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Since mid February, Citi, UBS, Deutsche Bank, JPMorgan Chase, and BA-Merrill Lynch have SELL or UNDERWEIGHT recommendations on Monadelphous, citing the usual suspects – challenging market conditions and uncertain guidance. The lone holdout is CIMB Securities that upgraded MND to OUTPERFORM following Half Year results that saw a 38% rise in NPAT along with a 34% increase in EPS and a 24% increase in DPS.

The cautionary forward outlook is the big risk factor since MND management forecast slowing project approvals and difficult revenue growth prospects for 2014. 

Consensus estimates show 2 year earnings forecast of 8.4% and a dividend growth forecast of 8.6%. Investors appear to be siding with the negative analyst opinion as MND is now on the Top Ten Most Shorted Stocks list with a short percentage of 11.97.

Over the past month the share price of both has fallen, although ASL is stabilising. Here’s the one month chart:

Both these companies have a solid record of dividend payments over the last decade. Here is the table.

 Company DPS 2003DPS 2004DPS 2005DPS 2006DPS 2007
 MND$0.062$0.075$0.192$0.33$0.66
 ASL$0.04$0.04$0.042$0.06$0.089

Factoring total return into a search for dividend paying equities can lead to some surprising results.

Our final two stocks are Finbar Group and JB Hi Fi, which is still an ASX Top Ten Shorted stock.

 Company Code Share price 52 wk % change Div Yield Grossed up 2013 yield est.P/E P/B Return 1/3/5yr
 Finbar Group FRI $16.08 +42% 6.8% 13.9% 10.47% 1.53 54.7/16.7/25%
 JB Hi-Fi JBH $15.06 +62% 4.5% 5.7% 13.3% 8.07 73.6/-1.7/14%

With a market cap of just $288 million, Perth based property developer Finbar Group Limited (FRI) receives little fanfare, despite impressive shareholder returns and modest valuations. Finbar develops medium to high density residential apartments and commercial property in Western Australia. The company either buys land on its own or through joint ventures to spread risk and allow for larger scale projects. Finbar outsources development needs, sales force, and construction to limit capital expenditures. The entire operation is run by fifteen people!

The company’s numbers are outstanding across the board. The growth prospects are solid. Recently the Real Estate Institute of Western Australia warned of a housing shortage in Perth.  Finbar has announced significant new land acquisitions in the area over the past few months. The company’s dividend payment record is solid. Despite the GFC, Finbar managed to cut its dividend by only $0.01 between 2008 and 2009. Here is the table along with the payment history for the final stock in our table, JB Hi-Fi (JBH):

 Company/DPS 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 FRI $0.01 $0.02 $0.03 $0.04 $0.08 $0.06 $0.07 $0.075 $0.085 $0.09
 JBH $0.00 $0.072 $0.072 $0.076 $0.11 $0.26 $0.44 $0.66 $0.77 $0.65

JBH has remained the top shorted stock on the ASX for quite some time. The company built its reputation as the low price electronics leader and has suffered from foreign imports, online competition, and the high Australian dollar crushing its already thin margins. As you can see from the table, despite its world of woes JBH has remained consistent with dividend payments with the exception of a cut following a tough 2012.

The share price has performed well in 2013.  But what about forward growth?

Morningstar shows a modest 2 year earnings growth forecast of 5.9% along with forecasted dividend growth of 6.9%. JBH increased its earnings guidance twice over the last three months yet the short sellers remain unconvinced.  The risks are two fold.  First there are structural changes in the electronics industry with the avalanche of streaming and direct download opportunities. Music CD’s, DVDs, Video games, and computer software are disappearing from store shelves.

The second is JB Hi-Fi’s reliance on brick and mortar locations.  The company has 180 stores across Australia with 214 stores anticipated. Analysts wonder what then, as JBH only generates 2% of its current revenue from online sales and will remain saddled with the operating costs of physical locations. Citi has a SELL rating on the stock anticipating a 2% drop in NPAT in 2014 followed by a 10% drop in 2015. CIMB Securities on 06 May upgraded the stock to OUTPERFORM and Macquarie is maintaining its OUTEFORM rating.  The Macquarie analyst noted a “strong product pipeline” ahead while Deutsche Bank’s primary concern appears to be the lack of anything to replace dwindling software sales.

JBH management has defied the odds for a few years now, responding to changing conditions with the roll out of its own online presence and the addition of appliances and other white goods in “concept stores.” With its extensive existing product mix and loyal and youthful customer base, JBH may continue to surprise.

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