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Despite yet another volatile week for global stocks, with US and European markets swinging wildly, the Australian market was relatively calm and actually finished the week 1.64% higher. TheBull PREMIUM’s Bull of the Week last week, Rio Tinto’s takeover target Coal & Allied, led the way with a 28% surge, while JB Hi-Fi (+10.8%) and Newscorp (+11.3%) also posted solid gains after having been sold off heavily in previous weeks. JB Hi-Fi was in the list of ‘Broker Buys in Tumultuous Times‘ last week, and was featured in ‘Does JB Hi-Fi deserve the title of the no.1 shorted stock‘. Newscorp was a buy two weeks ago in 18 Share Tips, and appears in the list of broker buys again this week – this time it is Deutsche that is bullish on the media company with a $20.50 target price.

This week we’ve tracked down 31 buys from brokers Australia-wide (see table below). Amongst them are Downer EDI, Rio Tinto, Telstra, MacMillan Shakespeare, Campbell Brothers, Newscorp, ResMed and ASX Ltd. Alacer Gold and Westfield each have several buys, and Westfield is causing a stir as it ventures into Brazil and Italy. Citi and UBS have a $10.30 target price on the shopping centre owner, a 38.8% premium to Friday’s closing price.

Below we investigate why SMS Management & Technology, an IT services company, is so heavily featured on broker buy lists.

SMS Management & Technology (SMX) – a buy from UBS, Price Target of $7.00

 Closing price $5.53
 Weekly change $-0.25
 % change -4.32%

 

UBS – BUY

RBS – BUY

Lincoln Indicators – BUY

SMS Management & Technology is an IT services company that provides consulting services to a diversified portfolio of government and private sector clients. The company specialises in improving operational performance and IT delivery; SMX’s expertise spans the financial services, ICT, government, defence, health,  utilities, mining,  gaming and infrastructure sectors – with the top 10 clients generating around 50 percent of revenue.

Based on projections by Patersons Securities, the IT services sector is expected to pay a very respectable average gross dividend yield of around 7 per cent in 2011. And with most stocks in the sector looking relatively cheap, investors could be rewarded for taking early positions for long-term gains. UBS argues that the IT sector is cautiously optimistic about the future, and SMX is one of its preferred stocks in the sector.

Last month James Samson of Lincoln Indicators highlighted SMX as one of five tech stocks to watch. “What’s pleasing is the company’s high level of repeat business from existing clients in the financial and government sectors,” Samson says. “While we believe that IT consultancy represents more risk than a software or hardware provider, the importance of an efficiently run IT department is becoming increasingly vital to businesses. SMS offers investors with quality exposure to this segment.”

Peter Rae from Morningstar also has a buy on SMX. ‘IT outsourcing is a growth industry, and SMX has experienced strong revenue and earnings growth in recent years. We expect this to continue. The balance sheet is strong with no debt. SMX is a well-run business with attractive exposure to a growth industry.’ 

Ben Kakoschke from Patersons highlighted SMX’s strengths in Mark Story’s article Ten Internet & IT Stocks to Watch in April. Kakoschke says SMX is well positioned to benefit from continuing strong demand from banks and resources, increasing federal government revenue, and any improvement in ICT demand. The company reported a 14.7% increase in first half net profit, and declared a fully franked interim dividend of 13.5 cps – up 8% on the previous period. Trading on a P/E of 12.9, Patersons is projecting EPS growth of 18.4% and dividend growth of 14.5%; its gross dividend is 7.6%. 

Based on Thomson Reuters data, 83% of analysts have a buy on SMX, 17% have a hold and 0% have a sell.

 

Chart: Share price over the year to 12/08/2011 versus ASX200 (XJO)

Stock code: SMX

Charts: SMS Management & Technology Limited

More news: SMS Management & Technology Limited

 

>>Back to the newsletter to view other articles – August 13th 2011

 

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.