Top 3 ASX Stocks to Watch in March 2021
We examine the interim results of three ASX-listed companies that UBS currently has Buy ratings on.
ASX 200 proves volatile on Tuesday
It’s been a volatile week for global stocks, as concerns over rising interest rates seep into equity markets. Amid this uncertain climate, the ASX 200 benchmark hit a low of 6,658 points last Friday, February 2, as investors fled risk assets.
As stocks were roiled, the Australian dollar outperformed, with the AUD/USD hitting a 52-week high of 0.80069 on Thursday, February 25. While the Aussie has trended lower following that peak, it remains up an impressive ~18% over the last year.
Stocks have bounced back to. Overnight US markets flew, while the ASX 200 saw early signs of optimism, the benchmark finished Tuesday’s session lower at the 6762.30 point level, still, mind you, some 1.5% higher than last week’s low.
More broadly, this heighted volatility comes as Australia’s February earnings season – mostly made up of interim results – draws to a close. With that in mind, below we briefly look at the results from Qantas, Stockland and NEXTDC – as well as what UBS analysts have said of those results.
Qantas share price: -0.41% YTD
With air travel all but cancelled, the blue-chip airline was always expected to hand down a weak set of results as part of the February earnings season.
Here the airline posted losses across the board: Underlying losses before tax came in at $1.03 billion while statutory losses before tax snowballed to $1.47 billion.
This came as Qantas reported a decline in revenue of over 70%, revealing total first half revenues of $1,003 million.
There were some bright spots: The company reiterated its robust liquidity position, noted that it generated $1.05 billion in underlying operating cash flow in the half, and flagged the potential for international travel to resume in October of 2021.
Importantly, as UBS mused, while these half yearly results met expectations, they are, ultimately ‘largely irrelevant to the story.’
The investment bank, which has a Buy rating and 12-month price target of $6.20 on the stock, said:
‘Looking forward, we feel those issues have been de-risked and we are now focused on the period from October when most Australians should have access to the vaccine. Unless we see irrational behaviour from competitors, we feel this should be the start of a return to significant cash flow growth, de-gearing and eventually capital distributions.’
Stockland share price: +3.50% YTD
With interests spanning shopping centres housing estates and retirement villages, like Qantas, Stockland was always going to see its operational performance as a result of the covid pandemic suffer.
Despite the challenges entailed by the pandemic and significantly lower statutory profits, the company actually increased its distribution. Revealing a distribution of security of 11.3 cents, up 6.6% on the prior corresponding period. Gearing also improved, dropping from 25.4% to 24.2%.
Mind you, while distributions were higher, profits were significantly lower, with SGP reporting H1 FY21 statutory profits of $350 million, down from $504 million in the prior corresponding period.
Commenting on these results, Stockland's MD and CEO, Mark Steinert said: 'We continue to successfully deliver on our strategic priorities divesting non-core assets, increasing our capital allocation to Workplace and Logistics, and restocking our Residential landbank. This is repositioning the Group to deliver more consistent, above-sector average total returns.’
Looking forward, management said that it was targeting second-half (FY21) funds from operation (FFO) per security of between 16.3-16.9 cents.
UBS retained their Buy rating on Stockland, but said the company's second half guidance was 'behind' consensus. Further out, the investment bank said:
‘We expect increasing returns on passive capital employed (through partnering) to be a key focus for the new incoming CEO Tarun Gupta who begins on 1 June. Given the conservative FY21 guidance and improved balance sheet strength, we don't anticipate any material rebasing.’
UBS has a $4.50 price target on Stockland.
NEXTDC share price: -10.11% YTD
Though data centre company NEXTDC reported strong revenue and earnings (EBITDA) figures, it nonetheless reported negative NPAT and EPS figures. UBS expects that negative profit performance to reverse in FY22.
Looking at the company’s interim results in more depth, on the top-line NEXTDc reported total revenues of $124.5 million – made up of data centre services revenues of $121.6 million.
This resulted in underlying earnings (EBITDA) of $14.9 million, implying a year-on-year growth rate of 29%. Elsewhere, the company reported robust operating cash flow of $64.1 million, up 219% year-on-year.
Looking forward, NEXTDC provided upgraded full-year guidance as part of its interim results, saying it expected full-year data centre services revenue of between $246-251 million, underlying earnings (EBITDA) of between $130-133 million and CAPEX of between $380-400 million
Commenting on these results, NEXTDC's CEO and MD, Craig Scroggie said:
'We are pleased to deliver another record result in 1H21, against a more difficult economic backdrop due to the COVID-19 global pandemic.'
In response to these results, UBS reiterated their Buy rating on the stock, while raising their price target from $15.25 to $15.40.
Citing good top-line and EBITDA growth as key positives, the investment bank said that ‘Demand in Sydney and Melbourne remains strong, with Perth to potentially follow in the not distant future.’
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