4 Stocks - ALL, CGF, XRO, IEL - A Winning Bet for Investors in Next 12 Months?  

  • Jul 17, 2019 AEST
  • Team Kalkine
4 Stocks - ALL, CGF, XRO, IEL - A Winning Bet for Investors in Next 12 Months?  

In the current scenario, international economic and financial markets are being largely driven by trade and geopolitical frictions like the US-China trade-war ceasefire, regulatory changes like global central bank easing, China stimulus and declining house prices in Australia. As a result, various market experts are recommending taking a modestly more defensive investing stance. Discussed below are the four Australian equities that the investors may want to keep an eye on in the next twelve months.

Aristocrat Leisure Limited

Aristocrat Leisure Limited (ASX: ALL), based in North Ryde, Australia, is engaged in the development, distribution, and servicing of gaming systems in the Americas, Australia, New Zealand, and other regions worldwide. The company offers a diverse range of products and services including electronic gaming machines, casino management systems, and digital social games. It holds licences in nearly 300 gaming jurisdictions, as well as operates in more than 90 countries.

The company’s market capitalisation stands at around AUD 18.85 billion with approximately 638.54 million shares outstanding. On 17 July 2019, the ALL stock was trading at AUD 29.620, edging up 1.473% by AUD 0.430 (as at AEST: 12:34 PM).

Recently on 23 May 2019, Aristocrat Leisure declared an ordinary fully paid dividend of AUD 0.22 (Record Date: 30 May 2019; Payment Date: 2 July 2019), concerning the period of six months to 31 March 2019. On the same day, the company released its presentation to analysts and investors, touching upon the Strategy Update, Group Results, Operational Performance, and outlook ahead.

According to the company, through investments into adjacencies, it is significantly increasing the addressable market for the business. As per the half year results for the six months to 31 March 2019, the company recorded a normalised profit after tax and before amortisation of acquired intangibles (NPATA) of $ 422.3 million (up 16.8%), driven by continued strong growth in the group’s Americas and Digital businesses, together with a further lift in performance across the ANZ region. The normalised revenue also improved by 30% to $ 2.1 billion.

Results (Source: Investor Presentation)

Going forth, the company expects incremental gains in attractive North American adjacencies, expansion across the total gaming operations installed base, growth in digital bookings supported by new game releases, moderate growth in corporate costs and a further 100 – 150 bps reduction in the company’s effective tax rate for FY19 over FY18.

Challenger Limited

Challenger Limited (ASX: CGF), established in 1985, is a publicly owned investment manager that offers customers with financial security for retirement. Challenger operates two core investment businesses, a fiduciary Funds Management division and an APRA-regulated Life division. Challenger Life Company Limited is known to be Australia's largest provider of annuities.

With a market capitalisation of around AUD 4.13 billion and approximately 611.6 million shares outstanding, On 17 July 2019, the CGF stock was trading at AUD 6.755, up by 0.371% (as at AEST:12:35 PM). In addition, Challenger Limited has an annual dividend yield of 5.25%.

Recently on 28 June 2019, Challenger announced that it had received all necessary regulatory approvals and implemented the operational requirements in order to commence reinsurance of US dollar denominated annuities from 1 July 2019. Under an expanded strategic relationship with MS&AD Insurance Group Holdings Inc, Challenger would begin a quota share reinsurance of US dollar denominated annuities issued in the Japanese market by Mitsui Sumitomo Primary Life Insurance Company Limited (MS Primary), a subsidiary of MS&AD.

Source: Investor Day Presentation

Accordingly, MS Primary will provide to Challenger Life an annual amount of reinsurance, across both Australian and US dollar annuities, of at least JPY 50 billion (currently ~AUD 670 million) per year for a minimum of five years.

In its recent Investor Day Presentation, Challenger Limited mentioned that its fundamentals remain strong and the priorities to drive long-term growth are given below.

Source: Investor Day Presentation

Xero Limited

Xero Limited (ASX: XRO) is a global software services company based in Wellington, New Zealand. It offers a cloud-based accounting platform, Xero, which connects small businesses and their advisors in various sectors including construction, hospitality, non-profit and legal.

Xer Platform (Source: Investor Presentation)

The company’s current market capitalisation stands at around AUD 8.94 billion with approximately 141.14 million shares outstanding. On 17 July 2019, the XRO stock price was trading at AUD 59.980, down 0.183% by AUD 0.110 (as at AEST:12:35 PM). Besides, the XRO stock has generated positive return yields of 50.79% in the last six months.

It is known to be a popular growth stock in Australia.

Director Changes- Recently on 27 June 2019, the company announced the appointment of David Thodey AO as a non-executive director to its Board. Mr David is an experienced business leader with a career focused on global technology and telecommunications, with more than 30 years dedicated to creating brand and shareholder value. Subsequently, he acquired an indirect interest in Xero upon the purchase of 4,000 ordinary shares at AUD 251,823.42 (average purchase price of AUD 62.96 each) on market trade.

In addition to the above update, Xero also informed that after more than five years of service, US-based non-executive director Bill Veghte intends to retire from the Xero Board at Xero’s annual meeting to be held on 15 August 2019.

Full year Results FY19- For the FY19 ended 31 March 2019, the company recorded $ 638 million of annualised monthly recurring revenue, up 32% in constant currency, and the total number of subscribers increased by 432,000 to 1,818,000. Besides, there was also a 36% rise in operating revenue to $ 552.8 million.

Noticeably, the international net subscriber additions (239,000) exceeded those from ANZ (193,000) for the first time. Free cash flow increased by $ 35.0 million versus the prior year to $ 6.5 million.

Outlook Xero aims to continue its focus on growing its global small business platform and maintain a preference for reinvesting cash generated. According to market experts, Xero’s capital-light business model ensures a high return on invested capital. The free cash flow in FY20 is expected to be a similar proportion of total operating revenue as observed in FY19.

IDP Education Limited

IDP Education Limited (ASX: IEL), based in Melbourne, Australia, is engaged in the placement of students into education institutions across Asia, Australasia, and internationally. Its services include counselling, application processing, pre-departure guidance, examinations, English language teaching, client relations, digital marketing, online student recruitment, and shared services.

The company’s market cap stands at around AUD 4.77 billion with ~ 254.44 million shares outstanding. On 17 July 2019, the IEL stock was trading at AUD 18.680, up 0.161% by AUD 0.030 (as at AEST:12:35 PM). In addition, the IEL stock has delivered impressive return yields of 77.32% in the last six months and 91.23% YTD.

Recently in May 2019, the company presented at the Macquarie Australia Conference. In the presentation, IDP Education stated its results for the first half (ended 31 Dec 2018) of the 2019 financial year (H1 FY19), posting total revenue at $ 304.3 million, up 26% on the prior corresponding period (pcp). There was also a 33% improvement in the EBITDA to $ 66.8 million on pcp.

A snapshot of the company’s services-wise performance is given below-

Source: Macquarie Australia Conference Presentation

Australia’s education sector is now the third largest export sector in the country and is still growing. With that backdrop, IDP Education’s investment in digital channels would continue to drive margin expansion and growth prospects across international locations.


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