Blue-Chip Stocks Under Spotlight: TLS, WPL, WES, GMG, CSL

Summary

• Blue-chip stocks traded mix on Friday, 19 June, as markets erased the gains recorded at the beginning of trading session.
• At the end of trading session, S&P/ASX 20 closed lower by 4.8 points or 0.15% to 3,258.4.
• Blue-chip stocks under discussion ended the session with no losses for the last working day of the week.

Although S&P/ASX 20 was down, benchmark index S&P/ASX 200 ended the day in positive territory, marginally moving upward by 0.1% or 6.1 points to 5,942.6, on Friday, 19 June 2020. The companies under discussion closed higher for the day, except for Telstra, which closed flat.

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Telstra Corporation Limited (ASX:TLS)

On 19 June, shares of Telstra last traded at $3.19, no change from the previous close. Earlier in May, the company disclosed an impairment and write down of 35% holding in Foxtel, which was driven by a similar write down by News Corporation (ASX: NWS).

In FY20, the company expects to recognise a non-cash impairment expense of ~$300 million on its Foxtel stake, taking the value of stake to approximately $450 million from $750 million. The final value of the impairment is subject to the Board review and approval of FY20 full-year results.

The TLS announcement highlighted that Foxtel has been going through disruption in the industry for several years now, and COVID-19 added further impact to the business as global sports were closed, pubs were shut down temporarily, and advertisers became cautious on expenses.

As a non-cash impairment, the write down of Foxtel stake has not resulted in changes on the FY20 guidance. Telstra believes that Foxtel offerings would be highly entertaining for viewers as global sports would resume later, and a multi-year deal with WarnerMedia adds to the customer proposition offered by Foxtel.

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Woodside Petroleum Limited (ASX:WPL)

WPL stock advanced further by 0.6% from the previous close to settle the day’s trade at $21.88 on 19 June. In late-April, the company concluded its Annual General Meeting, with Chairman Richard Goyder stating that the company had moved to protect its employees in the wake of crisis by implementing various measures.

In 2019, the company delivered a reported net profit after tax of $343 million due to an impairment of the Kitman LNG asset. Its underlying net profit after tax stood at $1.063 billion. Operating cash flows of the business were $3.3 billion.

During the year, the company declared annual dividends of US 91 cents per share with a final dividend of US 55 cents per share, reflecting a pay-out ratio of 80% of the underlying profit.

Woodside’s stance on capital management has enabled the business to position for the crisis. It continued to provide natural gas to service the energy needs of Western Australia and its global customers.

In recent years, the company has been strengthening its balance sheet for a growth phase of capital expenditure, but this year’s expenditure forecasts have been lowered while major growth projects have been delayed in Western Australia.

Chief Executive, Peter Coleman stated that the company had lowered its spending by half to ~$2.4 billion, after delaying proposed projects and non-essential activities. Woodside’s investment grade credit rating was also reaffirmed by rating agencies. At the end of March, the company was carrying more than $4 billion in cash and liquidity of over $7 billion.

Wesfarmers Limited (ASX:WES)

Shares of Wesfarmers last traded at $43.14 on Friday, 19 June, up by 1.38% from the previous close. On 9 June, the company reported a retail trading update, highlighting that its retail operations were running at full capacity after easing of restrictions in NZ and north-western Tasmania.

In FY2020 to May 2020, Bunnings recorded sales growth of 11.3%, Kmart delivered sales growth of 6.1%, Target recorded sales growth of -3.4% and Officeworks recorded sales growth of 19.3% while Catch’s gross transaction value was up by 43.7%

In the second half to May, Bunnings recorded sales growth of 19.2%, Kmart delivered sales growth of 4.1%, Target recorded sales growth of -1.8%, Catch’s gross transaction value grew by 68.7%, and Officeworks recorded sales growth of 27.8%.

The trading update also highlighted that significant sales growth continued in Officeworks and Bunnings, but it remains uncertain whether the growth will continue for the remainder of the calendar year. Over the past three months, Bunnings incurred expenses of $20 million to maintain clean and disinfected premises.

Over the recent weeks, sales in Kmart and Target improved, aided by foot traffic and demand for winter clothing. In the calendar year to date period, the group’s retail division recorded online sales growth of 89%.

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Goodman Group (ASX:GMG)

Goodman Group’s securities last traded at $15.25, up by 1.3% from the previous close, on 19 June. Recently, the group filed an investor newsletter, highlighting the group remains in a strong position and reaffirming its FY20 guidance of 57.3 cents per share, up 11% on FY19 and full year distribution guidance of 30 cents per share.

Its markets were impacted to different degrees by the pandemic. Along with its customers and the logistics and warehousing sectors, the group has been delivering essential infrastructure and delivery of essential items.

The company is working with its customers who have been impacted by the pandemic. Although the global environment remains challenging, portfolio fundamentals of the group are underpinned by demand from logistics, food, consumer goods and digital economy.

At the end of March, GMG was managing total assets of $55.1 billion with an occupancy of 97.5%. Its development assets had $4.8 billion under work in progress, with $2.3 billion in development completions and $2.5 billion in commencements.

There were 368 properties in partnerships, $51.3 billion in external funds under management and 76% of development undertaken within partnerships.

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CSL Limited (ASX:CSL)

CSL last traded at $288.25 on 19 June, up by 0.82% from the previous close. The company recently announced that Chief Financial Officer has tendered his resignation, and he will be departing on 30 October 2020. Mr David Lamont is expected to join another ASX-listed company.

Mr Lamont has been instrumental in reshaping the finance function at CSL since January 2016 – his appointment. CSL has commenced an executive search for the position, which will continue to be based in Australia.

Earlier in June, the company announced to have acquired clinical stage biotechnology company, Vitaeris Inc. CSL would be exercising the right to acquire the business, which is developing a kidney transplant related treatment.

In 2017, the company executed a strategic partnership with Vitaeris with an option to acquire the business wholly. The acquisition consideration does not impact the FY20 profit of the company, but CSL would incur some expenses, which are estimated between $30 and $50 million in FY2021.

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