Stocks Under Focus in October - Scentre Group, Cleanaway Waste Management, Reece Limited

Australia ranks amongst the world’s 20 largest economies. In 2019, the country is expected to the fourteen largest economy, globally, and the fifth largest in the Asian region. As per the benchmark report of 2019 released by the Reserve Bank of Australia, Australia has entered its 28th year of uninterrupted annual economic growth. Since 1992, annual economic growth of Australia had grown over 3% on average each year. It may also be interesting to know that Australia is the only major developed economy with no annual recession in this duration.

In this report, we are discussing three stocks operating in the industrial and real estate sectors. Scentre Group is a player in the real estate sector, while Cleanaway Waste Management Limited and Reece Limited are part of the industrial sector.

In the last one month from 01 October 2019 till 01 November 2019, the S&P/ASX 200 Real Estate (Sector) improved by 0.53% and S&P/ASX 200 Industrials went up by 1.98%. On the other hand, the benchmark index during this period declined by 1.03%. Thus, we can say that the real estate and the industrial sector in the last one month outperformed the benchmark mark index.

Scentre Group (ASX: SCG)

Listed on ASX in June 2014, Scentre Group (ASX: SCG), part of the real estate sector, is the owner and operator of a portfolio of living centres. The company’s properties are located in Australia and New Zealand.

On 31 October 2019, SCG released its Q3 2019 operating update for the period ended 30 September 2019.

• Customer visits during the quarter was more than 535 million.
• 3% of the Portfolio was leased.
• 1,859 lease deals were completed during the period.
• Total in-store sales increased by 2.4% for the September quarter and 1.6% for the year.
• Specialty in-store sales went up by 2.9% for the three months to September 2019 and 1.8% for the year.
• Average annual specialty in-store sales were more than $1.52 million per store.
• Total Portfolio sales were above $24 billion.

Retirement of Chief Operating Officer:

On 16 October 2019, Greg Miles, the Chief Operating Officer of SCG, informed the Group regarding his plan to retire in 2020 after working with the company and Westfield executive teams for nearly 23 years.

Cynthia Whelan Departure:

On 14 October 2019, SCG announced that its Chief Strategy and Business Development Officer, Cynthia Whelan has decided to leave the Group. Ms Whelan joined the organisation to review as well as enable the implementation of strategy, technology and business development function of the company.

Buy-Back of Shares:

The company, in half-yearly results for the period ended 30 June 2019, had unveiled about its security buy-back program of up to $800 million.

As per a market release on 04 November 2019, the company had bought back 66,550 shares for $256,217.50 on 03 November 2019. Total shares bought back until 02 November 2019 stood at around 62.84 million for ~ $243.92 million.

Cleanaway Waste Management Limited (ASX: CWY)

Annual General Meeting

Cleanaway Waste Management Limited (ASX: CWY), on 25 October 2019, provided a market update on 2019 annual general meeting.

During the meeting, the company highlighted its FY2019 results for the year ended 30 June 2019. The company made positive progress and registered significant improvements in its FY2019 results as compared to the previous financial year.

• Net profit after tax increased by 18.9% to $123.1 million as compared to FY2018;
• A dividend of 3.55 cents per share was paid for the period, representing a 42% increase on its previous corresponding period (pcp);
• The full year dividend payout ratio was 51%, which was in the target range of 50% to 75% of underlying EPS;
• The company maintained a strong balance sheet with net debt of $658.5 million, representing a net debt to EBITDA ratio of 1:4;
• In 2019, the company reported an 8.1% reduction in Total Recordable Injury Frequency rate;
• The three operating segments of the company - Solid Waste Services, Industrial & Waste Services and Liquid Waste & Health Services delivered growth in revenue and earnings;
• Underlying EBIT went up by 44.7% to $240.8 million and underlying NPAT grew by 43.1% to $140 million;
• Cash from operating activities grew by 58.6% to $350.8 million and free cash flow went up by 76.4% to $206.4 million.

Appointment of New Non-Executive Director:

On 11 October 2019, Cleanaway Waste Management Limited announced the appointment of new independent Non-Executive Director, Samantha Hogg, effective from 1 November 2019.

Samantha Hogg is an experienced executive with global exposure across sectors like infrastructure, transport, energy as well as resources.

Acquisition of SKM Recycling Assets

CWY announced the completion of acquisition of assets of SKM Recycling Group on 01 November 2019. The transaction completion follows a market update on 9 October 2019 that the company was the successful bidder for the acquisition of SKM Recycling Group’s (SKM) assets. The acquisition followed the public sale procedure, which was organised by KordaMentha, who were appointed as the receivers and managers of SKM by CWY after the acquisition of the senior secured debt in SKM.

Post the completion of the acquisition, the company got access to SKM’s properties, plant and equipment, in addition to certain other assets, for ~ $66 million. Through this acquisition, the company will be provided with a network of five recycling sites. Of the total sites, three are material recovery facilities, while one is a transfer station in Victoria and the last one is a material recovery facility located in Tasmania. The acquisition is unlikely to contribute materially to earnings during the current financial year.

Reece Limited (ASX: REH)

Reece Limited (ASX: REH), a plumbing, building and hardware merchant, released its AGM presentation on ASX on 30 October 2019. The company in the AGM highlighted its FY2019 results for the period ended 30 June 2019.

• FY2019 was another record year for the company with 103% growth in sales revenue to $5.5 billion.
• Sales revenue for ANZ increased by 6.6% to $2.9 billion.
• The company achieved a record normalised EBITDA of $522 million, representing a 38% growth as compared to the previous year.
• The cost of doing the business increased by 100% as compared to the previous year due to the MORSCO and the New Zealand acquisitions along with the continuous investment in innovation, technology and the people.
• Normalised NPAT increased by 6% to $238 million, while statutory NPAT declined by 10%, impacted by the acquisition cost for MORSCO and New Zealand acquisitions.
• The company also realised amortisation with respect to the purchase of MORSCO in the FY19 accounts.

Q1 FY2020 Update (ended 30 September 2019):

• The group achieved sales revenue of $1,501 million, representing an increase of 8.8% on pcp.
• On a constant currency basis, there was an increase of 4.9% in sales revenue.
• For ANZ, revenue registered at $738 million, while in the US, revenue through MORSCO grew and reached $763 million.
• In 1H FY2020, the company expects EBITDA to be in line with its prior corresponding period (1H FY2019) and with expectations, subject to continued investment in innovation and technology and the current economic environment.

Todd Pipe Acquisition Update:

On 02 October 2019, the company completed acquisition of Todd Pipe & Supply, LLC, a Southern California plumbing supply wholesaler. The acquisition will complement the existing presence of MORSCO in the region. Moreover, with the transaction, the total number of branches in Southern California will reach 23.

Stock Information, as on 4 November 2019 (AEST 01:57 PM):

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