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Here we’ll look at the Ten Worst Performing Stocks of FY2014.  Most investors are well aware of the risk of value traps with stocks like these.  Valuation ratios may make a stock look cheap, but often a stock is cheap for a reason.  To that end, we have also included some forward looking measures, dividend yields, and historical shareholder return. 

See table at the end of the article.

Paladin Energy Ltd (PDN) states its goal is to become a major uranium miner.  The company currently has projects underway in Australia, Canada, and in Namibia, Africa.  The Langer Heinrich Mine in Namibia is the most promising project.  

If you look at the numbers in our table it would appear that while Paladin has not been good for its shareholders in the past, the future could be more promising.  Note that its Book Value per Share of $0.47 is higher than its current share price and a 40.4% two year earnings growth forecast appears to be very positive.  However, if you dig deeper into analyst Earnings per Share (EPS) estimates, you will find the forecast is for the company to lose less, not break through to positive earnings.  EPS for FY 2013 was -$0.529 and the forecast for FY 2014 is -6.9% with an “improvement” to -1.6% in 2015.  The negative EPS explains why you see no P/E ratios for the stock.

Positive catalysts can drive the share price of a beaten down stock upward quickly, as recently happened with beleaguered PDN.  The share price is up more than 35% over the past month.  Here is the chart.

The share price rose in response to the news Paladin entered into a joint-venture agreement with a subsidiary of China National Nuclear Corporation – CNNC to acquire a 25% interest in Paladin’s Namibia mine. The share price bumped up again following the announcement the Queensland government was lifting a ban on uranium mining that had been in place for 32 years.  However, what may be needed to sustain a rising share price is a rising uranium price, which has fallen from US$40 per pound a year ago to around US$28 today.

Rare Earth minerals developer Lynas Corporation Limited (LYC) rode the tide back in 2010 when the supply of these minerals out of China began to slip.  Rare Earth minerals find their way into a host of consumer related products, most notably cell phones.  Here is a ten year price chart for LYC.

While some analysts speculated in the past about a potential bubble about to burst here, investors have little doubt.  However, the company is currently trading for less than its book value per share of $0.28 and has positive earnings growth forecasted over the next two years.  Like Paladin, the growth is a matter of losing less money, not turning the corner to profitability.  The Five Year Estimated P/EG of a mere 0.05 is cause for hope.  The company has already been through one capital raise this year and its high debt may lead to another raise.  Despite all this, the share price is up about 50% over the last month.

Discount retailer Reject Shop Limited (TRS) sells a wide variety of general merchandise at low prices in its approximately 300 stores across Australia.  On 10 June the company announced it expected to miss its FY 2014 profit guidance by about $3.5 million, attributing the decline to unseasonably warm weather and dwindling consumer confidence.  Despite a business model that should survive dwindling consumer spending, the Reject Shop has suffered along with the entire retail sector.  However, the company is on an aggressive store expansion plan and just brought in a new CEO.  The 3.4% dividend yield is fully franked and the company has increased dividend payments in each of the last three years.  The share price is up about 9% over the past month.  Here is the chart.

Online hotel and flight provider Wotif.com Holdings Limited (WTF) operates across the globe in more than 69 countries.  The share price has been battered from lowered guidance and the threat of competition from offshore online travel providers entering the Australian market.  Patient investors were rewarded when in early July US based Expedia stepped in to buy Wotif.com for around $3.30 per share, a 30% premium over a five day average of WTF’s share price before the offer.  Here is a one month price chart for WTF showing the move.  

Range Resources Limited (RRS) is an oil & gas exploration company with a major focus on its three offshore licences in Trinidad, all 100% owned by Range.  The company also has interests in Somalia, Colombia, the Georgian Republic, Guatemala, and the United States where its assets are to be sold.  The share price shot up in 2011 when Range acquired the Trinidad licences but has suffered since.  Here is the chart.

Range is another of the worst performing stocks trading below its book value per share of $0.05.  It is also one of the stocks in the table with an analyst consensus Buy rating, although there are only two analysts covering the stock, both recommending investors Buy.  On 14 May the company announced an injection of $12 million in cash from a private institutional investor in Hong Kong.  This was preceded by a successful loan arrangement for $6.5 million and the company expects the sale of its Texas assets to net $30 million.  

McMillan Shakespeare Ltd (MMS) is one of only two companies in the worst performer list that actually rewarded shareholders over three years.  (The other is GrainCorp Ltd (GNC)).  McMillan provides a variety of services to both private businesses and public agencies, including salary packaging, leasing administration, asset management, and insurance.   The company has an admirable Forward P/E under 10 and a respectable two year earnings growth forecast of 8.2%.  The dividend yield of 4.9% is fully franked and expected to increase substantially over the next two years.  So why the drop in share price?  A one year price chart for MMS tells the tale.

Investors feared changes to the FBT (Fringe Benefits Tax) which would have impacted McMillan.  The impact of the previous government’s changes were the subject of a results guidance market announcement released by McMillan in late July 2013 and the share price plummeted but recovered dramatically going into the election.  On 23 July MMS stock price closed at $15.36 and fell to $8.85 the following day, recovering into the election but fell again on weak Half Year results announced in February of 2014. Investors may still be concerned but analyst consensus on this stock is Buy.

