As featured in the Herald Sun on May 19th 2013 here are the latest buy, sell and hold recommendations from Geoff Saffer Equity Analyst & Educational Facilitator at the Australian Stock Report.

Geoff has over 10 years’ experience researching and analysing Australian shares, with a passion for fundamental analysis and specialty in identifying undervalued companies – particularly at the smaller end of the market.

Shares to buy

Slater & Gordon (SGH) – Major capital raising has allowed company to expand its footprint in the UK market. We expect to see further consolidation in the UK, driving profit growth.

Vision Eye Institute (VEI) – Eye surgery clinic company is an exciting growth story. Capital raising has allowed VEI to pay down debt, expect dividends to start soon.

Shares to hold

Macquarie Group (MQG) – MQG recently jumped on FY13 results. Turnaround story still in play, but offers poorer value compared to buy recommendation back in December.

Carsales.com (CRZ) – Great business with strong margins but will have to continue acquisition march in order to justify current valuation multiples.

Shares to sell

Boart Longyear (BLY) – BLY’s exposure to gold and copper mining could lead to protracted pain. At real risk of announcing a profit warning, following peers SDM, ASL and EHL.

ERA Limited (ERA) – Uranium sector still in doldrums and flagship Ranger mine has halted production. Funds generated from processing ore stockpiles are needed for mine rehabilitation.

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FlexiGroup (FXL) was listed as a share tip  in our traders report on May 7th and  is a leasing and rental finance service provider, operating in Australia and New Zealand. It was recommended as a buy share based on a pattern of strong growth, $50 million capital raising and the aquisitions of One Credit.

Customers are typically computer and office technology retailers and resellers, as well as electrical appliance retailers.

FXL has the following main business divisions:

>> Certegy – provides interest free loans and is an Australian cheque guarantee business
>> Flexi Commercial – offers leasing services to medium and large businesses
>> Flexirent – provides leases and loans for computer and electrical products
>> Lombard Finance – offers credit card and interest free finance to clients via retailers

1H13 results

FXLs’ 1H13 result revealed a 16% rise in cash profit to $32.6 million. The result came on the back of strong receivables growth of 30%.

The growth in receivables reflects the new business momentum generated by the company. This was evident in Lombard, which logged volume growth of 77% on-year.

Lombard profit doubled from 1H12, highlighting rapid growth in the number of companies distributing its 55-day interest free credit card.

The strong credit card take-up also opens up significant cross-selling opportunities to FXL’s existing client base, signalling further growth in this division.

Certegy was another highlight, with cash profit surging 31% amid a 29% increase in receivables.

The Flexirent business was a concern, with divisional profit falling 9% on flat receivables growth. A modest rebound is expected for this division in 2H13 if FXL can effectively execute recently announced cost initiatives.

Capital raising

Today FXL successfully completed a $45 million placement at $3.99 per share. The issue price represented a 2.9% discount to its last closing price of $4.11 a share.

The group aims to raise another $5 million via a share purchase plan. The $50 million in new proceeds will be used primarily to fund the purchase of Once Credit.

Sydney-based Once Credit is similar to the Lombard business, in that it too offers interest free and credit card finance to consumers via retail outlets.

Interestingly, FXL believes Once Credit offers greater scale and is more profitable than Lombard but is constrained by a lack of funding capital. With $300 million in undrawn funding facilities, the group has the financial headroom to drive increased volumes at Once Credit.

Combining Lombard and Once Credit allows for increased scale in the interest free credit market. The synergies from the acquisition are expected to translate into greater earnings growth as volumes expand.

Whilst the acquisition will incur one-off costs of $3.5 million, it is expected to be cash earnings per share accretive within the first 12 months.

Outlook

In another piece of good news for investors, FXL upgraded its FY13 cash profit guidance from $68-$71 million to $70-$71 million.

FXL’s 1H13 results continue a pattern of robust growth for the company. Cash profit has risen at a compound annual rate of 20% since FY09, whilst return on equity has climbed to a healthy 23%.

Strong receivables growth at Certegy and Lombard is expected to continue as FXL expands its distribution network.

Moreover, the Once Credit acquisition will likely be an important driver of long-terms earnings growth due to increased scale in the interest free credit card market.

