Money Australia - August 2019

(Barré) #1



HOLD Star Entertainment Group (SGR)
TheIntelligentInvestorGraham Witcomb







tar Entertainment has lowered
its 2019 forecast for operating
earnings to $550–$560 million due
to reduced turnover from internation-
al VIPs. Domestic revenue has been
flat since the release of the company’s
interim result, though international
VIP revenue has fallen some 31%.
Management blamed a combination
of factors, including general economic
conditions and disruption from con-
struction at The Star in Sydney.
The company has its share of risks.
Regulatory changes are a constant
threat and Star is also highly exposed
to Australian tourism and the flow
of wealthy Chinese gamblers. This
latest downgrade is a case in point.

While this news isn’t a particular
cause for alarm and volatile earnings
are to be expected for this business,
we’re reducing our price guide to allow
for wiggle room should the Australian
and Chinese economies continue to
slow. Star is a long way from being
overpriced – on a price-earnings ratio
of 15 based on consensus estimates for

2019 – but given limited medium-t
growth prospects, there isn’t a wid
enough margin of safety to get us
salivating either.
Graham Witcomb is a senior analyst
at InvestSMART.
Note: The Intelligent Investor Equity
Growth and Equity Income funds own
shares in Star Entertainment Group.



good discounts to fair value on
the ASX? Research house Morning-
star puts out a monthly shortlist of
unloved companies that offer good
value. The latest batch are: Bapcor,
Domino’s Pizza, Link, Nufarm, Pact,
Telstra, Westpac and Woodside.

-^ Bapcor (ASX: BAP),
an auto parts and ser-
vices group, is well
positioned to continue
executing its network
expansion, stealing
market share from
smaller players and for-
tifying its position, says
analyst Daniel Ragonese.
-^ Domino’s Pizza (DPE)^
continues to innovate and perfect
its global technology, food offering,
cooking procedure and delivery
methods, says analyst Johannes
Faul. He says Domino’s competes
effectively with Menulog and Uber
through its strong online presence
and delivery times.
-^ Link Administration Holdings
(LNK) will benefit from the superan-

ence on Link’s relatively low-cost
admin services, says analyst Gareth
James. Link’s 20% stake in PEXA,
the electronic conveyancing service,
will boost growth. “We believe Link’s
low-teens fiscal 2019 price-earnings
ratio fails to reflect its earnings
growth outlook and the
quality of its highly
experienced executive
team,” says James.

-^ Nufarm (NUF)^
is materially under-
valued, says analyst
Mark Taylor. “We think
Nufarm can continue
toachieve considerably
returns, including from its seeds
business with innovative omega-
canola, in addition to capturing first
real revenue accretion from fortui-
tous European acquisitions.”
-^ Pact Group (PGH), a packaging
group for the food, dairy, beverage,
industrial and chemical sectors, has
been hit hard in 2019 but analyst
Grant Slade believes the free cash

flowis settoimprovematerially
from fiscal 2020. “Pact shares offer
sufficient margin of safety, in our
opinion, trading at a 34% discount
to our fair value estimate.”

-^ Telstra (TLS)^ has been trading
at an attractive discount, says ana-
lyst Brian Han, because of concerns
about intensifying competition.
“We think our recently revised
dividend estimates for fiscal 2019
are sustainable, providing investors
with an attractive 4% fully franked
yield at current prices, especially
with a conservative leverage ratio
of less than two times.”
-^ Westpac (WBC)^ is Morning-
star’s preferred bank because of
good earnings growth potential and
superior operational efficiency and
solid returns on equity, says analyst
David Ellis. He expects flat dividends
over the next five years with the
payout ratio declining to 78%.
-^ Woodside Petroleum (WPL)^ is
materially undervalued because the
market is insufficiently pricing in the
growth potential for liquified natur
gas, says Taylor.

Where to bag a bargain



HOLD at $3.85 priceasat 17 June-19closeofbusiness


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