Karoon Gas Australia Limited (KAR) is an Australian oil and gas exploration company operating in Australia and South America.  The company has five projects underway, with the Browse and North Carnarvon Basins in Australia; two projects in Peru; and one in Brazil.  While Karoon investors have had a tough year, the past three months have seen considerable improvement.  Here is a three month chart for KAR.

The company requested a trading halt at the beginning of May, pending funding announcements.  The suspension lasted till the end of the month and investors obviously liked what they heard.  Karoon continued to provide drilling updates during the suspension and emerged from the halt with the announcement it was selling two exploration permits in the Browse to Origin Energy (ORG).  A few days later the company announced it had secured a $100 million bridge loan facility through National Australia Bank to support operations until the $600 million dollar deal with Origin was finalised.  On 17 July the company announced a gas discovery at its 40% owned Browse property, operated by Conoco Philips.  Analysts like this stock, with six analysts with a Buy recommendation and two with a Strong Buy rating.  

Whitehaven Coal Limited (WHC) has four producing coal mines in Australia as well as some exploration projects.  The stock is currently trading below its book value per share of $3.14 but the growth outlook is meager.  Once again, a positive earnings growth forecast of 12.8% over two years moves the needle to an improved EPS, but still negative.  Analysts appear unconcerned as the stock has an Overweight consensus rating, with nine Buy ratings, one Overweight, four Holds, and three at Sell.  On 24 April Whitehaven lowered its production guidance for FY 2014.  The share price cratered but has risen in the aftermath.  Here is a three month chart for WHC.

The company has a new mine going into production in 2015.  Whitehaven is expanding production capacity and on 15 July announced a joint venture agreement on one of its properties to raise capital and also issued a positive production report, propelling the stock up again.

GrainCorp Limited (GNC) is an integrated grain business with three operating segments – grain storage and logistics; grain processing; and marketing.  The company supplies grain in Australia and internationally.

On 19 October of 2012 US based global food processor and commodities trader Archer Daniels Midland made a buyout offer for GrainCorp at $11.75 per share with the stock trading at around $9.00 prior to the offer.  A little more than one year later, the deal was blocked by the federal government.  The following two year chart for GNC shows market reaction to both events.

The final member of the worst performing stocks for FY 2014 is marine logistics and supply provider to the oil and gas sector Mermaid Marine Australia Limited (MMA).  The company operates a fleet of around 40 vessels ranging from harbor tugs and barges to accommodation vessels.  Mermaid also operates supply bases and slipways for its O & G customers as well.  

On 13 November 2013 the company issued a warning its performance would come in lower than expected, which proved true with the 2014 Half Year results released in February showing a 25% decline in NPAT.  The share price began a long, slow descent following the profit warning.  Here is a two year chart for MRM.

Shareholders took another beating when the company announced on 24 February the $550 million dollar acquisition of one of its competitors, Singapore based Jaya Holdings.  However, Mermaid subsequently raised around $320 million from an institutional placement and added a loan facility through NAB.  The company has both a Forward and a Trailing Twelve Month P/E under 10.  The acquisition of Jaya adds 27 vessels to the Mermaid Fleet as well as two shipyards in Singapore and Indonesia.  The company is well positioned to take advantage of rising gas exports from Australia beginning in 2015.  Analysts are largely bullish on Mermaid, with two Strong Buy ratings, four Buy ratings, and five Hold recommendations.  

Company

(CODE)

Market Cap

FY 2014% Change

 Share Price

BV per Share

P/E Forward

TTM

2 Year Earnings Growth Forecast

Dividend Yield

(2 Year Dividend Growth Forecast)

3 Year Total Shareholder Return

 

Paladin Energy

(PDN)

$366.5

-66.3%

$0.38

$0.47

 

+40%

-47.5%

Lynas Corporation (LYC)

$362.8

-65%

$0.185

$0.28

+36%

-55.8%

Reject Shop

(TRS)

$276.2

-49%

$9.58

$4.71

 

14.52

16.87

 

-9.7%

3.4%

(-6.5%)

-1.3%

Wotif.com Holdings

(WTF)

$705m

-46.5%

$3.33

$0.46

15.14

15.35

-5.2%

6.3%

(-6.7%)

-4.8%

Range Resources (RRS)

$131.5m

-43.4%

$0.037

$0.05

-46.3%

McMillan Shakespeare (MMS)

$679.3

-43.2%

$9.10

$2.71

9.89

13.38

+8.2%

4.9%

(+20.1%)

3.2%

Karoon Gas Australia

(KAR)

$900.6m

-40%

$3.52

$2.98

-7.2%

Whitehaven Coal

(WHC)

$1.72b

-37.6%

$1.67

$3.14

 

+12.8%

-34.3%

GrainCorp Ltd

(GNC)

$2.03b

-33.9%

$8.90

$7.69

17.12

19.82

-19.9%

+10.4%

3.6%

(-19.7%)

Mermaid Marine Australia

(MRM)

$464.1m

-30.9%

$1.99

$1.81

8.31

8.91

-4.3%

-8.5%

5.8%

(-2.1%)

 

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