Ryan Gale, PAC Partners
We expect this emerging medical device company to soon be selling its first new generation MEG (Magnetoencephalography) machine, with forecast EBITDA of $3.5 million in 2016/17. The machine is suited to significant neurological disorders, such Alzheimer’s, Parkinson’s, epilepsy and autism. MEG has a higher degree of sensitivity and faster measurement of brain signals than standard MRI (magnetic resonance imaging). We expect the company to continue its share price uptrend in response to good forecast sales of its MEG machine.
Tassal Group (TGR)
We believe the $50 million acquisition of De Costi Seafoods has been validated in its first year with EV/EBITDA of 5 times. We expect De Costi’s EBITDA to increase 50 per cent in the next two years from synergies and extra seafood volumes through distribution channels. TGR is now well positioned for growth.
This leader in Australasian rural services should deliver on its fiscal year 2017 EBIT target of $60 million and a return on investment of 20 per cent. Growth opportunities exist, but wait until a clearer growth plan emerges before buying.
National Australia Bank (NAB)
NAB has substantial exposure to the business sector, generating 45 per cent of revenue from business banking. It’s well placed to capitalise on a recovery in demand for business credit despite a bottom in interest rates. Look beyond previous disappointments.
TPG Telecom (TPM)
About 85 per cent of the company’s growth last year was attributed to the acquisition of rival telco iiNet, which will be difficult to repeat, in our view. Despite growing data consumption, we believe the best is behind it for now, leaving better value elsewhere.
The private hospital operator hasn’t met expectations with earnings downgrades contributing to almost an 18 per cent dive in the stock price between October 20 and October 24. We expect fiscal year 2017 earnings are likely to be flat as a result of more people potentially delaying elective surgery on perceptions that private health insurance is too expensive.
Simon Herrmann, wise-owl.com
Cradle Resources (CXX)
An Australian minerals company with operations in Tanzania. Its primary asset is a 50 per cent interest in the Panda Hill Niobium Project. Board restructuring during 2016 has positioned Cradle to secure the necessary technical and financial resources to bring Panda Hill into production. The company is in discussions with potential offtake partners and project debt providers. The company is trading at a substantial discount to net present value. We initiate coverage on Cradle as a speculative buy.
ClearView Wealth (CVW)
An Australian financial services company focusing on life insurance and wealth management. ClearView Wealth has increased operating revenue for the past five financial years at an average annual growth rate of 16 per cent. Continuing this trend while scaling up the business is a major value driver. A recent capital raising was used to repay the debt funding facility, while a further $50 million facility remains in place for future funding. The dividend yield was recently 2.4 per cent.
Carnarvon Petroleum (CVN)
This Australian oil and gas exploration company reported better than expected results from flow testing at its Roc-2 well off the Pilbara coast, 160 km north of Port Hedland. The project operator Quadrant Energy undertook controlled flow test operations in the well and successfully flowed gas and condensate to the surface. The testing reaffirms the commercial viability of the project. We remain attracted to the magnitude of Carnarvon’s land package, management track record and its strong balance sheet.
Monadelphous Group (MND)
An engineering and services company well placed to benefit from any recovery in the depressed mining services sector. Diversifying into the marine infrastructure sector amid cost restructuring measures should cushion MND’s results against future cyclical downturns. Most key commodity prices have recovered this year, which should enable management to reward shareholders via attractive dividends.
This cloud service provider experienced margin contraction during fiscal year 2016 as underlying profit grew slower than revenue due to an increase in capital expenditure and delays with major client projects. As we continue to monitor Bulletproof, we’re looking for evidence of cost control while management is executing its growth strategy. Additionally, we have witnessed commoditisation risks across the industry and believe that capital growth in the medium term may be limited. We believe there are better opportunities elsewhere and downgrade our view to a sell.
Mint Payments (MNW)
This mobile payment and transaction processing company experienced strong revenue growth during fiscal year 2016, but cash burn remains high relative to income. Even though several strategic partnerships have been secured, ongoing share price weakness and challenging sector conditions have limited the potential for capital growth in the medium term. While the total number of users is growing, we’re waiting for evidence of sustained earnings momentum to combat share price weakness. We downgrade our view to a sell for now.
Michael Heffernan, PhillipCapital
BUY RECOMMENDATIONS Aristocrat Leisure (ALL)
This gaming machine producer and online gaming operator is performing well. Furthermore, the acquisition of Video Gaming Technology in the US looks to be a good deal, particularly with continuing improvement in the US economy. NIB Holdings (NHF)
Originating in New South Wales, this health fund provider has been a strong sharemarket performer, much more so than Medibank Private, in my view. It’s continuing to innovate and has forged a white label distribution partnership with the New Zealand Automobile Association, a positive move in my view. The partnership will provide increasing scope to generate more business. HOLD RECOMMENDATIONS
Technology One (TNE)
TNE provides IT consultancy and software services to businesses in the public and private sectors. Its sharemarket fundamentals are particularly attractive, and share price growth this year has been most impressive, although its liquidity is thin so investors need to be patient. Telstra (TLS)
Investors may want to consider using funds from the buyback to invest in Telstra before a possible rush. The shares were trading at $4.965 on October 28. Looking ahead, even if Telstra’s share price recovers to $5.90, its fully franked dividend yield will still be about 5 per cent.
SELL RECOMMENDATIONS Vocus Communications (VOC)
The share price has slumped since its latest result as the market questions how it will manage to digest its recent acquisitions. In my view, uncertainty still surrounds the NBN in relation to access and customer charges. This is having an unsettling effect on the sector. TPG Telecom (TPM)
I hesitate here as TPM has been one of my favourites for a long time, but it’s breached my selling discipline. The share price was recently down 15 per cent in the past few weeks and it could fall further. It’s a punt for true contrarians. Like my view on Vocus, the NBN rollout is creating uncertainty in the sector.
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