Costa, CIMIC, Genworth and AGL Under Spotlight

  • Oct 31, 2019 AEDT
  • Team Kalkine
Costa, CIMIC, Genworth and AGL Under Spotlight

No one wants to keep all their eggs in one basket, and this applies to building one’s portfolio also. When one of the sectors is booming, generally all stocks under that sector also rise. But what if the sector is not performing well. Then comes the term which many fund managers use- Diversification. Diversification is a common technique a fund manager uses to hedge its losses against a bear market. It is a management strategy that mixes different investments in a single portfolio to diversify the funds and yield a higher return. It also reduces the risk one could have by keeping one type of stocks in their portfolio.

Let’s look at four stocks operating in different sectors which are under the spotlight.

Costa Group Holdings Limited (ASX: CGC)

About the Company

Costa Group is one of Australia’s leading horticulture groups and is also the largest fresh produce supplier to the major food retailers in the country. The company is engaged in the business of:

  • Packing, marketing and distribution of fruits and vegetables within Australia and to export markets;
  • Growing mushrooms, berries, glasshouse grown tomatoes, citrus, avocados and other selected fruits within Australia;
  • Licensing proprietary blueberry varieties and berry farming in international markets;
  • Provisioning of chilled logistics warehousing and services within Australia.
Costa Raises ~$87 Million Through Institutional Entitlement Offer

The company successfully concluded the institutional entitlement offer, part of its fully underwritten one for four pro-rata accelerated renounceable entitlement offer with retail rights trading to raise approximately $176 million. The equity raising will support Costa's balance sheet risk and certify that the company has an appropriate capital structure in place to aid the continuity of its growth strategy, in the wake of recent trading and market ambiguity.

The institutional entitlement offer raised ~ $87 million from subscriptions for new fully paid ordinary shares in Costa at a price of $2.20 each new share. The retail component of the entitlement offer is expected to raise ~ $90 million, which will open on 6th November 2019 and close on 18th November 2019.

CY19 Guidance and Outlook for FY20

CY19 has been a disappointing and challenging year for Costa Group, owing to a combination of cyclical, one-off and structural issues. The diversified model of the company has not been effective as it was in previous years. CY19 guidance reduced to EBITDA-SL of ~ $98 million; NPAT-SL of nearly $28 million, as the company recognised the challenges of forecasting in the current environment;

Improved financial performance of produce categories and international is anticipated in CY20, on the back of recent and ongoing investment in the business, operational initiatives and more normalised market conditions;

For CY20, Costa is expecting EBITDA-SL to be ~ $150 million and NPAT-SL to be approximately in line with NPAT-SL of $56.6 million reported in CY18 before considering the equity raising impact.

Stock Performance

The stock of CGC closed the day’s trading at $2.755 per share on 31st October 2019, up by 4.753% from its previous closing price. The total outstanding shares of the company stood at 320.63 million, and its 52-week low and high is $2.380 and $7.223, respectively. The company has given a total return of -29.44% and -49.97% in the time period of 3 months and 6 months, respectively. Currently, the stock is trading at a price to earnings multiple of 9.35x as per ASX, and the company has an EPS of $0.281 per share. The company has an annual dividend yield of 3.23%.

CIMIC Group (ASX: CIM)

About the Company

CIMIC Group is engaged in the business of construction, mining and minerals processing, public-private partnerships, engineering and other services.

CPG Contractors to Upgrade M80 Ring Road

CPB Contractors, part of CIMIC Group, has won a design and construct contract to upgrade a northern section of the M80 Ring Road between Sydney Road and Edgars Road in Melbourne. The contract will deliver ~ $331 million in revenues.

The project will include the widening and realignment of ramps, construction of additional lanes and structural works. Moreover, CPB Contractors will install a smart freeway management system, street lighting, traffic barriers, noise walls and landscaping.

The project, which is being funded by the Australian and Victorian governments, will boost capacity, reduce congestion and enhance safety of drivers. CPB Contractors is due to start construction work in early 2020 and finish the work in early 2023.

