. The company expects its underlying PBT for the six months to December 31, 2019 will be between $90million and $110million, which is well down on last year’s first-half result. The major reasons for the first-half decline are the Australian leisure business; reduced net interest income, increased consultancy costs and poor trading results in its Global Touring businesses.

Year-on-year profit growth is expected during the second half, which is traditionally a seasonally busier trading period, and we will target an underlying PBT between $310million and $350million for the full year. The company expects that its recently increased ownership of both 3Mundi and LDV, plus the Casto business will deliver increased profit to the group.

The company expects its Continental Europe businesses will deliver around $1billion in TTV and a combined profit of more than $10million, underlining their potential as future growth drivers for the group.

By AEST 2:38 PM, FLT stock was trading at a market price of $44.140.


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