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Morningstar Equity

Morningstar Equity

Origin Energy Limited ORG| Origin Energy's Eraring Deal Boosts Liquidity

Morningstar Recommendation: Accumulate
Gareth James, Morningstar Analyst -
02 9276 4583
Origin Energy's purchase of the Eraring coal fired power station in New South Wales comes as little surprise and has no impact on our AUD 14 per share fair value estimate. Our net profit forecasts remain unchanged, however, the transaction results in a AUD 250 million cash payment to Origin. The payment helps liquidity, a key concern for some investors recently, and makes rumoured equity issuance even less likely. Our thesis is largely unchanged, but our view of the company improves slightly with the additional flexibility of Eraring and the improved liquidity position. The transaction is too small to impact our medium fair value uncertainty rating or the competitive positioning of the company. We maintain our view that Origin has no sustainable competitive advantage, or economic moat. The core energy markets business has few, if any, advantages over competitors and we only expect returns on invested capital to be around equal to the weighted average cost of capital of 8.6%.

Seven Group Holdings Limited SVW| Challenging Markets Result in Restructuring for Seven Group's WesTrac Business
Morningstar Recommendation: Accumulate
Ross MacMillan, Morningstar Analyst -
02 9276 4450
Seven Group announced the implementation of an organisational restructure of WesTrac Australia's NSW/ACT operations as a result of deteriorating market conditions, particularly in the mining sector. The restructure will involve significant redundancies, causing a one-off charge of AUD 10 million. In February, former CEO Peter Gammell forecast an increase in underlying net profit after tax (NPAT) for fiscal 2013 of between 10% and 20%. Seven Group has now indicated earnings will be at the lower end of earlier guidance, which equates to underlying NPAT of approximately AUD 377 million.

Amcor Limited AMC| China Acquisition Increases Amcor's Exposure to a Rise in Consumer Spending
Morningstar Recommendation: Reduce
Nathan Zaia, Morningstar Analyst -
02 9276 4491
Amcor's acquisition of Chinese flexible packaging business Jiangsu Shenda Group for RMB 350 million (AUD 62 million) builds on a successful strategy of reinvesting strong cash flows from developed markets into faster-growing emerging markets. We believe Amcor's global research, development and technology, relationships with multinationals and financial capacity puts it at an advantage over smaller competitors, particularly in more fragmented developing markets. This leaves Amcor well positioned to capitalise on supportive fundamentals of rising per-capita incomes, urbanisation and increased health awareness, driving consumption and complexity of packaging in Asia. Amcor also announced the sale of its retired mill property in Australia for AUD 120 million. While we view the strategic acquisition positively, the size of the acquisition has no impact on our forecasts or AUD 9.00 fair value estimate.

Precinct Properties New Zealand Limited PCT-NZ| Cut to Borrowing Spreads Has Muted Impact on Precinct's Borrowing Costs
Morningstar Recommendation: Hold
Tony Sherlock, Morningstar Analyst -
02 9276 4584
Precinct replaced its existing unsecured NZD 635 million facility with a secured facility of NZD 660 million. The existing banking syndicate of ANZ Bank, Bank of New Zealand and Commonwealth Bank has been expanded to include Bank of Toyko-Mitsubishi, taking a NZD 50 million exposure. The new facility has tranches expiring in July 2016, July 2017 and July 2018, increasing weighted average debt tenure from three to four years.

Caltex Australia Limited CTX| One Minute Caltex Soaring, the Next a Fall
Morningstar Recommendation: Hold
Mark Taylor, Morningstar Analyst -
02 9276 4478
Caltex has guided half-year replacement cost operating profit (RCOP) at AUD 160 to AUD 175 million, well below expectations. The company only just reported first quarter profit of AUD 146 million, meaning the second quarter declines by 80%-90%. As is the norm with Caltex, most of the volatility pertains to the refining and supply segment. But the marketing and distribution component has not been completely immune either.


Macmahon Holdings - Upgrade due to price change
Monadelphous - Upgrade due to price change
Sigma Pharma. - Upgrade due to price change
Telecom NZ - Upgrade due to price change
Telstra - Upgrade due to price change
UGL - Upgrade due to price change
WorleyParsons - Upgrade due to price change
AGL Energy - Upgrade due to price change
Patties Foods - Upgrade due to price change
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Telecom NZ - Upgrade due to price change


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