Stuart Bromley, Medallion Financial Group
This dermal re-generation company continues to deliver strong results. Its NovoSorb BTM polymer achieved record sales for the month of June in the US. In fiscal year 2020, sales revenue rose 104 per cent to $19.1 million. The company will continue to invest and focus on expanding into the hernia space, which provides strong upside potential.
Pro Medicus (PME)
Momentum is continuing for this state-of-the-art medical imaging software business. The share price has pushed to 12-month highs on the back of consistently winning big long term contracts. The latest is a $10 million deal with Munich based LMU Klinikum over seven years. In fiscal year 2020, PME posted a 23.9 per cent increase in underlying revenue to $56.8 million, while profit after tax was up 20.7 per cent to $23.1 million. The company has no debt.
Janus Henderson Group PLC (JHG)
Still recently trading at a heavy discount to highs, the share price of this global asset manager – with about $489 billion under management – bounced after Trian Fund Management took a 9.9 per cent stake in both JHG and Invesco. The transactions have led to merger speculation. Trian has a successful track record of driving improvements in asset management firms. If a merger occurs, expect cost synergies of between 5 per cent and 10 per cent.
This network as a service company provides elastic interconnection services. It enables businesses to quickly access multiple cloud databases. The thirst for data in a cloud computing boom contributed to fiscal year 2020 revenue of $58 million, an increase of 66 per cent. The North American market was a large contributor to revenue. Operating in 23 countries and with more than 1800 customers, we expect MP1 to sustain strong growth in a rapidly expanding space.
Treasury Wine Estates (TWE)
Continuing trade tensions between the US and China, which are flowing through to Australia, leave us reluctant to invest in companies like TWE that rely on the Chinese market. Speculation exists that China may impose tariffs on Australian wines. If tariffs eventuated, it would impact TWE margins. In August, China’s Ministry of Commerce announced it had begun an anti-dumping investigation into wine imports from Australia.
Myer Holdings (MYR)
A net loss after tax of $11.3 million for fiscal year 2020 can been attributed to a contraction in second half gross margins. Management is targeting the online space to drive growth. But total sales fell 15.8 per cent in fiscal year 2020 to $2.519 billion amid the pandemic. Competition is fierce among retailers, so we prefer others.
Luke Pavone, Broadbent Financial
The telecommunications giant will review its dividend policy to protect the full year payout of 16 cents a share. It reiterated fiscal year 2021 earnings guidance and continues to pursue opportunities to increase its return above 7 per cent on invested capital. We believe a commitment to review sustaining its dividend and increasing the return on capital deployed will appease investors and drive its share price higher.
Moelis Australia (MOE)
This boutique asset manager has been generating higher passive income via its asset management division, which now accounts for about 80 per cent of earnings. Funds under management have grown strongly. We see further growth in its credit division and minimal redemptions. It’s trading on modest profit forecasts.
Provides a technology platform to connect investors with their assets. It recently reported funds under administration grew to $19 billion in the September quarter of fiscal year 2021, up 32 per cent on the prior corresponding period. It has a strong balance sheet to facilitate further acquisitions. Our hold recommendation is based on a strong rally in its share price.
Kerry Stokes’ Seven Group Holdings has increased its stake in this construction materials company to 19.9 per cent. Boral’s strategic review and government stimulus are positive catalysts for the stock. BLD has rebounded strongly to a point we think it’s expensive, so we view it as a hold.
Bank of Queensland (BOQ)
The company has made significant provisions for loan impairments in response to COVID-19. Our concern is provisions may need to be topped up due to a weaker housing market and higher unemployment for longer than expected. In our view, compared to its peers, BOQ is trading on a demanding valuation.
Insurance Australia Group (IAG)
This general insurance giant didn’t provide guidance for fiscal 2021 earnings at its 2020 result. Net profit after tax fell 59.6 per cent in fiscal year 2020 to $435 million. We expect lower investment yields and higher re-insurance expenses to continue in 2021. We can’t see a catalyst that will lead to a stock re-rating at this point.
Ron Shamgar, Tamim Asset Management
Operates a global online market for artwork prints. The business is benefiting from a shift to online shopping amid the COVID-19 pandemic. We expect first quarter growth rates and profitability to continue during the first half and analyst upgrades to follow. We expect maiden dividends next year in anticipation of the cash balance ballooning to $120 million. We value RBL at $7 a share. The stock closed at $5.13 on October 22.
Shaver Shop Group (SSG)
This personal care and grooming retailer is growing market share in a multi-billion dollar industry. A recent trading update suggests the group is becoming an e-commerce retailer after generating 33 per cent in online sales. Unaudited first quarter net profit after tax of $4.9 million is already half of fiscal year 2020 profits. We expect the group to re-rate to a market multiple offering substantial upside to our $1.50 valuation. The shares finished at $1.13 on October 22.
EML Payments (EML)
This pre-payments issuer is transitioning from gift cards in shopping malls to a payment solutions provider for global financial technology companies. A $5 billion business pipeline and a strong first quarter provide further momentum for the next few years until the mall segment recovers from COVID-19 lockdowns. We value EML at $4.50 a share. The shares finished at $3.71 on October 22.
Spirit Telecom (ST1)
Provides telecommunications and IT solutions to small business, education and mining customers. The company is acquiring smaller competitors and building market share. With $30 million in available funding, we see acquisitions as the next key catalyst. We value ST1 at 55 cents a share. The sock closed at 37.5 cents on October 22.
IDP Education (IEL)
Provides placements and English testing for international students. The company has been a strong performer for many years. Closing borders to international students amid a global resurgence of COVID-19 infections presents headwinds. Additionally, its university shareholders may be looking to sell stock. Any significant sell-down may leave a big share overhang in the near term. We believe the valuation is too high considering these risks.
Flight Centre Travel Group (FLT)
Management re-capitalised the business earlier this year in response to COVID-19 lockdowns severely impacting domestic and international flight levels. Investors have bid up the stock in anticipation of lockdowns easing and international travel returning by mid next year. We see the company valuation as fully priced for this outcome. The downside risk is delays in international travel resuming due to vaccine issues.
The above recommendations are general advice and don’t take into account any individual’s objectives, financial situation or needs. Investors are advised to seek their own professional advice before investing. Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.