BHP Billiton (BUY)

BHP Billiton Limited (ASX: BHP) demerged South32 to increase concentration on its 19 core assets. Each BHP Billiton shareholder got a share in South32, leaving them the privilege to enjoy benefits from both the companies.

The company has given a production guidance of 250Mt for FY15, against 225Mt in FY14 and has the potential to generate 270Mt production without investing further. Also, the group has successfully reduced its unit cost of production by 29% to US$20.35/wmt for the half year ended on December 2014, as compared to US$28.80/wmt to half year ended on 2013. BHP Billiton wants to improve its unit costs further to maintain its margins, and aims to achieve the unit costs below US$20/t for this year and over US$16/t in the next year. 


BHP Billiton Portfolio (Source: Company Reports)
 
BHP Billiton shares has recently touched a five year low of over $25.2, and posted a negative returns of 11.4% over the last three months. However, we believe that the current levels offers a great buying opportunity to the long term investors given its improving production, capacity utilization and strong assets. The stock also offers attract valuations, with a P/E ratio of 10.6, while maintaining a dividend yield of 6.6%. Accordingly, we give a “BUY” recommendation to the stock at the current price of $26.65

 ANZ bank (BUY)

The shares of Australia and New Zealand Banking Group (ASX: ANZ) have plunged 12.2% over the last three months, subsequent to the selloff of the broader index S&P/ASX 200 which fell by 7.9% during the same period on concerns of Eurozone as well as slowing domestic economy.

However, ANZ reported a decent first half of 2015 performance, posting a year over year increase of statutory profit and cash profit of 3% and 5% to $3,506 million and $3,676 million respectively. ANZ also delivered a 4% year over year increase of its cash earnings per share.

The bank has built a diversified revenue stream, and derives 25% of operating income from the APEA regions. The group’s net profit after tax from APEA regions contributed 20% to the overall group’s net profit after tax in first half of 2015. ANZ also improved market customer income driven by Asia, wherein the group derived 49% of markets income from APEA, with IIB Asia segment delivering a growth of over 15%. 


Operating income and Net profit after tax by geography (Source: Company Reports)

After correcting during April and May, the stock of ANZ has been consolidating over the last four weeks, posting a return of 1.6%. Investors need to note that ANZ has a strong dividend yield of 5.61%, competitive net interest margins and a diversified revenue streams. Based on the foregoing, we recommend a “BUY” on ANZ bank at the current levels of  $32.25.
 
McMillan Shakespeare (BUY)

McMillan Shakespeare Limited (ASX: MMS) reported a decent first half of 2015 performance, delivering a 12% year over year growth to $181.2 million from $161.5 million in the corresponding period of last year.  The firm reported an outstanding year over year increase of 61.6% in consolidated net profit after tax to $31.1m, on the back of recovery of the Remuneration Services segment post the reversal of the earlier government’s proposed legislative changes to FBT on motor vehicles. Consequently, the firm’s remuneration Services net profit after tax surged 86% to $24.6 million against $11.3 million in 1H14.


MMS Daily Chart (Source - Thomson Reuters)

Meanwhile, McMillan Shakespeare also improved its Assets under management by 5.9%, driven by UK growth, while the cash generation before investment in fleet and financing activities stood at $35 million. The company entered in an agreement to acquire Presidian Pty Ltd for $115 million. Presidian has a network of around 2,500 dealers, more than 80 brokers and 14 retail branches, with a normalized Revenue of $64.8 million and an EBITDA of $64.8 million in fiscal year 2014. MMS intends to achieve market leadership in warranty space, build consumer finance platform as well as strengthen its penetration through this acquisition. 


Funding structure (Source: Company Reports)

McMillan Shakespeare stock has delivered more than 7% returns since it announced its first half of 2015 results to June 23^rd 2015. However, the stock has been correcting since the last four weeks and declined over 8.5%. On the other hand, the stock has improved its return on equity and return on capital employed to 27% and 25% for the first half of 2015, from 19% and 20% respectively during the corresponding period of earlier year. The group has increased its interim fully franked dividend to 25 cents per share against 21 cents per share in the corresponding period of last year. Investors need to note that McMillan Shakespeare has a strong business as well as the earnings potential. Accordingly, we suggest a “BUY” on the stock at the current price levels of  $11.77

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