Industrial Stocks Witness Mixed Investor Reactions Post Earnings Update; A Look at ITG, CDD, ALX, QHL

The Australian stock market is trading low for fifth consecutive day of the week. On 28 February 2020, the benchmark index S&P/ASX 200 was trading, down by 2.3% and at 6,502.6 (at AEDT 1:29 PM) and most of the sectors listed on ASX were trading in the red.

The S&P/ASX 200 Industrials (Sector) has dipped by 1.6% and was noted at 6,567.0 on 28 February 2020 (at AEDT 1:37 PM), where stocks were also seen to register a fall in their prices.

The stocks could not manage to cease the downfall even after reporting positive financial results. Let us look at some of the industrial stocks listed on ASX and unbox their financial performance.

Leading engineering services provider, Intega Group Limited (ASX:ITG) presented its 1H FY20 (period ended 31 December 2019), reported as a standalone listed entity following its demerger from Cardno Limited on 31 October 2019.

Financial Performance (Source: Company's Report)

The Company’s half-year underlying EBITDA stood at $22.2 million, increasing primarily due to the growth, new accounting standard and acquisition, and the fee revenue was up due to the inclusion of a full six months of Raba acquisition in Americas.

• Moreover, the Quality Assurance business in the Americas is experiencing strong year on year growth which has been offset by the timing of revenues and project completions in the CMT business;
• Introduction of the new lease standard resulted in an increase of $5.6 million to EBITDA, an increase of $5.1 million in depreciation and an increase of $0.7 million in interest expense, and an overall impact of $0.2 million increase in the loss after tax;
• Increase in deferred tax assets and reduction in deferred tax liabilities primarily due to the implementation of the new leasing standard and true upon demerger.

On 28 February 2020, ITG stock last traded flat at a price of $0.435, with a market capitalisation of $ 193.69 million.

Global infrastructure, environmental and social development company, Cardno Limited (ASX:CDD) announced its HY20 results with an EBITDA of $19.7 million for the period ended 31 December 2019.

A comparative view of the Company’s financial performance is given below:

During the period, the Company reported an increase of 8.0% in its gross revenue and fee revenue was up by 14.9% on pcp. Also, the Company underwent a demerger of Cardno’s Quality, Testing and Measurement businesses from Cardno Ltd effective 31st October 2019, giving birth to Intega Group Ltd and recorded an accounting profit of $135.8 million on the demerger.

The Company believes that post-demerger, the Company’s focus has been narrowed down to become a Consulting & Professional Services company offering infrastructure, environmental and social projects in the Americas, Asia Pacific and to International Development clients across the globe.

The Company believes that there is a solid foundation for both revenue and EBITDA growth in the medium term on the basis of:

• Growth in Cardno’s backlog;
• Ongoing operating discipline in the Americas and International Development;
• Current success from the back-to-basics initiatives underway in the Asia Pacific;

The Company adopted AASB 16 Leasing Standard from 1 July 2019 onwards and has resulted in higher EBITDA since operating lease costs are no longer included in EBITDA, and 1H20 EBITDA pre AASB16 was $19.7 million and post AASB16 it was $34.5 million.

Source: Company's Report

Post-announcement on 27 February 2020, CDD stock plunged 7.143% and settled at a price of $0.390. However, on 28 February 2020, CDD last traded at $0.420, rising by 7.692 percent from its last close, with a market capitalisation of $174.34 million.

Global owner, operator and developer of toll roads, Atlas Arteria (ASX:ALX) achieved Net profit after tax of $178.2 million during FY19 ended 31 December 2019 as compared to $164.1 million during FY 2018. The increase in NPAT highlights:

• Growth of 5.5% in net profit from APRR, off the back of modest traffic growth;
• Strong growth in net earnings at Warnow Tunnel offset by a weaker performance at the Dulles Greenway;
• Corporate costs in line with guidance at $18.6 million;

Statutory net loss after tax was recorded at $9.8 million as compared to a net profit of $59.9 million during FY 2018, and indicated the following charges:

• Non-cash impairment to Dulles Greenway that was incurred in H1 2019 amounted to $165.4 million;
• Costs associated with management internalisation amounted to $2.3 million;
• Payment to Macquarie for final Management Fees under their Management and Advisory Agreements to 1 April 2019 and the monthly fee paid under the Transition Services Agreement from 1 April to 31 December 2019 amounted to $20.7 million;
• Hedge ineffectiveness expense for the swap entered into to support the delivery of Euros for the APRR Transaction stood at $5.3 million;

Fast-forwarding to 20 February 2020, the Company successfully refinanced the Eiffarie term debt with a deferred amortisation profile in line with expectations.

Moreover, Atlas Arteria has increased the distribution guidance for the second half of 2019 to 18 cents per security, representing an increase of 20% on H2 2018 and an increase of 6% on the previous guidance intimated in November 2019. Such an increase in distribution is empowered by

• The Company’s financial performance in H2 2019
• Strong balance sheet
• Positive outlook for continued growth,
• Successful refinancing of the Eiffarie term debt

On 28 February 2020, ALX stock last traded at a price of $8.020, with a decline of $ 1.595% from its previous close and a market capitalisation of $7.16 billion.

Leading global manufacturer of composite solutions for the defence and commercial aerospace and advanced industry sector, Quickstep Holdings Limited (ASX:QHL) delivered $1.5 million half-year profit on 14% sales growth.

The Company’s Revenue from ordinary activities was up by 13.6% to reach $38,441,000, and EBIT was up by 18.8% to stand at $2,324,000.

The Net profit showed an improvement of 65.6% ($581,000) on the net profit after tax of $886,000 for the period ended 31 December 2018, primarily attributable to the increase in volumes on the JSF program.

Moreover, the Company believes that its investment in business development has resulted in a healthy pipeline of near-term opportunities with significant new business awards anticipated over coming months.

The strong progressive growth in sales for the Company further validates the sustainable profitability and continued customer confidence resulting in significant growth in its existing order book.

The Company is currently finalising bids for significant packages of new work and, for at least one of these bids for which a final decision from the customer is expected to be made before the end of FY20.

• Having secured incremental orders on existing contracts to complement the increased scope of F-35 parts contracted in September, Quickstep is of the view that it is on track to deliver year on year sales growth in FY20 more than 10%.
• FY21 revenue is expected to increase a further 5-10% based on recent awards relating to existing programs, with additional growth potential from flare housings and other bids in the pipeline.

The QHL stock settled in red, with a fall of 9.091% compared to its previous close and at a price of $0.100, with a market capitalisation of $78.48 million.

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