Collected Wisdom

This week we look at Whitehaven Coal, Lovisa, Amcor, Qantas and Transurban.

Summary: Analysts were largely pleased with Whitehaven’s production figures, seeing at the miner as under control, with a buy consensus on the stock. A new chief executive was positively received at fashion retailer Lovisa, while Amcor’s new South American acquisition has seen price targets upgraded, with a hold on the stock. A capacity and traffic update at Qantas was weaker than expected, but analysts are positive and a buy consensus remains.

Key take out: Transurban’s increase of toll road use for the March quarter was seen as strong, with analyst consensus a hold given the belief the success has been priced in.

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

Whitehaven Coal (WHC)

Whitehaven Coal updated the market with its quarterly production figures last week (April 14) and on the whole it pleased the analysts. Saleable coal was up 28 per cent on the prior corresponding period (pcp) and up 43 per cent year to date (YTD). Total saleable coal production came in at 5.3Mt.

Whitehaven reaffirmed guidance for saleable coal for the year to come in between 19.5Mt to 20.1Mt and also confirmed the next stage of the Maules Creek ramp up begins in January 2017. This will take production at the Maules Creek facility to 10.5Mt/pa.

There is a sense of optimism among the analysts with a handful commenting FY16 could be a turning point for coal and Whitehaven appear to have costs nicely under control. Those who remain unfavourable on the coal producer do not see indications of a turning point and also remain pessimistic on Whitehaven’s ability to meaningfully pay down its debt of $924 million.

Putting the negativity from the minority aside, the favourable analysts win out with Whitehaven called a buy by the majority. The average 12 month price target is $0.77 with the most bullish case set at $1.00 and the most bearish at $0.35. The share price at the time of writing was $0.76.

Investors are generally advised to buy Whitehaven Coal at current levels.

Lovisa Holdings Limited (LOV)

After being savaged by the market following a downgrade in late January, low cost fashion jewellery retailer Lovisa has issued a trading update and announced a new chairman and chief financial officer.

Management reaffirmed current guidance of $23.5m to $25.5m. Like for like sales growth is up three per cent on the pcp and full year gross margin forecasts remain at 74 per cent. Former McMillan Shakespeare chief executive Michael Kay takes over from Paul Cave. Additionally former Australian Pharmaceutical Industries Limited (API) chief financial officer Graeme Fallet joins the team.

Although the reaffirming of guidance is not big news for the global jewellery retailer which operates over 230 stores, analysts agree it is critical to maintain shareholder confidence by showing them the company is on track after the downgrade in January. Analysts see plenty of potential for Lovisa especially with its UK expansion.

Commentary around the appointment of Kay has been resoundingly favourable, with Kay’s experience seen as a big boost to the overall corporate governance at Lovisa.

At current levels, analysts have LOV as a buy with the average 12 month price target at $3.04. The share price at the time of writing was $2.04.

Investors are generally advised to buy Lovisa Holdings Limited at current levels.

Amcor Limited (AMC)

This Monday (April 18), Amcor management announced an agreement has been reached to acquire the largest flexible packaging company in South America, Alusa. The $US450m acquisition will give Amcor 10 per cent of the South American packaging market. Amcor’s largest acquisition in years has seen analysts increase their price targets by an average of $0.54.

With the cost benefits of synergies, Amcor expects the return on cash invested to reach 15 per cent by the end of the third year and up to 20 per cent by the end of the fifth. On average analysts anticipate shorter-term earnings (1-2 years) to be accretive by approximately two per cent and as high as five per cent by FY19.

Analysts have commented on Amcor management’s strong track record with their previous acquisitions and do not see this one as any different. The defensiveness of earnings and reliable nature of the stock was also widely commented on by analysts who were in universal praise of the packaging business.

The current 12 month average price target for Amcor is $15.16 with the most bullish case set at $16.50 and $12.07 for the most bearish. At the time of writing the share price was $15.33.

Investors are generally advised to hold Amcor Limited at current levels.   

Qantas Airways Limited (QAN)

Qantas provided a capacity and traffic update this week, which surprised investors and analysts alike causing the share price to fall as low as $3.48 on the day of the announcement – $0.58 cents lower than its previous close.

Overall demand was weaker than anticipated with Qantas pointing the finger at the fragmentation of the Easter holiday period across the states and other issues including the potential upcoming election. Qantas amended guidance on domestic capacity growth from approximately two per cent to between 0.5 per cent and one per cent.

Despite this weakness, analysts have not been deterred. Across all analysts surveyed all still had a buy recommendation although on average target prices were cut by 43 cents. This makes the average 12-month price target of $4.62 still considerably above the current share price of $3.43. Analysts see nothing structurally wrong with the business and have viewed the events as an overreaction.

Investors are generally advised to buy Qantas Airways Limited at current levels. 

Transurban Group (TCL)

Collected Wisdom continues its traffic report as Transurban Group updated the market with its traffic and revenue data this week (April 18). In contrast to Qantas, Transurban experienced a steady increase in usage of its toll roads for the March quarter. Perhaps families decided to pack the Tarago instead of jumping on the flying kangaroo.

Proportional toll revenue increased 14.9 per cent on the pcp, up to $473m. Sydney was a strong performer, bringing in $197m and the US business chimed in nicely with proportional toll revenue increasing 79.6 per cent to $US29m.

Analysts were once again pleased with the outcome of the report and echoed each other in calling Transurban the pick of the infrastructure sector. This comes off the back of current assets continuing to outperform expectations and a solid pipeline of projects to propel future earnings.

All of this positivity seems to be priced in with the average 12 month price target sitting at $11.10 and the share price (at the time of writing) at $11.30. The most bullish case comes in at $12.20.

Investors are generally advised to hold Transurban Group at current levels.