Shaw Stockbroking focuses on small to mid-sized companies. With that in mind, analyst Scott Marshall has established a list of stocks his company believes offer solid long-term prospects. Firstly, Marshall says companies in the ASX Small Industrials Index have performed in line with the wider Australian market since January 2010. “However, if we remove the distorting effect of the resources boom, and compare small and big industrials, the small market caps have outperformed by 5 per cent since January 2010,” Marshall says. “And there’s been no significant difference in volatility between the big cap and small cap indices.” Marshall says investors are leveraged to significant percentage gains if the share price of an under-valued small cap moves considerably higher. But the opposite also applies. “However, we highlight six smaller stocks that we believe represent value in the current market,” Marshall says.

 Seek Limited (SEK)


 Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)

The Internet is changing people’s behavior. It’s often the first port of call for those wanting a job, car, house, flight, product or service. Marshall says Seek Limited is wasting no time taking advantage of a shift in search – from printed materials to the digital space. He says Seek is an aggressive company that’s established dominant positions in the online Australian job ads sector, with almost 70 per cent. And Seek is now expanding into Asian and South American economies, with more on the drawing board. “The group has also established an effective strategy in the Australian classroom and online education sectors,” he says. “It’s also specialising in career enhancement for Australian and foreign students. We expect Seek to benefit from growth in online job ads numbers amid the related shift away from printed ads.” Shaw Stockbroking is forecasting profit growth of 20 per cent in 2011 to a NPAT (net profit after tax) of $110 million.”

 Webjet (WEB)


Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO) 

Marshall says Webjet has established a strong position in the online airline travel industry, and has a 14 per cent market share of the total, which also includes shop fronts. He says its nearest online competitor flightcentre has about 9 per cent. Webjet is building a strong presence in the online accommodation market on the back of strong growth in the past five years. “We are forecasting profit growth of about 5 per cent in 2012 to NPAT of $188 million,” he says. “Growth will be generated from a continuing shift to online travel booking sales, its increasing exposure to the accommodation market and from retaining dominant positions.”

 OrotonGroup (ORL)


Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO) 

While the discretionary retail market remains immensely challenging, Marshall is confident that OrotonGroup will continue to perform. “Not only has Oroton weathered a poor retail environment in the past two years, but its demonstrated a solid track record of envious earnings per share growth, averaging about 35 per cent between 2007 and 2010,” Marshall says. “We are forecasting strong profit growth of more than 15 per cent to a NPAT of $27.8 million.” Marshall says Oroton also generates a very high return on invested capital – well above its peers. “The company is able to rigorously manage long-term brand stgelopment coupled with a stringent focus on profit growth and cost minimisation,” he says.

 Pharmaxis (PXS)


Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO) 

Marshall says the biotechnology sector is difficult to analyse. “However, we have identified several stocks that are close to completing trials and moving towards commercialising technologies that are globally significant with large potential markets,” he says. Top of the list is Pharmaxis, and Marshall expects it to be generating revenue from selling its lung mucous-clearing drug, Bronchitol, in Australia by the end of 2011. It could be available in the US, UK and Europe by the end of 2012. Marshall believes European approval, expected in this year’s June quarter, should be a major catalyst for a significant re-rating some time this year. “So we retain our buy recommendation,” he says. “Bronchitol is the key value driver for the company.”

 SAI Global (SAI)


Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO) 

Business publisher SAI Global is growing strongly in Australia and overseas. The company focuses on providing business services, such as databases for industry and government specifications, distribution platforms for this information and accreditation (product quality and business standards). It also provides training to help companies achieve their regulated objectives. “We believe significant growth opportunities remain from consolidating the fragmented international market over the longer term and, in the shorter term, from several significant acquisitions in the past 12 months,” Marshall says. “The company is well managed, and we are forecasting strong profit growth of 18 per cent in 2012 to a NPAT of $50.8 million. It remains undervalued.”

 Intrepid Mines (IAU)


Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO) 

Intrepid Mines is an exploration company with its primary resource in Indonesia. It recently announced 990 million tonnes (containing 14 million ounces of gold and 4 million tonnes of copper) in the porphyry zone of its resource. Marshall says a further upgrade towards 1900 million tonnes is possible, according to the company. There’s a further 2.4 million ounces of gold and 80 million ounces of silver contained in the oxide resource under an active drilling program. “While Intrepid is an exploration company, it’s located and defined a globally significant deposit,” Marshall says. “While mining approvals are still required, we believe the market has significantly undervalued this company.”

Seek (SEK) $7.00
Webjet (WEB) $1.95
OrotonGroup (ORL) $7.85
Pharmaxis (PXS) $2.93
SAI Global (SAI) $4.99
Intrepid Mines (IAU) $1.83

Price current to market close, 20 May 2011

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