The market has been a pretty good performer this year – up some 15% – and while we may expect banks to lead the pack, the winning sector is actually Consumer Discretionary (XDJ), up 35% year over year. The Financial Sector XJF Index is up 25% and the XXJ, which excludes Australian Real Estate Investment Trusts (A-REITS), is up 30%.
There are multiple sub-sectors in Consumer Discretionary and buried within are 17 stocks with Price to Earnings Ratios (P/E) under 10. Some are well-known retailers like Oroton Group Limited (ORL), with a P/E of 6.0, and Pacific Brands Limited (PBG), with a P/E of 7.8. However, given the possibility of “hidden gems” we are going to look at seven of the Consumer Discretionary stocks with low P/E’s that are not so well-known. Some have proven track records and a few belong in punters’ paradise.
52 Week % Change
5 Year Total Return
Gale Pacific Ltd
Shenhua International Ltd
(over 3 Years)
Transmetro Corp Ltd
Allied Consolidated Ltd
Funtastic Limited (FUN) is primarily a toy maker but the company has its hands in a variety of related businesses, from ice cream to animated film and television production. The “challenging retail environment” so often cited by analysts hit Funtastic hard. For FY 2011 the company reported a net loss after tax of $38 million.
But are fortunes changing for FUN? NPAT for FY 2012 was some $10 million, rising to $14 million in FY 2013, a 34% increase. In addition the company reduced its gearing by 42% and declared its first dividend, fully franked, since 2006. All this came despite a 2% decline in revenue from FY 2012 to 2013. Funtastic has recognised brands here in Australia and in about 30 countries around the world. What makes this company interesting is its track record in designing and delivering innovative products. CIMB Securities has a Neutral rating on the stock dating back to 27 March of 2013. The analyst was impressed with Funtastic’s product pipeline. Keep watch.
Long term holders of Gale Pacific Limited (GAP) have been amply rewarded over five years. The company makes and distributes its own brands of protective shading and screening products. Gale serves both residential and industrial customers. The company has offices in Australia, New Zealand, China, the United States and Dubai and claims to be a “world leader in the research, development and manufacture of advanced polymer fabrics. “ Following a solid FY 2013 Full Year results presentation CIMB Securities reiterated its Outperform rating on GAP, noting the high dividend yield and attractive valuations. For FY 2014 Gale reported a 7% increase in NPAT; a 9% increase in revenue; am 8% increase in dividends; and a 22% reduction in debt. The company took a beating with the construction declines following the GFC but has rebounded since. Here is a five year price chart:
Macquarie Radio Network Limited (MRN) owns and operates radio stations through multiple subsidiaries. In addition, the company owns a marketing communications agency and a public relations agency. Macquarie entered a joint venture with Pacific Star Networks Ltd (PNW) to produce the Melbourne Talk Radio (MTR) show. Ratings were poor from the start and never improved. The share price of both MRN and PNW suffered when it became known MTR would cease operation. Here is a two year price chart for the two companies:
Macquarie Radio has delivered better results following the disposal of MTR, with a 300% increase in NPAT for FY 2013. However, some of that was due to shedding costs and losses associated with the ill-fated MTR experiment. Underlying profit was actually down. Management attributed some of that to the loss of sponsors following the anti-Alan Jones social media campaign. Macquarie’s dividend yield has increased every year for the past three years, but the middle year actually saw a drop in dividends paid per share with the higher yield coming from the drop in share price. Investors considering MRN should be aware this is a thinly traded stock, averaging about 27,000 shares per day. The total shares outstanding are a mere 78 thousand. In contrast, larger and more diversified rival Southern Cross Media Ltd (SCM) trades around 1.4 million shares per day, with 705 million shares outstanding.
Shenhua International Limited (SHU) is located in Australia and is a holding company for Chinese based Shenhua Group. Basically, Shenhua Group is a textile operation, making and distributing a variety of textile-based products for furnishing and decorative purposes in both residential and commercial locations.
This is another very thinly traded stock as a one year price chart shows.
While there are 125 million shares outstanding, the average daily trading volume over the last three months is a miniscule 1400! The dividend yield is deceiving as it is unfranked. If you would like to research this stock, good luck. There is no analyst coverage available. We include it as an example of relying on an attractive P/E and dividend yield without researching the company.
With an impressive 5 year total return performance of over 50%, eBet Limited (EBT) is certainly worth a look. It’s taken some time, but this company has climbed back into positive returns over ten years following the devastating impact of the GFC. Here is the chart:
The company is in the gaming business with three divisions – systems, machines, and operations. eBet’s reach extends outside of Australia and New Zealand into the Philippines, South Korea, Vietnam, and Singapore. eBet’s Full Year 2013 results were outstanding, with a 137% increase in NPAT; a 19% increase in gross margins; and a 10% increase in revenue. Company management stated 49% of total revenue in 2013 is already booked for FY 2014.
Transmetro (TCO) is the best performer over ten years of any stock in our table, with an average annual rate of total shareholder return of 12.7%. Here is a ten year price performance chart:
Note this is another very thinly traded stock – about 1,700 shares per day. The company owns and operates hotels, serviced apartments, inns, and theme pubs. Transmetro has 14 four star hotels across Australia. The company’s dividend has remained stable over the past three years at $0.05 per share and is fully franked. In FY 2012 Transmetro reported a loss of $3.2 million but rebounded in FY 2013 to a net profit after tax of $2 million. TCO has a Price to Book ratio of 0.62, which is attractive considering the majority of its assets are tangible. The book value per share is $1.66 as of the most recent quarter and the shares are trading around $1.00. However, the price volatility and lack of liquidity that comes with thinly traded stocks is something to keep in mind when considering an investment in TCO.
One might think only the maddest of punters would be interested in the last stock in the table. What kind of company has a P/E of 0.26 as does Allied Consolidated Ltd (ABQ)?
Once upon a time the company was known as Allied Brands and operated a variety of food franchise brands. The company was suspended from the ASX in 2010 and went into voluntary administration and did not reappear on the ASX until 06 June of this year, reborn as Allied Consolidated. Here is how the stock price has performed since its reentry:
Shortly after its reinstatement, Allied announced the purchase of the assets of Check-In.com.au, a well- established online travel accommodation retailer with over nine million visitors that went into receivership. The price was a mere $35,000. The company has since acquired the domain names and assets of CheapHotels.com.au. In addition, Allied has announced its intention to change its name to Disruptive Investment Group Limited. The change reflects the experience and expertise of the new board of directors and a fundamental change in the company’s strategic business model.
The first disruption came when Allied announced its intention to change from a merchant business model, where the online provider books revenue to be later paid to the hotel, to an agency model, where the provider collects a small deposit and the customer pays the remainder to the hotel directly. Along with its decision to not charge its customers a credit card fee, allowing consumers to pay for a room at checkout rather than at booking sets Allied apart from the industry. This is one to watch.
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