Credit Market Widened Substantiating Net Lending Position – 3 Stocks to Watch Out

Event Core

Movements in Financial Assets and Liabilities Justifying Let Borrowing/Lending Position

Raised Credit Demand Supported by Private Non-Financial Corporations

Key Risks and Challenges

Outlook

Considering the developments in the housing and financial services industry, we have figured out three stocks on ASX that are set to see momentum.

(1) ­­­CSR Limited (Recommendation: Buy at $4.230, Potential Upside: Low Double-Digit)

(M-cap: A$ 2.00 billion, Annual Dividend Yield: 7.44%)

Company Overview: CSR Limited (ASX: CSR) is a leading building products company in Australia and New Zealand.

Resurgence in Commercial Construction may Deliver Top-Line Support: In FY22, CSR registered NPAT (before significant items) at $193 million, up by 20% PcP. Statutory NPAT stood at $271 million, including substantial items reflected by recognising $86 million in carrying forward capital tax losses. Trading revenue increased by 9% to $2.3 billion.

Favourable Bottom-line: Building Products’ EBIT recorded $228 million, up by 24%, representing substantial housing activities, substantiated by improved factory performance, higher volumes, and operational execution. Property EBIT stood at $47 million, down from $54 million recorded in FY21.

Outlook: Building Products segment is well-positioned to witness continued growth, with a comprehensive strategy to amplify performance from robust brands portfolio and customer solutions. The group earnings are well assisted by contracted transactions in Property over the next three years with surged hedge position in Aluminium.

CSR Daily Technical Table (Source: REFINITIV)

(2) ­­­Dexus Industria REIT (Recommendation: Buy at $2.850, Potential Upside: Low Double-Digit)

(M-cap: A$876.04 billion, Annual Dividend Yield: 6.07%)

Company Overview: ­­­Dexus Industria REIT (ASX: DXI) is an Australian Real Estate Investment Trust (AREIT) which owns and operates a workspace portfolio of 90 industrial & business park properties, valued at $1.6 billion.

Improved Fund Flow and High Property Income Harnessing Portfolio Growth: In FY21, Funds from operations (FFO) surged by 12% and clocked $41.2 million. Net property income increased by 10.9% and clocked $49.9 million, bolstered by 8.7% growth at Brisbane Technology Park (BTP).

Record Leasing Activity: In H1FY22, Statutory net profit stood at $113.7 million, up by 257.0% PcP. Record Leasing activity achieved at 45,700 square meters of portfolio leasing. During the period, the company acquired $584 million of properties and advanced the total portfolio value to $1.78 billion, with a potential upside from $378 million development pipeline in Perth and Sydney.

Outlook: High tenant demand across the industrial market, owing to transition from brocks & mortar to ecommerce acceleration. FFO FY22 guidance was reiterated to 18.1 to 18.5 cents/share with a distribution of 17.3 cents/share.

DXI Daily Technical Chart (Source: REFINITIV)

(3) ­­­Steadfast Group Limited (Recommendation: Hold at $5.080, Potential Upside: Low Double-Digit)

(M-cap: A$ 4.82 billion, Annual Dividend Yield: 2.40%)

Company Overview: Steadfast Group Limited (ASX: SDF) is engaged in the provisioning of services to Steadfast network brokers, the distribution of insurance policies through insurance brokerages and underwriting agencies, and related services.

Future Growth to be Supported by Synergies from Several Acquisitions: In FY21, underlying revenue stood at $899.9 million, up by 8.9% and underlying EBITA stood at $262.7 million, up by 17.6%. Management continued to execute organic and acquisition growth strategies.

Sustained Organic Growth: EBITA surged by 22.7% to $153.9 million, primarily driven by 10.1% of organic growth from expanded premiums by insurers & volume uplift and 12.6% acquisition growth. Underlying revenue stood at $520.9 million, up by 19.0% and underlying NPAT stood at $153.9 million, up by 26.4%.

Outlook: For FY22 underlying EBITA and underlying NPAT fall in a range of $330 - $340 million and $163 - $170 million, respectively. Underlying diluted EPS growth is estimated to hover between 12.5% to 17.5%.

SDF Daily Technical Chart (Source: REFINITIV) 

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock of the Target Price mentioned as per the Valuation has been achieved and subject to factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.

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