Weekly – Pushpay | Qantas | TPG | Visa

16 May 2019

Weekly Report

Here’s your weekly update of news, analysis and research. The full reports can be read on the stock pages.

New Stock Reports
Pushpay (PPH:NZ / PPH:AX) BUY (High-Risk): Operationally Sound
Shares in Pushpay have jumped post releasing a solid 2019 full year result with revenue
growth and margin expansion to continue through into 2020. The cause of an initial negative
share price movement might have been the surprise announcement that Pushpay’s CEO and
founder Chris Heaslip’s will step down from the management team while retaining his
directorship. Revenue for 2019 financial year was up +40% from last year to US$98.4m as
the company continues to drive top line growth, adding more medium to large churches
growing average revenue per customer. Pushpay’s is also improving efficiencies benefits
from improved operating leverage on the back of the growing scale of its business. Despite
what was been a volatile time for their share price recently, operationally nothing significant
has changed in terms of the medium-term outlook. We believe that shareholders will be
rewarded if Pushpay can grow into and achieve the market penetration targeted.

QANTAS AIRWAYS (QAN:AX) BUY (High-Risk): Offsetting Higher Jet Fuel
QAN shares have been experiencing a lot of turbulence of late. For the 2019 financial year
third quarter QAN recorded revenue of $4.4 billion, up +2.3% from last year. In light of this
solid revenue growth, Qantas is on track to fully offset the impact of significantly higher fuel
costs which was the major cause of weaker net profit for the 2019 first half result – suggesting
a flat profit for 2019 as opposed to a lower one many were anticipating. QAN management
have been disciplined with capacity management in a high fuel environment and have kept
shareholder interests in mind – with its dividend on the rise and significant share buybacks
improving returns for investors. QAN shares are trading lower, now pricing in higher jet fuel
and at an earnings multiple of 9x creates an attractive entry point. We maintain a positive
view on QAN as it will continue to benefit from rising tourism. However, if fuel prices were to
continue to rise and international competition intensifies it could hurt QAN’s margins and for
this reason we maintain our BUY rating with a high-risk caveat.

TPG TELECOM (TPM:AX) HOLD: Regulatory Gamble
TPG saw its shares tumble after the Australian Competition and Consumer Commission
(ACCC) blocked the proposed merger between the listed telco and Vodafone – a surprise
decision with many commentators expecting the merger would be passed. TPG and
Vodafone will appeal the ACCC’s decision however, but if unsuccessful it is unlikely TPG will
roll out its own Aussie mobile network due to complications with upgrading their existing
infrastructure since the banning of Huawei in Australia. Earlier, TPG shares jumped on its
2019 first half result when it delivered an underlying net profit after tax of $225.2m, up +3.5%
from last year. Despite being adversely impacted by loss of margin on DSL and home phone
customers migrations to NBN services and experiencing weaker margins in its core consumer
business, TPG managed to offset these headwinds by reducing overheads and improving
revenue in its corporate business. The major risk facing TPG is regulatory approval by ACCC
for the merger to go through. In our opinion the current share price over values TPG’s
business on a price to earnings multiple of 18x with the lack of growth with its existing
business and prevailing headwinds impacting its core business. TPG shares could easily sink
lower if their appeal to overturn the ACCC decision is rejected – which under the ACCC’s
current rationale appears likely.
Visa (V:NYSE) BUY: Solid 2nd Half to Come
Visa shares have been in recovery mode in 2019, rallying hard & recently hitting all-time highs
as investor confidence returns to the market. Visa also delivered another solid result for the
2019 second quarter, with earnings beating market expectations again for the fourteenth
consecutive quarter. Visa managed to lift revenue by +8% from last year to $5.5 billion on
strong payment volumes and transaction growth despite being adversely impacted by
negative currency movements having a ~1.5% impact on revenue. Visa also anticipate a
stronger second half to the 2019 financial year with April processing volumes accelerating
strongly due to the timing of Easter, as well as margin expansion to drive earnings growth.
Visa has a great existing business and benefits from a clear thematic tailwind of growth as
the move towards a cashless society accelerates. Visa also continually achieves strong
double-digit earnings growth, as it grows revenue and widens its margins. Because of this,
Visa is valued at a premium to the overall market due to its successful track record of
continual growth and future growth prospects.

Stock ratings
Given the dynamic nature of share prices ’s rating can become out of sync with the projected total return as the share price moves. The rating
must only be viewed as valid with respect to projected total return at the time of rating or target price changes.
Individual stock ratings are determined by the projected total return on a stock.
Based on a current 12 to 36- month view of total share-holder return (percentage change in share price from current price to projected target price
plus projected dividend yield), we recommend the following:
BUY: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors buy the stock
SELL: Based on a current 12 to 36-month view of total share-holder return, we recommend that investors sell the stock
HOLD: We take a neutral view on the stock 12 to 36-months out and, based on this time horizon, do not recommend either a Buy or Sell
This report may contain views, opinions, conclusions, estimates, recommendations and other information (Information). However, such Information
comprises general securities information only, and has not been prepared taking into account the particular investment objectives, financial situation
and needs of any particular person. Individuals should therefore assess whether it is appropriate in light of individual circumstances, or discuss, with
their financial planner or advisor, the merits of each recommendation for their own specific circumstances.
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