Ishan Dan, Wattle Partners
Bubs Australia (BUB)
An organic baby food company. Products are sold on up to 20 e-commerce platforms in China. The company has entered into a distribution agreement with QianJiaWanPu Co, China’s largest distributor of infant nutrition products. New Times Asia has committed to buying $17 million of products in fiscal year 2019. Bubs is aiming to rival The a2 Milk Company in building a substantial business.
Cleanaway Waste Management (CWY)
Integration of the Toxfree Solutions acquisition is expected to deliver $35 million in annual synergies realised over two years. First half 2018 gross revenue was up 8.4 per cent on the prior corresponding period to $785.5 million. Net profit after tax was up 60.7 per cent to $45 million. CWY has defensive earnings and is an attractive investment opportunity.
Reliance Worldwide Corporation (RWC)
Shares in this plumbing fittings manufacturer soared following the $1.22 billion acquisition of John Guest Holdings. John Guest is headquartered in the UK and is a global leader in plastic push-to-connect plumbing fittings. The integration of John Guest is expected to deliver total synergies in excess of $20 million EBITDA per annum. After a strong run, we believe it’s a long term hold.
Afterpay Touch Group (APT)
The company recently launched in the US with Urban Outfitters, a huge fashion retailer. APT is making inroads, and management is aiming to replicate success in Australia across the US. The share price has risen from $5.64 on April 20 to close at $8.18 on June 7. We think it’s a good long term hold.
MYOB Group (MYO)
Prior to the Xero’s cloud-based accounting system, the dominant player was MYOB with its traditional desktop accounting software package. This was disrupted by Xero and, in our view, MYO has been playing catch up ever since. MYO now has its own cloud-based offering, but, in my opinion, Xero is still the clear leader with first mover advantage. For that reason, we prefer Xero.
Harvey Norman (HVN)
The retail giant’s share price has been under continuing pressure this year, falling from $4.58 on February 27 to close at $3.50 on June 7. We found its recent half year result disappointing, with net profit after tax and non-controlling interests down 19.3 per cent to $207.69 million. The competition is only going to get stiffer for discretionary dollars.
Michael Heffernan, PhillipCapital
ARB Corporation (ARB)
This well managed 4-wheel drive accessories business offers attractive fundamentals and has been a star sharemarket performer in the past year. The shares were priced at $15.84 a year ago. The stock was trading at $22.20 on June 8, 2018. Moreover, its innovative approach underpins its future prospects. Wesfarmers (WES)
This industrial conglomerate posted an underwhelming third quarter trading result, in my view. It was a reflection of a softer retail sector. But selling the loss making UK hardware business amid plans to divest Coles leaves it better positioned to focus on its star performer Bunnings. HOLD RECOMMENDATIONS
This online recruitment firm recently reaffirmed profit guidance. Chinese expansion positions it for favourable growth prospects. Its diversified product offering, particularly in education, provides earnings stability going forward. ResMed (RMD)
This company specialises in making medical devices to treat breathing disorders and has performed well over the past year. Exposure in the US means the company will benefit from any fall in the Australian dollar. SELL RECOMMENDATIONS
A serial sharemarket underperformer. The company was recently mauled by the Royal Commission in relation to its financial planning business. Clearly, it will take some time for the stock to recover while management reforms its business model. In my view, a prudent approach is to look elsewhere until evidence of a turnaround emerges. The shares were trading at $3.635 on June 8, 2018. The company’s 52-week high was $5.49 on August 2, 2017.
This supply chain logistics company recently posted an underwhelming trading update, in my view. The shares were priced at $10.30 on June 8, 2017. The stock was trading at $9.12 on June 8, 2018. Better opportunities exist elsewhere.
Peter Moran, Wilsons
Afterpay Touch Group (APT)
This technology driven payments company has started operating in the US. Initial feedback points to similar basket sizes and conversion rates to those experienced in Australia. Although still early days, the US market is around 20 times the size of Australia’s. As a result, we see substantial potential upside on offer. ARQ Group (ARQ)
Formerly Melbourne IT, ARQ is a leading provider of digital services to Australian businesses. The company is experiencing strong demand for its services and has a solid pipeline of potential new orders, which we believe is being underestimated by investors. We believe ARQ offers value. Its share price was trading at $3.32 on June 8.
We believe this wholesale distribution and marketing company has done well to cut costs and keep earnings in its food division flat over the past three years. However, cost cutting will become increasingly harder to achieve. The loss of major customer Drakes Supermarkets in South Australia will also have an impact. But, in our view, the recent sharp fall in the share price leaves the stock trading around fair value.
Rural Funds Group (RFF)
Owns a portfolio of Australian agricultural assets. It recently acquired a 7600 hectare cattle property in central Queensland. We expect the acquisition to be positive, as RFF improves the property and achieves productivity gains. The transaction leaves gearing at the top end of RFF’s target range and, with the shares trading around our valuation, we retain a hold recommendation. SELL RECOMMENDATIONS
The paint company’s recent result was boosted by a profit on the sale of non core assets and the write back of a tax position. However, in our view, underlying earnings were flat and the share price has too much good news priced in at these levels. The shares were trading at $7.71 on June 8. ALS Limited (ALQ)
In our view, this analytical laboratory services company reported a weak fiscal year 2018 result. The geochemistry business appears to have entered a phase of slower growth, while the life sciences division disappointed us again due to competition and integration issues.
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