Michael Gable, Fairmont Equities
Automotive Holdings Group (AHE)
We have moved from a hold to a buy in response to positive first half results. AHE is well placed to increase new vehicle sales, the recent price/earnings ratio is attractive at 13 times and it pays a fully franked yield of 5.5 per cent. From a charting perspective, it’s now breaking out of a longer term continuation pattern, which implies levels above $5 could now be achieved. The shares closed at $4.17 on February 25.
REA Group (REA)
This owner and operator of property websites reported well in February. In response to the recent share price rise, the stock is looking fully valued. But from a charting perspective, there appears to be further upside, so traders may view REA as a buying opportunity in anticipation of higher levels in the next several weeks. The stock had been congesting for almost a year before recently breaking out to the upside. It’s taking a breather at the moment, but the charts suggest potential exists for it to rally to a new high. The shares finished at $49.43 on February 25.
JB Hi-Fi (JBH)
We have moved from a buy to a hold after a surge in the share price. Having said that, we still believe JBH can reach levels above $19 based on the way it’s trading. If the price rises above $19, we would consider it a sell unless new information comes to light. But at current levels, it’s worth holding to capture that potential impending upside. The consumer electronics giant closed at $17.56 on June 25.
Aristocrat Leisure (ALL)
Like JBH, our previous buy recommendation becomes a hold after a recent great run. There appears to be some upside to $8 in the medium term, so from a risk/reward perspective, we’re happy to hold, but would only look to buy on a dip back towards $7. The gaming machine maker finished at $7.44 on February 25.
The jobs site company disappointed at its recent results, coming in below market expectations. Earnings were softer than expected, and although it retains full year guidance, it now becomes harder to achieve. On a forward P/E ratio of 25 times, we now view it as expensive. Chart wise, it failed a topside breakout in February, implying it could head back to the lower part of its recent range, which is closer to $15. The shares closed at $17.41 on February 25.
Ardent Leisure Group (AAD)
We rated AAD a sell here at the start of November due to the breaking of the downtrend. We expected a tumble to the mid $2 levels, but clearly it’s also failed that level. Upon reassessment, we now place support for AAD closer to $2. With consensus targets still sitting above $2.60, we would consider waiting for those cheaper levels before deciding whether to buy again. Shares in the leisure asset company closed at $2.38 on February 25.
James Samson, Lincoln Indicators
GBST Holdings (GBT)
GBST Holdings is responsible for back and middle office financial market systems and wealth management platforms in Australia, and increasingly in overseas markets. The group reported strong financial results this reporting season, with revenue growth of 14 per cent to $55.7 million and net profit growth of 58 per cent to $6.9 million. We believe the business is well placed following strong growth in UK markets amid a potential opportunity to grow in US markets. While the price has enjoyed significant uplift in recent times, the company offers a promising future.
My Net Fone (MNF)
MNF is a small telecommunications business focusing on an acquisition strategy in the VOIP market. The company is developing a strong track record, and again reported healthy growth this reporting season. Net profit rose by 31 per cent to $3.1 million, and the outlook is for an even stronger second half. The opportunity for acquisition growth remains strong, and the company has a solid track record for integrating purchases. MNF is trading at a compelling discount to our valuation of $3.21. The shares closed at $2.64 on January 25.
Domino’s Pizza Enterprises (DMP)
DMP recently reported first half underlying net profit growth of 45.4 per cent to $31.1 million. The growth was underpinned by strong demand in Japan, and new store rollouts across other markets. DMP is doing an amazing job delivering on its growth potential, with an upgrade to earnings guidance also in its latest report. However, the company’s recent price/earnings multiple is an eye watering 48 times on expected fiscal year 2015 earnings. As such, we believe a large amount of upside is built into expectations.
The company has posted a strong first half report buoyed by favourable currency movements. Revenue increased by 20 per cent to US$847.3 million, and earnings per share rose by 16 per cent to US57.3 cents. This growth was driven by acquisitions performing above expectations. Further, ANN management has reiterated guidance for earnings per share growth of between 7 per cent and 15 per cent in reporting currency. Despite the strong outlook, ANN is trading in line with our valuations.
MND is arguably the best mining services business. However, structural pressures on the sector have once again been highlighted by cost cutting measures undertaken by major mining companies. MND reported net profit after tax of $60.7 million for the half, down by 23.4 per cent when compared to the underlying result in the previous corresponding period. This is a clear result of sector wide declines. In our view, easier gains can be made elsewhere today’s market.
Mesoblast has been the subject of much hype and promise in recent years, as a potential business to take forward the exciting stem cell therapy and tissue therapies technology. While exciting, it’s yet to make economic sense. The company is yet to turn a profit. Our preference is Sirtex Medical (SRX), which is profitable and generates cash flow. MSB may have its time, but significant levels of risk and speculation remain at this point.
Joshua Stega, JAS Wealth
SurfStitch Group (SRF)
Owns and operates an e-commerce website. Despite well documented headwinds facing the wider retail industry, we like SRF as it operates in the action sports space which is less competitive than pure fashion retailing. SRF has invested in front end systems to handle high traffic loads and it has a strong distribution network. It operates in the northern and southern hemispheres, so season clearing is less of an issue.
Its online travel sites and applications enable customers to search for flights, hotels, car rentals and packages on an aggregated platform. WEB’s first half 2015 result was strong, with travel spending increasing 22 per cent on the prior period to $620 million and normalised earnings increasing 22 per cent to $15.4 million. It beat our estimate by 12 per cent. International bookings increased 38 per cent and domestic bookings rose by 9 per cent. We think the stock is cheap on a recent price/earnings multiple of 16.5 times and a dividend yield of 3.4 per cent.
SAI Global (SAI)
An information services company, helping organisations manage risk and achieve compliance. SAI has achieved good earnings growth in recent times despite a reasonably challenging economic backdrop. The recent fall in the Australian dollar should also provide a near term earnings uplift. On a recent price/earnings multiple of 18 times and a dividend yield of 3.7 per cent, we’re happy to hold this stock for its defensive characteristics and organic growth.
Insurance Australia Group (IAG)
Operates a multi brand strategy across Australia and New Zealand and has a growing presence in Asia. IAG’s first half 2015 result showed pressure on premiums in personal and commercial insurance. We think earnings will be more difficult to grow in the near to medium term given competition, low new business volumes and falling yields. We believe this stock will continue to appeal to investors chasing yield. We’re happy to hold the stock with a dividend above 6.5 per cent.
Suncorp Group (SUN)
A Queensland-based diversified financial services provider offering general insurance and banking. SUN’s first half 2015 result showed a soft insurance cycle in Australian personal and commercial lines. Considering the slowing Australian economy, we believe the outlook is negative on the back of premium reductions in most classes. After a very strong share price performance in the past three years, we’re taking profits at current levels.
Super Retail Group (SUL)
An auto, leisure and sporting products retailer in Australia and New Zealand. Restructuring of the leisure division appears insufficient while expanding the sports division is weighing on financial performance. While the auto division has proved resilient to increasing competition, we’re concerned about the near term outlook for the economy. After a strong bounce from a recent low of $6.72, we recommend taking profits. The shares closed at $10.05 on February 25.
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