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News Corporation (NWS) is a diversified media conglomerate with interests all over the world and in most facets of media.

NWS is broken up into six main segments:

>>Cable Network Programming, which includes names like the FOX News Channel, FOX Business Network, FX, STAR and many other popular pay-TV channels.
>>Filmed Entertainment, which includes Fox Filmed Entertainment, Twentieth Century Fox Television and Fox Television Studios.
>>Television, which includes the FOX Broadcasting Company, the 27 stations in the Fox Television Stations group, and various television operations throughout the world.
>>Publishing, this includes over 150 newspaper brands and book publisher HarperCollins.
>>Director Broadcast Satellite Television, which includes several pay TV providers, such as Australia’s FOXTEL.
>>Other, is a broad segment that pretty much covers any other assets don’t fit into any of the above categories, such as a JV with NBC and Disney to create an online video site.

By the end of June, News Corp. plans to split its giant entertainment businesses, which include its 20th Century Fox film studio and Fox television assets, from its publishing division to create two separately listed companies.

2Q24 Results

NWS’ second quarter results were solid. The company’s revenue was $9.43 billion, up 5% on the same period in 2012.

The group’s underlying operating income was $1.66 billion, a 5% increase on the second quarter of the prior year.

Double-digit revenue growth in the Cable and Television businesses, along with improvements in the Publishing segment, drove group revenue and earnings growth.

Fox Sports

NWS announced its plans to launch a new USA sports network, Fox Sports 1, on August 17. The new network will be available in around 90 million homes, according to the company.

The new channels are being launched through a rebranding of Fox’s existing Speed network, a niche cable channel dedicated to motor sports.

Offerings on the channel include; Major League Baseball, Primetime Basketball, Primetime Football, NASCAR events; and soccer games including UEFA Champions League and Europa League, as well as the FIFA Women’s World Cup in 2015/2019 and the FIFA Men’s World Cup in 2018/2022.

Speed currently charges 22 cents per subscriber. We would expect this fee to be significantly higher given the wide variety of coverage, but we don’t see this being nearly as high as ESPN’s charge of $5.

Outlook

NWS’ 2Q13 results were solid and we expect more of the same in the upcoming 3Q results.

We expect the publishing division to perform strongly with independent data released showing NWS’s flagship product, The Wall Street Journal, maintaining its position as the USA’s largest newspaper by average weekday circulation.

The paper had an average weekday circulation of 2.4 million, including print and digital subscribers, as of March 31, up 12% from a year earlier.

We believe this, coupled with the optimism surrounding the new Fox Sports 1, will see continued share price appreciation for NWS in the near-term.

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As featured in the Herald Sun on May 5th 2013 here are the latest buy, sell and hold recommendations from Geoff Saffer Equity Analyst & Educational Facilitator at the Australian Stock Report.

Geoff has over 10 years’ experience researching and analysing Australian stocks, with a passion for fundamental analysis and specialty in identifying undervalued companies – particularly at the smaller end of the market.

Shares To Buy -

The Reject Shop (TRS) – Recent capital raising to fund expansion a positive. Same store sales growth running ahead of targets. Expect outperformance to continue.

Energy Action (EAX) – Small energy services kicking goals with its energy management services and novel energy auctions. Company on track for fifth straight year of revenue and profit growth.

Shares To Hold -

Seek Limited (SEK) – High quality company enjoying strong domestic and international growth. ROE and margins remain very high, but valuation looks stretched at current levels.

James Hardie (JHX) – US property market continues to turn around and there is room for fibre cement to increase market share, but sales growth looks more than priced in.

Shares To Sell –

Matrix Engineering (MCE) – Embattled engineering company’s recent quarterly results showed some signs of life but we still expect FY13 results to underwhelm investors.

Elders Limited (ELD) – Still faces a bleak future despite selling off assets to reduce debt. Chances of a bailout via takeover look stymied by existence of hybrid securities.

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Primary Health Care (PRY) is one of Australia’s leading listed healthcare companies, operating as a service company to medical and allied health professionals.

