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Morningstar runs the numbers

Lex Hall  |  14 Oct 2019Text size  Decrease  Increase  |  
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We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended 11 October.


You’ll remember this was the fair value estimate Morningstar analyst Nathan Zaia had set for the IPO of Latitude Financial Group. Zaia based this estimate on high leverage, exposure to lower credit quality and competition. The consumer finance company, led by Ahmed Fahour, was aiming for between $2 and $2.25, but has since tempered its expectations and dropped its IPO price to $1.78. The new price suggests the business carries a market value of $3.2 billion.

20 to 35 per cent

The discounts on offer from some Hong Kong sectors, particularly in the real estate and industrials sectors. The city’s real estate landlords may face the risk of weaker earnings, especially if the protests persist, but many of the large real estate companies are well diversified, which should limit the fallout, according to Morningstar analyst Lorraine Tan. In a research report released this week, entitled A Better Tomorrow, Tan has identified ten picks for an end-of-protest recovery in the former British colony, whose sovereignty was handed back to China in 1997. Swire Pacific (SEHK: 01972), Wharf Holdings (SEHK: 01997) and Hong Kong Land Holdings (SGX: H78) are among the five-star names to watch.

38 per cent

The increase in Telstra’s (ASX: TLS) share price this year. The narrow-moat-rated group remains one of Morningstar Australia's best stock ideas, currently trading at a 13 per cent discount to senior equity analyst Brian Han’s fair value estimate of $4.40. "Investors are preoccupied with a number of risks facing the group,” Han says. “Competition is intense in Australian telecom across all segments. However, we believe Telstra boasts the strength to compete, given a sustainable cost advantage from unrivalled scale, its infrastructure footprint, and consistent capital spending to maintain this competitive edge."

63 per cent

The amount by which Morningstar analyst Gareth James has increased his fair value estimate for cloud accounting software firm Xero (ASX: XRO). James has increased his subscriber compound annual growth rate over the next decade to 13 per cent (from 9 per cent), following stronger-than-expected UK growth. And he has increased his long-term earnings before interest and tax margin assumption to 30 per cent (from 26 per cent), following analysis of Xero's underlying margins and peer margins. However, at the current market price of $64.78, the stock is trading at a 42 per cent premium to its $45.50 fair value.

$20.5 billion

That’s the estimated amount of financed sales Afterpay (ASX: APT) is expected to reach by fiscal 2022. This would represent an approximate quadrupling from $5.2 billion worth of financed sales in fiscal 2019, which in turn was up from $2.2 billion in fiscal 2018, notes Morningstar analyst Chanaka Gunasekera. The growth is tipped to come from the buy now, pay later company’s expansion plans in the US and the UK. Gunasekera, however, sees the company as about 50 per cent overvalued. He believes the company is in the early stages of its life cycle and faces challenges including more direct competition.

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is senior editor for Morningstar Australia

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