Equity Predictions 2020: Pockets of Interest

  • Dec 16, 2019 AEDT
  • Team Kalkine
Equity Predictions 2020: Pockets of Interest

During the CY2019, we have seen several stories building up across the Australian economy like regulatory norms from the ASIC, fiscal and monetary reforms, slump followed by a revival across the housing sector, key macro developments, developments across the mining and resource sector, recent Black Friday and Cyber Monday upbeat and so on.

The upcoming vacation and festive season seems to hold some promise for business players, equity markets, investors and economy.

The year 2020 is not very far, and we do not expect any vigorous change in the economy as well as in the investor’s sentiment for the first half of the CY20. However, there are few areas where we feel investors could keep an eye for.

Driven by trade enthusiasm, the S&P/ASX closed 1.6% higher at 6849.7 on 16 December 2019. Going forward, we expect that the investors could play in these following themes.

Growing air-traffic is one of the segments which has reported exponential growth in the recent past, driving growth across domestic and as well as international segments. Considering the sectoral perspective, we think Sydney Airport (ASX: SYD) seems to be well positioned to capitalise on future growth prospects.

The stock has generated decent returns of 12.32% and 26.45% in the last six months and one year, respectively. At current market price of $8.91 on 16 December, the stock is quoting at the upper band of its 52-week trading range of $6.370 to $9.300.

Sydney Airport reported highest passengers traveling to China, representing 6,04,000 per annum residents during FY19. USA and New Zealand represented the second and third spot among the international source market.

During the October 2019 quarter, SYD reported a 2.3% y-o-y growth in its domestic segment, while the international segment grew by 0.3% during the same time span.

SYD Traffic Data (Source: Company’s ASX update)

The investors can also bank upon niche segments like baby care products. The customers are preferring value-added products in this segment. Players like Baby Bunting Group Limited (ASX: BBN), offering specialized products for babies upto the age limit of three years, has been able to drive its customers though its retail and online presence.

During FY19, the company has succeeded to report both top-line and bottom-line growth of 19% and 58.2% on y-o-y basis at $362.3 million and $15.1 million, respectively. The gross margin of the company stood at 25.6%, improved 190 bps on y-o-y terms.

The business is focusing on margin expansion through higher scale of business, improvement across logistics, leveraging its online and retail segment. BBN reported 55% growth in the ‘Click & Collect’ segment which represents the online segment.

The Management believes that the company is likely to deliver comparable stores sales growth of mid-single digit in FY20. While, on the gross margin front, the company is likely to report higher than 36% in FY20.

The stock of BBN is quoting at $3.180 with a market capitalization of $409.48 million on 16 December 2019. The stock has delivered stellar returns of 53.59% and 58.13% in the last six months and one year, respectively.

Equity markets across the globe has seen enough turbulence during CY18 and for the first half of CY19 due to U.S. and China trade war scenario followed by ambiguity regarding # results.

While, indices across the globe are trading at new highs or close to their previous highs, the Australian stock market is also trading near its annual peak. Despite several upcoming challenges, the market has already factored the negative news within the current price with some analysts believing that the economy is likely to recover in two to three quarters.

Thus, the financial players with key investments across several equity markets and other asset classes seems to be better positioned.

Recently, the Macquarie Group Limited (ASX: MQG) witnessed long-term issuer credit ratings upgrade by S&P, previously unchanged for 28 years.

In its half yearly results for the period ended 30 September 2019, MQG reported 8% growth in its base fees at $967 million and 94% growth in the performance fees at $546 million. The company reported 13% growth in its brokerage and other trading-related income at $473 million.

The ‘base fees’ constitutes income generated from funds management activities while the company derives the ‘performance fees’ from assets managed by the company that have outperformed the benchmark. Thus, the robust growth in the performance fees, indicating that the funds invested in several profitable asset classes, might be the key growth area for the investors.

The stock of MQG is quoting at $138.650 with a market capitalization of $48.31 billion on 16 December 2019. The stock has delivered a positive return of 19.57% in the last one year.

One of the hottest themes across the Australian economy is the growing demand of premium liquor across the country followed by growth of beverages via online segment. Treasury Wine Estates Limited (ASX: TWE) fits the category and is optimistic to deliver decent bottom-line growth in coming years.

TWE supplies wine and other alcoholic beverages. Along with production facilities, the business also has backward integration of vineyards. The company does business across Australia, the USA, Asia and in Europe.

TWE posted an EBITS at $218.7 million, representing a growth of 13.3% on y-o-y for Americas, while the Asia segment posted EBITS of $293.5 million with an EBITS margin of 39.2% during FY19.

In coming years, the company is investing across the logistics service, as it expects added volume from the online segment. TWE’s ANZ segment reported an EBITS at $156.5 million with EBITS margin d at 26%. The growth was driven by growth in the Masstige and lower Luxury portfolios, improving performance in the on-premise channels and added focus on the cost efficiency.

The Europe segment, on the other hand, reported EBITS growth of 3.8% on y-o-y at $51.4 million while the EBITS margin stood at 14.9% driven by focus across specific regions.

The stock of TWE has closed at $16.670 along with a market capitalization of ~$12.16 billion on 16 December 2019. The stock is quoting at a price to earnings multiples of 28.92x.


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