PRY also boasts a network of medial and pathology centres across Australia, and is a leading provider of healthcare technology solutions to medical practitioners, medical practices and hospitals.

The group’s revenue is divided into four main segments:

> Medical Centres
> Pathology
> Imaging
> Health Technology

1H13 Results

PRY’s 1H13 results were a solid improvement when compared to the same period in FY12. The group’s revenue came in at $720 million, a 5% increase on the prior corresponding half.

EBITDA for the 1H was $186.1 million, an 11.6% increase on 1H12. PRY was impressively able to increase its EBITDA margin by 150 basis points (bps) as a result of revenue gains, economies of scale and operating efficiencies.

The group was also able to increase its interim dividend by 30% to 6.5 cents per share.

Breaking it down

A closer look at the recent results revealed all of the major divisions making positive contributions to 1H13 earnings. The Medical Centres division increased its EBITDA by 9% to 84.0 million, with the business expanding its margin by 80 bps to 55.4%.

Pathology EBITDA grew by 13% to $69.5 million, with the margin up 100 bps to 17.0%. The Imaging division EBITDA was up 30% to $35.0 million, with the margin up a staggering 500 bps to 22.6%.

Overall it was good to see that all divisions recorded not only EBITDA growth, but also growth in margins, indicating a business with a focus on cost controls.

Looking ahead

All PRY’s divisions performed well in first half, and we see this continuing in the second half. The group showed it was able grow its business organically, with better economies of scale and operating efficiencies driving expanding margins.

With Australia’s ageing population, PRY should be able to grow its earnings at an organic level. The group has also lowered its borrowing costs from $56 million, to $40 million in the 1H13, which should also have flow on effects in the 2H.

With think these factors, combined with growth from its Medical Centres division, will result in a solid full year result and further share price appreciation.

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Westfield Group (WDC) is the world’s largest listed retail property group was listed as a share to buy in our traders report on Tuesday April 16th. The group has a global portfolio, comprising 105 shopping centres across five countries.

It also manages all aspects of shopping centre development, from design and construction through to management and marketing.

FY12 results

WDC reported an 18.3% rise in FY12 net profit to $1.7 billion. Funds from operations – which strip out asset revaluations – climbed 6% to $1.5 billion.

Net property income rose 7%, with the UK contributing a large part of the growth as the London Olympics led to an increase in shopping centre traffic.

There was positive 2H momentum in the US, with net operating income growth exceeding previous guidance as specialty sales rose due to a record number of shops opened.

Another highlight was the high occupancy rates. Global occupancy was 97.8%, up 30 basis points on-year with most of the growth coming from the US portfolio.

WDC also extended its share buyback for another 12 months, a move likely to provide a good degree of support for its share price.

Shedding non-core assets

In the latest example of the group optimizing its asset structure, WDC sold its 49.9% stake in six Westfield shopping centres in Florida, USA, to O’Connor Capital Partners.

The sale is expected to bring in net proceeds of US$700 million and will result in a joint venture between the two firms, with Westfield retaining its role as property, leasing, and development manager.

By shedding non-core assets, WDC is freeing up capital to help fund its $12 billion development pipeline and engage in capital return initiatives such as the expansion of its buyback program.

Outlook

Last week WDC commenced a plan to redevelop Westfield Garden City at Mt Gravatt, Queensland.

The $400 million project will be jointly funded by WDC and Westfield Retail Trust (WDC). The redevelopment will include a full line Myer department store, a new Target store and over 100 new specialty retailers.

The Mt Gravatt project is expected to yield 6.75% – 7.25%, in line with the yield generated by WDC’s other development projects in the US and Australia.

WDC commenced $1.4 billion in new projects during 2012, and forecast another $1.25 – $1.5 billion in new projects during 2013. The overall development pipeline now stands at $12 billion.

In our view, the group’s selling of non-core assets and investment in high yielding projects will increase the return from its assets and ultimately translate into further share price appreciation.

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Skilled Group (SKE) is an established national workforce services company and is listed in our traders report as a share to buy as of April 10th 2013. It has over 170 offices spread across Australia, New Zealand, United Kingdom, Malta and United Arab Emirates.

