Stuart Bromley, Medallion Financial Group
Alcidion Group (ALC)
ALC’s software products and services lift efficiencies in hospitals, in our view. We’re encouraged by its contract wins in Australia, New Zealand and the UK. First half 2021 revenue was up 36 per cent on the prior corresponding period to $11.1 million. Gross profit of $9.8 million was up 37 per cent. Substantial upside potential exists if ALC can execute its growth strategy in the UK.
The online travel agency confirmed a closing cash balance of $283 million at its latest first half result. The monthly cash burn had fallen to $4.8 million, which shows it’s adequately managing the COVID-19 storm. Apart from the occasional lockdown, domestic travel levels are improving in line with easing of restrictions. The longer term outlook is brighter, particularly when global borders eventually re-open in response to a COVID-19 vaccine.
The share price has been impacted by rising bond yields, a stronger Australian dollar against the US greenback and a reduction in plasma collection levels in the US. We’re comfortable holding, or even adding at these levels as the stock was recently trading at a significant discount to all time highs. We expect US plasma collection levels to improve moving forward. A healthy pipeline of flu and COVID-19 vaccines and a strong research and development division paint a bright outlook.
The share price of this accounting software company has retreated since its high at the start of the year. The recent acquisition of Swedish e-invoicing provider Tickstar is expected to help Xero’s customers digitise more workflows and be paid faster. XRO is poised to grow and offers an attractive recurring revenue stream.
Treasury Wine Estates (TWE)
China’s Ministry of Commerce has imposed steep tariffs on imported Australian wine for at least five years. TWE has outlined plans to move into other markets, but, in our view, it will take time to build brands and distribution channels. We would re-consider our view if Chinese tariffs on imported Australian wine were significantly reduced in the shorter term.
The Commonwealth Bank of Australia (CBA) is entering the crowded buy now, pay later (BNPL) space. CBA’s entry into the BNPL sector stiffens competition and may pressure existing operators to consider reducing margins, or risk losing market share. There are few barriers to entry in the BNPL space. APT’s share price was $158.47 on February 10. It finished at $105.52 on April 1.
Jabin Hallihan, Morgans
This global share registry company recently entered into an agreement to acquire Wells Fargo’s corporate trust services business for $US750 million. The deal will be funded via a combination of debt and equity. We view the deal positively, as it makes strategic sense and appears highly accretive. Our valuation is $17.10 a share.
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Coles Group (COL)
The share price of this supermarket giant has fallen about 20 per cent since COVID-19 restrictions began easing in August 2020. We believe the company offers value, as it was recently trading on a gross dividend yield of almost 6 per cent. We expect profits to increase from rising online sales and cost saving initiatives. Our valuation is $19.45 a share.
BHP Group (BHP)
The share price of this global miner retreated about 10 per cent in March. However, we remain bullish about the outlook for commodities. We expect BHP’s diverse commodity exposures to benefit investors, as an improving resources cycle progresses and broadens.
ALS Limited (ALQ)
ALS Limited provides analytical testing services. It has a strong commodities division. ALS recently announced it’s acquiring pharmaceutical testing business Investiga, which operates in Brazil and the US. Investiga generated about $A20 million in revenue in fiscal year 2020. Hold for now and consider accumulating on weakness.
Synlait Milk (SM1)
Net profit after tax of $6.4 million in the first half of fiscal year 2021 was down 76 per cent on the prior corresponding period. Consumer packaged infant formula sales were down 16 per cent. The company recently guided for a broadly breakeven net profit after tax result for the full year. The company was recently trading above our valuation.
TPG Telecom (TPG)
Founder and chairman David Teoh has resigned from the TPG board, as has his son Shane. The resignations were unexpected and the shares plunged after investors learned the news. The longer term impact from David Teoh’s departure remains unclear at this point. We prefer to sit on the sidelines until a clearer picture emerges about the company’s outlook.
Julia Lee, Burman Invest
Aristocrat Leisure (ALL)
Earnings in this gaming company are currently driven by its growing digital business. The US casino business is still at the beginning of a recovery. The company’s balance sheet is stronger than its peers, and, in our view, is likely to leave ALL in a good position post the pandemic. The company is sufficiently strong enough to make positive acquisitions. The share price offers value, in our view.
NRW Holdings (NWH)
Earnings in this mining services company are underpinned by iron ore replacement projects in Western Australia’s Pilbara region. We expect NWH to benefit from strong iron ore and infrastructure markets combined with a domestic economic recovery. NWH looks cheap compared to the market and its peers.
Corporate Travel Management (CTD)
COVID-19 lockdowns in Europe are impacting travel stocks across the globe. COVID-19 vaccines paint a brighter outlook for easing of border restrictions in the medium term. Given the pandemic, investors may need to be more patient. On balance, investors should continue holding and consider accumulating on further weakness, in our view.
Synlait Milk (SM1)
This milk processor has been impacted by earnings weakness. The A2 Milk Company is a client of SM1. However, A2 demand from SM1 remains uncertain for the rest of fiscal year 2021. Cost savings should help offset a portion of earnings uncertainty from A2 Milk. We’re expecting earnings to start recovering in the next financial year.
Suncorp Group (SUN)
In late March, the insurer estimated preliminary claim costs of between $230 million and $250 million as a result of recent floods in eastern Australia. At March 30, Suncorp had received more than 7600 claims across three states, but it expects that number to rise. Flood claims increase the risk of an earnings downgrade, in our view. We would consider taking some money off the table.
Select Harvests (SHV)
The good news is this almond producer isn’t anticipating any damage from recent rain. However, the share price has been recently moving higher despite relatively weaker almond prices. California harvested bumper almond crops in 2020, which brought down prices. We expect weaker almond prices during the next few crop cycles, so with believe SHV’s share price is likely to come under pressure.
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.