Michael Gable, Fairmont Equities
Thorn Group (TGA)
Owns Radio Rentals and recent results saw revenue increase by 25 per cent to $293.8 million for the year to March 31, 2015. EBITDA rose by almost 15 per cent to $53.9 million. The business is diversifying further and a recent price/earnings multiple of 11.8 times represents value. The stock has held onto the longer term uptrend and is poised to go higher, supported by the upcoming dividend at the end of June.
We’ve been expecting support for TLS around $6 and that certainly appears to be the case. The longer term uptrend is still intact and we expect TLS to once again threaten the previous high near $6.70. Recently, the stock was yielding almost 5 per cent. With the next dividend to be announced in August, we’re expecting TLS to start moving higher in the next two months.
Commonwealth Bank (CBA)
From the peak in March this year, CBA has fallen towards an obvious uptrend line. It’s also pulled back in five waves, suggesting the current retreat may be coming to an end. With an ex dividend date in August, CBA has historically started turning around in late June as it finds support for the divided. We can see some resistance near $86, with further resistance up at $90. The shares closed at $84.26 on June 17.
Pact Group Holdings (PGH)
We recommended the packaging maker in thebull.com.au as a buying opportunity in early May. Recently, the stock was up more than 7 per cent compared to the broader market being down almost 5 per cent over that period. PGH recently broke through upside resistance and we see it continuing higher to possibly $4.90 to fill the gap created back in February. The shares closed at $4.45 on June 17.
Caltex Australia (CTX)
Caltex was recently undervalued by about 5 per cent, according to consensus estimates. Despite this, the charts suggest it has further to fall. The most recent uptrend line was broken in April. Since then, the stock has struggled to rally on the way up, as the pullbacks have been fairly impulsive. The stock has been forming lower highs and lower lows and is now establishing a downtrend. We can see some support at a prior uptrend line near $28. The shares closed at $31.25 on June 17.
Virtus Health (VRT)
Growth is likely to remain subdued in response to intensifying competition and pricing pressures in the in-vitro fertiliser field. The recent downgrade is the latest in a history of missing expectations. If challenging market conditions persist, then earnings will remain under pressure. From a charting perspective, we don’t see any signs of a bounce in VRT. Better opportunities elsewhere.
James Samson, Lincoln Indicators
Slater & Gordon (SGH)
The company has developed a leading practice in Australia focusing on personal injury law. Its acquisition strategy has been successful. Growth appears to be in the UK. The recent acquisition of Quindell’s professional services division potentially transforms the business and marks a £637 million investment into the UK market. We believe the share price is subdued due to the risks involved in such a large acquisition. But considerable upside exists if the integration goes to plan. Management is experienced in integrating acquisitions, so the stock looks attractive at these levels. The shares were trading at $6.16 on June 18.
Arena REIT (ARF)
A property trust that focuses on investing in properties that facilitate childcare, health care, education and government tenants. Our forecast dividend yield is above 6 per cent for fiscal year 2015. ARF is poised to grow as its tenants expand operations, particularly in childcare and health care. We expect strong and growing dividends on top of share price upside.
An Australian success story boasting a global footprint in financial services and sharemarket registry services. The company has a strong track record, and is well placed to benefit investors in Australian dollar terms as overseas earnings are exchanged at more favourable levels. Short term, CPU faces challenges, including low interest rates and slow global growth. However, long term prospects are solid, and the stock is fairly priced at current levels.
Hansen Technologies (HSN)
Provides billing service systems to customers in the telecommunications and utility space. With a relatively defensive earnings base inherent to billing system software, HSN deserves a premium to the broader market. The company is poised for growth following the recent acquisition of Denmark-based TeleBilling A/S. But the company was recently trading above our valuation of $2.08.
Recall Holdings (REC)
A document management business that was demerged from Brambles (BXB) in late 2013. The company has performed as expected, and a takeover approach from Iron Mountain has unlocked significant value. Investors could take advantage of the higher share price and invest elsewhere.
Despite the potential for online outsourcing and crowdsourcing to become a vastly profitable market to facilitators such as FLN, we are cautious at present. The company isn’t profitable yet. FLN has the potential to achieve significant scale and operating leverage that could drive impressive earnings margins. But we want to see the company generating profits and cash flow that will support the business in the long term. Given the risks, we believe the share price is too high. The shares were trading at $1.385 on June 18.Text containing comments about the recommendation.
Michael Heffernan, PhillipCapital
BHP Billiton (BHP)
The global miner’s fully franked dividend yield was recently above 4 per cent. South 32 has been successfully divested. Iron ore and oil prices are off their lows. BHP now looks attractive after three years in the wilderness.
Harvey Norman (HVN)
The retail giant stands to benefit from the strong residential, building and renovation sectors. It should also benefit from the Federal Budget’s small business tax incentives. Its fundamentals are sound and it pays a reasonably attractive dividend.
Bellamy’s Australia (BAL)
Makes organic baby food and formula and has provided two upgrades to its future profit growth since joining the ASX in August last year. The Asian focus for its export drive is a sound foundation for future growth.
Domino’s Pizza Enterprises (DMP)
While it’s been a stunning sharemarket performer in the past two years, the share price is off its recent highs. However, its outlook remains intact and it operates in an almost recession proof area of the economy. Europe also seems to be doing well.
Crown Resorts (CWN)
Appears over-stretched with proposed casino expansions in Las Vegas and Sydney on top of a hotel development in Melbourne. Potential caps on tourist numbers from mainland China also suggest that future profit growth at the Melco Crown resort in Macau, in which Crown has an equity interest, may be less robust in the year ahead. Other gaming/gambling options appeal more.Text containing comments about the recommendation.
G8 Education (GEM)
A stellar sharemarket performer until late last year, as it digested a range of childcare centre acquisitions, a capital raising and the impact of the Productivity Commission report into the sector. More recently, it’s generally been unable to retain the positive momentum flowing from the recent budgetary proposals for childcare. The political outcome in the Senate for these proposals remains uncertain.
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