SKE has a broad service offering to suit changing client needs. Its three main divisions are;

>> Workforce Services, which provides labour hire services to the mining sector
>> Technical Professionals, which provides professional and white collar staffing
>> Engineering and Marine Services, which provides contract maintenance and engineering, as well as offshore marine staffing and management services

SKE has a strong position in key growth markets and sectors, namely mining & resources, oil & gas, and civil & infrastructure.

1H13 results

In February, SKE reported a 17.4% increase in 1H13 net profit to $29.2 million. This was delivered on the back of a 4.1% rise in sales to $973.6 million.

The company grew its profit against the backdrop of a weak macroeconomic environment. Specifically, Workforce Services suffered from lower volumes due to the mining slowdown.

Because SKE is diversified across different industries, Technical Professionals revenue climbed amid demand from the oil & gas and telco sectors.

The group is still in the process of cost reductions with the automation of key process and systems including; integrated rates calculator, candidate on-boarding, re-developed web portals and continued centralisation of distributed activities.

The cost cutting initiatives led to $5 million in indirect savings during the half, and SKE expects to deliver a total of ~$10 million in cost reduction over FY13.

Valuation upside

Whilst the group anticipated challenging conditions for its Workforce Services division would continue in 2H13, demand from the oil & gas and telco sectors would help soften the blow.

When factoring in expected cost savings, we think Workforce Services will experience a 2H13 earnings rebound. Trading on an undemanding one-year forward P/E of 14.3x, we believe the impact of a challenging mining sector outlook is at least partly factored into the share price.

Outlook

SKE’s 1H13 results impressed the market, and we expect the momentum to carry into the rest of the year. Although the outlook for Workforce Services remains somewhat uncertain, SKE’s cost cutting program should continue to provide a degree of support for the division’s earnings.

Also, Engineering and Marine Services is experiencing healthy growth in revenue and EBITDA due to the group’s exposure to the oil & gas sector. The division is benefiting from increased activity in new project and maintenance contracts, which is likely to translate into more revenue growth.

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Myer Holdings (MYR) is one of Australia’s largest department store groups, targeting a wide spectrum of consumers. The company has a national network of stores, retailing designer, national, and international fashion and apparel for men, women and children.

MYR focuses on its retail presence and execution, and also operates a consumer loyalty program.

Improving consumer environment

MYR has been operating in an extraordinarily tough consumer environment in recent years, but conditions look to be easing.

In the first four months of 2013, the Westpac Consumer Confidence Index has risen to its highest level since December 2010. Since last October, consumer confidence has risen 11.5%.

It appears the RBA’s 2012 interest rate cuts are beginning to have a noticeable impact on confidence, leading to improved operating conditions for retailers like MYR.

1H13 results

Last month, MYR mentioned that its 1H13 net profit increased by 0.7% from the prior corresponding period to $87.9 million. An interim dividend of 10 cents was declared.

CEO, Mr. Bernie Brookes, said that, “we are pleased that the positive sales trend continued during the half, with the second quarter representing our third consecutive quarter of positive comparative store sales growth.

On a comparable store sales basis, 1H13 sales increased by 1.4% on the prior corresponding period to $1.7 billion.

The result was attributed to the good performance of its menswear, cosmetics, womenswear, fashion accessories, and childswear divisions.

Despite a challenging environment, MYR managed to grow same store sales by focusing on things it can control like improved customer service, new stores and refurbishments, and a better online offering.

The group’s investment in its own brands also appears to be paying off, with the positive customer reception helping to drive a 23 basis point increase in gross margin from 1H12.

On a one year forward P/E basis MYR is trading on a multiple of just 13.1x, representing a 13.5% discount to the median of its closest peers.

Outlook

MYR has provided three straight quarters of comparable store growth and we expect this trend to continue.

Sentiment towards retailing stocks is improving, with consumer confidence rising to multi-year highs thanks in part to the RBA’s rate cutting cycle.

MYR responded to the challenging retail environment by investing in its own brands. The 1H13 results showed solid demand for MYR’s brands, and we think this will translate into continued margin expansion.

The stock is still trading at relatively inexpensive multiples, offering good value around current prices.

