Weekly, Pushpay | Z Energy | JHX |TJX

6 January 2020

Weekly Report

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

Pushpay (PPH:NZ / PPH:AX) BUY: Faith in Acquisition
Shares in PPH jumped higher after announcing the acquisition of Church Community Builder for US$87.5m.
This was part of Pushpay’s plan to grow as it looked for a material acquisition, with Church Community Builder having ~4,000 church clients, which is material considering Pushpay has ~7,900 church clients. Pushpay reiterated excluding acquisitions costs its 2020 revenue and earnings guidance remains unchanged given the development work required integrate the new product offering. We continue to maintain our BUY rating on Pushpay, as the underlying business continues to present an attractive investment opportunity into the giving space. The acquisition was well received and allows Pushpay to expand their market penetration growing their customer numbers and increasing their total revenue per client with added services. We still see upside potential on Pushpay’s share price for medium-term investors as they continue to grow with operational performance improving given the business model benefits from operating leverage and has now reached positive operating cashflow.

Z ENERGY (ZEL:NZ / ZEL:AX) HOLD: Competition – Déjà vu
ZEL shares were slammed after announcing yet another earnings downgrade for the 2020 financial year –
making it its third earnings downgrade for the year, as well as a significant dividend cut. The reason for the downgrade being retail fuel margins remain under pressure in an increasingly competitive market and at the same time, refining margins were also skinner. Z Energy expect 2020 operating earnings (EBITDAF) to be between $350m and $385m, down significantly from its previous guidance range of $390m and to $430m and 2019 operating earnings (EBITDAF) of $435m. Accordingly Z also cut its dividend guidance for the 2020 financial year down to 40 cents per share, down from previous range of 48 to 50 cents per share. Despite the attractive face value dividend yield at the current valuation price there are too many headwinds at play, both short-term and long-term, for us to change our view. Predominately increased competition in a flat market which is also sensitive to economic growth, coupled with government enquiry into fuel pricing which creates another overhang. While “value” may arguably be emerging, given its recent track record, we believe investors will need to see signs of stabilisation before investor confidence potentially returns. We remain cautious and would like to see an improvement in market fundamentals before changing our view.

JAMES HARDIE (JHX:AX) BUY (High-Risk): More Growth to Come?
JHX shares soared after the building materials after delivering a solid set of figures for the first half of the 2020 financial year, continuing the trend from the first quarter and lifted its full year earnings guidance. The upgraded guidance was underpinned by meaningful contributions from Europe, and growth in the US housing market, as overall construction activity rose, coupled with improved operating performance in the US due to larger sales volumes improving costs – both expected to be partially offset weakness facing the ‘smaller’ (in context of JHX) Australian and New Zealand markets which are expected to remain flat. Group net sales were up +2% from last year to US$1,316.9m, and adjusted operating earnings (EBIT) came in at US$258.6m and adjusted net operating profit tax (NOPAT) was US$98.6m for the half, both up +21% and +17% respectively from the same period last year. This was helped by strong performance in North American Fibre cement segment, delivering good volume growth under favourable market conditions and widening earnings (EBIT) margins. A strong contribution from the Europe building product segment also offset weakness across Asian Pacific, predominately Australia. JHX earnings in AUD terms are also benefitting from a tailwind of a significantly weaker Aussie Dollar. Operationally if JHX are able to deliver and outperform the market like they have done recently and with a low-interest rate environment set to boost construction activity in the US (JHX’s largest market), this could offset near-term weakness in the Australasian markets. Given the upbeat outlook in the US market we maintain our BUY recommendation, however with a high-risk caveat given JHX’s current valuation.
TJX Companies (TJX:NYSE) HOLD: Retail Treasure
TJX shares have climbed higher as the “off-price” retailer continues to deliver a solid set of numbers for the third quarter of the 2020 fiscal year, and remains upbeat lifting earnings guidance for the 2020 full year – despite a challenging retail backdrop for others. Fortunately for the TJX business model a slowdown in traditional retail spending means consumers feeling the pitch are still after desirable goods but at a bargain. The “off-price” brick and mortar retailer appears to be immune to pressure caused by online giant Amazon, as its net sales for the quarter jumped +6.4% to $10.5 billion, by adding another 104 stores to its growing portfolio over the quarter, as it ramps up for a busy Christmas trading period. Same store sales growth was up +4%, despite a slowdown from the previous year this is still an impressive feat considering many brick and mortar retailers are feeling the pinch – helped by improved foot traffic for bargain hunting consumers and increased levels of quality inventory on offer. TJX maintained strong gross margins with net earnings per share of $0.69 for the quarter, up +13.1% from last year and beating market expectations. We believe that despite the risks of further disruption in the sector, TJX are slightly more immune to these risks given their cost advantage and ability to create a ‘bargain hunting experience’– improving their cash generative ability. For this reason, we maintain our BUY for investors seeking exposure to retail.


06-Jan-20

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