The big name blue chips now carry heftier price tags after a strong 2013. So analysts say more bang for your buck can be found in the small to mid sized market caps.
According to sharemarket research firm Lincoln Indicators, the top 20 companies rose more than 13 per cent for the 12 months ending January 2014. By contrast, the S&P/ASX Small Ordinaries Index was down more than 7 per cent.
Small to mid sized stocks often carry more risk than their bigger earning heavyweights. However, shrewd investors prepared to take on calculated risk should find value in the stocks we present today.
Slater & Gordon (SGH)
The law firm lifted revenue by 22.3 per cent to $178.3 million for the six months to December 31, 2013. Analyst James Samson, of Lincoln Indicators, says SGH generated 54 per cent of revenue from its Australian personal injury operations, which grew by 7 per cent on the previous corresponding period.
Samson says the UK division continues to perform to expectations. It now contributes 35 per cent of group revenue and is considered well established as SGH is among the biggest UK providers of personal injury legal services.
“The three acquisitions of Taylor Vinters, Goodmans and Pickerings have all been fully rebranded and are performing to expectations,” he says. “Fentons is performing above expectations and will be rebranded in coming months.”
Samson says SGH has upgraded full year revenue from $387 million to $395 million. Earnings margin guidance has been retained at a range between 24 per cent and 25 per cent.
“While the company may be a more mature business domestically, the UK is a whole new market for SGH to explore,” he says. “Having made several acquisitions in the past 12 months, SGH has a strong UK market share and is well placed for growth in coming years.”
RCG Corporation (RCG)
Samson says this shoe retailer has investor momentum behind it after establishing an enviable track record of meeting and exceeding guidance. The Athlete’s Foot has been a strong performer, and Samson says after RCG acquired the Saucony and Podium Sports businesses in November 2013, it revised up earnings per share growth from 10 per cent to 15 per cent for the full year.
In full year 2013, RCG reported a net profit after tax of $10.5 million, up 10.4 per cent on the previous year. As at June 30, 2013, Samson says its net cash balance was $12.7 million, underlining the company’s ability to pay a higher proportion of profits as dividends.
“The company has bought into its supply chain to protect margins,” he says. “It’s growth prospects are likely to remain in tact for the next two years. New store rollouts will boost sales and a weaker Australian dollar means overseas online buying isn’t as appealing.
“It’s a quality firm and can be bought for growth and income.”
Sandfire Resources NL (SFR)
Samson says December quarter production achieved the upper end of guidance due to higher than expected copper grades mined. The company remains well positioned to achieve its full year production guidance of between 65,000 to 75,000 tonnes of copper. He says that in the past six months, copper prices have risen about 4 per cent in US dollar terms and even more in Australian dollar terms.
“Operational prospects for the rest of the financial year appear very promising, with copper grades expected to improve from the primary underground ore,” he says. “Coupled with an expected increase in recovery rates to around 92 per cent, the next two quarters should result in a copper production increase as well as lower operating costs.”
Samson says Sandfire has taken decisive and positive action in response to disappointing exploration results in recent years.
“Sandfire’s decision to pursue farm-in joint ventures with Ventnor Resources (VRX) and Talisman Mining (TLM) for developing projects in the same Doolgunna area as DeGrussa appears compelling,” he says.
Buru Energy (BRU)
An oil and gas explorer and producer solely focused on the Canning Superbasin, in the south-west Kimberley region of Western Australia.
Joshua Stega, of JAS Wealth, says February 7, 2014 marked a turning point for this company when first oil was shipped from Buru’s Ungani discovery. “Given Buru has now transitioned from explorer to producer, investors can have more confidence in the business case,” he says. “The most exciting factor for Buru is the potential for further exploration success, which is highly likely considering its tenements are situated in one of the most prospective basins in Australia. With a strong joint venture partner in Mitsubishi and equity interests of between 50 per cent to 100 per cent in their permits, we expect a bright future for Buru.”
Corporate Travel Management (CTD)
Manages travel arrangements for 1000 private and publicly listed firms, including 16 companies in the S&P/ASX 100.
Stega says Corporate Travel Management finalised the acquisition of Westminster Travel on January 29, 2014, giving it a foothold in Asia.
“We expect Corporate Travel will now be setting its sights on an anticipated European acquisition to create a truly global travel management business,” Stega says. “The new Asian acquisition should enable the company to win more business by cross-selling existing clients and being able to present a global footprint to new clients. Corporate Travel has a strong business model and a proven track record of achieving synergies and scale from its acquisitions and we expect 2014 will see them continuing to build their operations globally.”
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