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Fairfax Media Limited (FXJ) is an Australian multi-platform media group with a broad range of activities including news publishing, information and entertainment, advertising sales in newspaper, magazine and online formats, and radio broadcasting.

FXJ conducts its core activities throughout Australia and New Zealand. Its major newspaper brands are The Sydney Morning Herald, The Age and The Australian Financial Review.

Additionally, FXJ owns a range of business magazines, websites, and regional and community newspapers.

Organisational restructure

Last week, FXJ announced some changes to its organisational structure in addition to a major shakeup of its leadership team.

Better late than never, the group has recognised the shift from print to digital and is responding seriously to this change.

The Australian publishing businesses will be consolidated under the Australian Publishing Media division in an effort to drive efficiencies and simplify FXJ’s business model.

Also, the Domain and Digital Ventures businesses will operate as standalone divisions. This will allow the group to devote increased resources and management attention to areas of the business likely to drive its future growth.

Advertising weak, but profit rises amid asset sales

In February, FXJ announced a 300% increase in 1H13 net profit to $386.3 million.

The profit jump came primarily on the back of asset sales, including the company’s 51% stake in NZ-based advertising website, Trade Me, as well as its US agricultural media businesses.

The result helped mask a 7% decline in revenue, with FXJ facing a slump in advertising sales across its major divisions amid economic uncertainty.

On a positive note expenses fell 3% on-year, whilst the group says it is on track to achieve $251 million in total savings by FY15.

The balance sheet was also in much stronger shape, with a net debt to equity ratio of just 5.1% at the end of 1H13.

Outlook

In its 1H13 results, FXJ argued that a sustained improvement in consumer sentiment is required to see a turnaround in advertising conditions.

In the first four months of 2013, the Westpac Consumer Confidence Index has risen to its highest level since December 2010. Since last October, consumer confidence has risen 11.5%.

It appears the RBA’s 2012 interest rate cuts are beginning to have a noticeable impact on confidence, leading to improved operating conditions for advertisers and media firms alike.

Taking into account its asset sales, organisational restructure and focus on cost control, FXJ is putting itself in a position where it can be more profitable in a slow growth environment.

Fairfax was issued as a share to buy to our members on April 8th, if you would like further information you can sign up for FREE share tips and access all our research files on not only FXJ but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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Newcrest Mining (NCM) is Australia’s largest gold producer and one of the world’s top five gold mining companies by production, reserves, and market cap. NCM’s main operations are in Australia, Indonesia, Papua New Guinea, Fiji and West Africa, and has a global workforce exceeding 19,000.

The company has a portfolio of predominantly low-cost, long-life operating mines, although it also has a history of operations troubles at its key projects (both operational and developmental).

1H13 Results

NCM’s 1H13 results were disappointing on several fronts. Gold production for the half was 953,000 ounces, down 18% on prior corresponding half.

Cash costs increased 8% on same period in FY12. The poor production results led to revenue falling 28% and underlying profit plummeted 48%.

Guidance downgrade

Late last month, the group downgraded its full year production – its fifth downgrade in the last two years. Gold production was lowered from 2.3 to 2.5 million ounces of gold to 2.0 to 2.15 million ounces.

The company cited operational issues at Lihir and Gosowong as the reason for the downgrade. While the downgrade was not a massive shock given the poor 1H results, it is yet more evidence of management inability to forecasts its own production.

Gold Prices

While the groups poor results have contributed to recent share price weakness, it correlation to the gold price has also contributed.

 

The above shows the gold price (white line) and NCM share price (yellow line) over the last nine month.

As is shown, the fall in the gold price has dragged on NCM’s share price. With fears of monetary easing-induced hyperinflation are abating, other asset classes such as equities are offering relatively stronger returns.

Outlook

NCM’s 1H13 results showed the effects of both poor production and a falling gold price.

Disappointingly, the group last month downgraded its full year guidance. This downgrade was already from what we would consider low-end guidance and while not a complete surprise it does not leave us with much faith its management’s ability to forecast its own production.

With the flight to stronger returning asset classes likely to continue in the near-term, we see continued weakness for the gold price and as a by-product NCM’s share price.

Newcrest was issued as a share to sell to our members on April 11th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only NCM but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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