Disciplined stock hunters make money in most market conditions by tracking down crowd favourites and riding the trend higher. Stocks like M2 Telecommunications (MTU) and Amcom Telecommunications (AMM) have delivered solid returns over the past year as seen by their yearly charts.
While the ASX Telecommunications Index (XTJ) has remained relatively flat, AMM and MTU have been very profitable for investors, especially those that jumped on early. The success of M2 and Amcom Telecommunications began around the time the NBN (National Broadband Network) set in motion a trend towards more competition in the sector as well as improved internet access and efficiency.
Internet companies have also delivered handsome returns to investors of late. The following five year chart shows the price performance of two big Aussie internet stock winners – REA Group (REA) and Carsales.com (CRZ). REA Group operates the website realestate.com.au and others and over 10 years its share price has appreciated close to 9000%.
Another trend for disciplined stock hunters is the escalating number of middle class consumers in emerging nations. The number of people considered middle class is forecast to balloon to 3.2 billion by 2020 and 5 billion by 2030. Supposedly, 85% of this growth will come from the Asia Pacific region.
A sector to watch is education. A rising number of middle class will demand private education; already, Australia, Canada, the UK, and the US offer English language education and with English, the de facto international language of business, many listed companies stand to benefit.
The following table shows 4 ASX listed companies to watch:
52 Wk % Change
2 Yr Earnings Growth Forecast
5 Yr Total Return
Seek Limited (SEK) has enjoyed phenomenal success as an online employment source and has expanded globally, most recently adding sites in Africa. The company has an impressive array of online education courses from a variety of providers.
The 2013 Half Year revenue for the company’s educational businesses increased 12% while earnings increased 108%. Although the share price is up year over year, over the last 3 months the share price has retreated some 13% due to concerns over employment.
On most valuation measures the stock appears a little pricey but the P/EG and 2 Year Earnings Growth Forecast would impress investors seeking growth stocks. The company has delivered solid total returns over 5 years and currently has a dividend yield of 2%, fully franked.
Many analysts are sceptical about Seek, with only CIMB with an OUTPERFORM recommendation (arguing that Seek will benefit from a declining Australian dollar that should offset falls in online advertising). Deutsche Bank and Citi have SELL ratings with BA-Merrill Lynch at UNDERPERFORM, all based on weakness in job advertising. No analyst included Seek’s education business in their research notes.
Navitas Limited (NVT) has six business segments providing a variety of educational services to Australian and International students. The key to this stock is the English language segment and the International University segment. International students can get English language proficiency through Navitas programs and then enroll in University Preparation Pathway Programs for selected schools in Australia, Canada, the US and the UK, and Singapore.
Like Seek, Navitas has valuations that are stretched but also has respectable growth prospects along with a solid 5 year total return performance. The company’s current dividend yield is 3.2%, fully franked. Analyst opinion from the major brokerage houses runs the gamut of recommendations from SELL to OUTPERFORM. The key factor cited for caution was stretched valuations. However, despite a SELL recommendation, an analyst at UBS sees Navitas with a “robust business model and significant long term growth opportunities.”
The following chart shows the price performance of these two large cap stocks over the past 5 years:
The remaining educational companies in our table are small cap stocks with no major analyst coverage. Academies Australasia Group Ltd (AKG) operates six different independent colleges in Australia and one in Singapore. They do not offer English language training for International students but do have pathway programs for students wishing to study in Australia.
Disciplined stock picking needs due diligence to investigate a company prior to an investment decision. AKG is a thinly traded stock, trading an average of only 4,600 shares per day. Researching stocks with limited share market interest can be a daunting task even for the most disciplined of investors. Having said that, this is a company that is growing by acquisition and is one of the few “pure play” educational companies on the ASX.
On 26 July 2013 company management announced a placement of over 5 million shares to institutional and “sophisticated” investors at $0.75 per share with the share price closing at $0.78 the day before the announcement.
Considering the minimal premium for these new shares it suggests at least some major players have an interest in AKG. The company’s current dividend yield is 4.8%, fully franked.
The final company, RedHill Education Limited (RDH) began trading on the ASX on 21 September 2010 at $1.20 per share. One year later in September of 2011 the share price had dropped to $0.12 but began a slow recovery in 2013. Half Year results reported in February showed a 13% growth in revenue and a 42% reduction in net profit loss. The stock was trading at $0.29 right before the company released Full Year Earnings on 26 July and immediately jumped to $0.43.
Those preliminary Full Year results showed a $1.6 million dollar increase in revenue and turned a negative cash flow of $2.4 million for FY 2012 into positive net cash flow of $1.3 million for FY 2013. Company management thinks EBITDA (Earnings before Interest, Taxation, Depreciation, and Amortization) provide a better reflection of the core earnings of the RedHill Group and provides reconciliation between EBITDA and NPAT (Net Profit after Taxes) as required by Australian Accounting Standards. 2013 saw an EBITDA increase of $1.3 million, turning a 2012 loss of $1.4 million to a positive $2.7 million.
RedHill is a very young company that began operating in 2006. The apparent catalyst for its recent rise from the ashes began when the company’s new CEO came aboard in May 2011. The company operates several educational entities, a key one being the Greenwich College English Language Program. RedHill also operates an Information Technology Academy and an Art and Design Academy. RedHill is another thinly traded stock with minimal analyst coverage. However, the company’s Go Study Australia business segment actively recruits International students through its 7 different offices in 3 countries. The company claims Go Study has seen 25% increases in enrollments and revenue and profit contributions to the RedHill Group over the past few years. The English language college along with the recruiting business makes for a great story, but picking speculative penny dreadfuls like AKG and RDH often requires the discipline to wait and watch for more performance history before making a purchase decision.
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.