Stock Performance

The stock of CIM closed the day’s trading at $33.040 per share on 31st October 2019, down by 2.046% from its previous closing price. The total outstanding shares of the company stood at 323.73 million, and its 52-week low and high is $28.880 and $51.500, respectively. The company has given a total return of -7.52% and -33.35% in the time period of 3 months and 6 months, respectively. Currently, the stock is trading at a price to earnings multiple of 13.94x as per ASX, and the company has an EPS of $2.419 per share. The company has an annual dividend yield of 4.65%.

Genworth Mortgage Insurance Australia Limited (ASX: GMA)

Genworth Mortgage Insurance Australia Limited is a leading LMI (Lenders Mortgage Insurance) provider in the Australian LMI market and a provider of capital and risk management solutions in the Australian residential mortgage market.

Retirement of CEO and Managing Director

The company announced that Ms Georgette Nicholas will retire as Chief Executive Officer and Managing Director, and as a member of the Board of Directors, effective from 31st December 2019.

Non-Executive Director, Mr Duncan West will serve as acting CEO of GMA, effective from 1st January 2020 till the period the company makes a permanent appointment at the position. Ms Nicholas will continue to serve the company until end-March 2020, targeted towards a smooth hand over and organised transition.

Genworth Renews Supply and Service Contract

Genworth has renewed its supply and service contract with Commonwealth Bank of Australia (ASX: CBA) for the provision of Lenders Mortgage Insurance, with the contract representing 53% of Gross Written Premium in 1H19. The long-standing relationship between GMA and CBA has been extended for another three years, effective from 1st January 2020.

Key terms of the agreement:

  • A three-year term through to 31st December 2022;
  • Genworth to be the exclusive LMI provider to CBA for a minimum specified percentage of new high LVR residential mortgage loans;
  • The minimum specified LMI percentage is fixed for the duration of the renewed term and above the level set for 2017 to 2019, and broadly like the actual 2018 percentage.

Stock Performance

The stock of GMA closed the day’s trading at $3.920 per share on 31st October 2019, down by 1.01% from its previous closing price. The total outstanding shares of the company stood at 412.51 million, and its 52-week low and high is $1.914 and $4.090, respectively. The company has given a total return of 43.82% and 77.51% in the time period of 3 months and 6 months, respectively. Currently, the stock is trading at a price to earnings multiple of 14.04x as per ASX, and the company has an EPS of $0.282 per share. The company has an annual dividend yield of 4.55%.

AGL Energy Limited (ASX: AGL)

AGL Energy Limited operates Australia’s largest dual fuel and retail energy customer base, which comprises of a considerable portfolio of wholesale energy assets and contracts to support its retail customer base.

Guidance for FY20

Underlying profit of AGL Energy is expected to be $780-$860 million. The company is on track to meet its FY20 guidance; however, market challenges remain.

Key drivers for YoY reduction are:

  • Impact of the unplanned outage at the Loy Yang Unit 2: $80-$100 million;
  • Higher depreciation expense from recent investments in plant, systems and growth: ~ $70 million;
  • LREC prices trimmed materially and are likely to reduce further during FY20;
  • Wholesale prices for electricity projected to be lower on average than FY19;
  • Higher fuel costs as coal costs escalate and legacy gas contracts mature;
  • Impact on retail electricity prices via DMO and VDO.

Stock Performance

The stock of AGL closed the day’s trading at $19.810 per share on 31st October 2019, up by 1.538% from its previous closing price. The total outstanding shares of the company stood at 649.03 million, and its 52-week low and high is $17.440 and $23.210, respectively. The company has given a total return of -8.02% and -12.24% in the time period of 3 months and 6 months, respectively. Currently, the stock is trading at a price to earnings multiple of 14.14x as per ASX, and the company has an EPS of $1.380 per share. The company has an annual dividend yield of 6.1%.


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