Shares to watch: Automotive Holdings Group (AHG)
The refrigeration logistics business has been a problem child for the company sucking away capital and management time to restructure and make it profitable. The company says it intends to explore capital management initiatives to maintain an efficient balance sheet and minimise its overall cost of capital. This implies a potential pay down in debt and a possible return of funds to shareholders, while no details are provided it could come in the form of a share buyback or a special dividend. This good news is however offset by a trading update. The company provides a trading update for fiscal 2018, which is disappointing, consensus is looking for the company to deliver NPAT growth of 4.2% for fiscal 2018, the company says “As expected, trading in the first four months of FY2018 has been impacted by the regulatory changes to insurance income and continued weakness in the Western Australian market, offset by the strong start in Refrigerated Logistics. Operating NPAT at the end of October was down 3.1%. “ The company’s prior guidance was for a modest uplift in earnings for FY18. They now say the consolidated outlook for FY18 is dependent on the timing and completion on the sale of the Refrigeration Logistics business. We expect this will lead analysts to downgrade their near-term earnings expectations from a modest uplift to flat earnings growth. Tim Montague-Jones | Head of Australian Equity Research
Shares to buy: South 32 (S32)
Recent pullback provides opportunity to buy into uptrend. South32 is a mining and metals company headquartered in Perth, Western Australia. It was spun out of BHP Billiton on 25 May 2015. The company is listed on the Australian Securities Exchange with secondary listings on the Johannesburg bourse and the London market. Often times at Australian Stock Report, we look to buy stocks or other instruments that are pulling back within a broader uptrend. And that is what we are seeing right now with S32. There is a well-defined uptrend in place but the recent pullback, from $3.70 into $3.40, offers the opportunity to be a buyer from a point of value. Price Target: $3.80
Shares to buy: Cleanaway (CWY)
Cleanaway Waste Management is a recycling, waste management and industrial services company operating in Australia. Cleanaway is an ASX top 200 listed company, employing over 4,000 people across Australia. The company recently outlined some key elements that it believes will help it to grow in future. Namely, the CEO pointed to robust and growing revenues, operating leverage and a strong balance sheet. Combine that with the company’s strong network (200 sites and depots, more than 45 major processing plants, over 300 products and services and more than 3000 collection vehicles), and the company has a strong base from which to launch its next expansion. Price Target: $2.00
Shares to buy: Invocare Limited (IVC)
InvoCareLtd. provides funeral services. It owns and operates funeral homes, cemeteries, and crematoria in Australia, New Zealand and Singapore. The company operates funeral homes under brand names White Lady Funerals and Simplicity Funerals. It serves the funeral, cemetery and memorialisationindustries. InvoCarewas founded in 2001 and is headquartered in North Sydney, Australia. After gapping higher on the results in August, the price action has now broken above the May (and previously all-time) swing high. The stock is now trading in clear air and we think that this momentum will continue. Price target: $17.50
Shares to buy: Superloop Limited (SLC)
Superloop is designing, constructing and operating new dark fibre networks throughout the Asia Pacific metro region. The company is building critical core infrastructure for wholesale carriers and global content providers who require infinitely scalable and reliable connectivity. Whilst it takes time to build networks, and for a period it seemed investors had gotten ahead of themselves with respect to SLC, the company appears to be turning the corner. The last 12 months have seen strong sales in Singapore, completion of the HK network, expansion of the Australian network, a bolstered sales team, and a track record of solid sales growth. The stock, like the broader market; hasn't really done much recently. Subsequently, we're looking at a 12-month timeframe (at least) on this one. Price target: $3.00
Shares to buy: Smartgroup Corporation Ltd (SIQ)
SmartgroupCorporation Limited engages in the provision of employee benefits and workforce optimization services. We covered SIQ in our April stock picks document. At that time it was trading around $6.50 and we had a price target on it of $7.50. It is now trading around $9. Whilst the stock has performed well, the company remains highly cash-generative with strong returns, and we can’t see any signs of earnings quality deteriorating. There is also evidence of management buying. So, the fundamental story remains strong and we’re confident SIQ can continue to deliver. After popping higher in August, the stock has spent the past few weeks consolidating around the $9 level. We’re comfortable buying towards this $9 level, with targets to $11.
Shares to buy: Boral Limited (BLD)
BLD is trading at a steep 25% discount to the All Industrials ex-financials on FY18 price/earnings estimates, which is significantly below the historical trading range. This is largely attributable to the proposed acquisition of Headwaters, reflecting the size of the transaction and concerns around coal-linked fly ash and regulatory approvals. In our opinion, investor concerns are overstated. The catalysts that could drive a re-rating include regulatory approvals, delivery on FY17 expectations and evidence of synergy execution. On the technical front, since November last year an uptrend has developed, characterised by a series of higher highs and higher lows. We like the recent compression in the shorter-term EMAs (red) and bounce from the longer-term EMAs (green). This suggests those active in the stock are willing to bid up dips and that longer-term momentum is becoming more bullish. We are targeting a move to $6.50.
Shares to buy: Downer EDI Limited (DOW)
Downer's 1H net profit of $78m beat most forecasts and FY17 net profit guidance was raised 7% - to $175M. The strong result suggests that the earnings recovery is well underway for Downer, and gaining momentum. The recent results release saw the stock pop sharply, up to $7.50. The stock has since retraced to close the gap, finding support in the $6.60 region. Yesterday's action saw a buy signal off this support region and that's our opportunity to consider longs. Traders can be buyers around current levels, with targets to $7.50.
Shares to buy: Fortescue Metals Group (FMG)
FMG recently confirmed that it is on track to hit the top end of its iron ore export guidance, and possibly exceed it, whilst at the same time continue to cut costs. The company also took its unit costs below $US13 per tonne for the first time in the December quarter, with an average "C1" cost of $US12.54 per wet metric tonne. Fortescue has now lowered its cost for a 12th consecutive quarter. The company managed to pay down another $US1 billion of debt in the past quarter and said it held $US1.2 billion in cash at the end of December, while net debt stood at $US4 billion. After reporting another strong quarter of shipments and cost cuts, chief executive Nev Power said shareholders could be in line for better returns. "We need to continue diverting most of our cash flow to repaying debt. But we will progressively look to increase returns to shareholders," he told reporters. The company declared a 12 cents per share final dividend in August, exceeding analyst expectations. It will declare its next interim dividend on February 22. These are obviously all positives for a company that continues to deliver on its guidance, cut costs and pay down debt, and we believe that market will continue to reward FMG by bidding up its shares. Technically, the stock is in a fairly well defined uptrend, where momentum is strong but not currently overdone. Targets are towards $8.
Share to buy: Nanosonics (NAN)
December quarter sales were up 41% on the prior quarter, as North American direct sales gained momentum.
The company's move into the US market seems to be paying off, with gross margins improving significantly.
The next driver of share price could be publication of decontamination guidelines in the UK and Scotland favourable to Nanosonic products.
Technically, the stock remains strong and has broken out to fresh all-time highs recently on rising volumes.
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Nov 2014 - Nov 2016
Our short-term focused Trading Report returned 30.03%, outperforming the ASX/200 Accumulation Index by 23.58%*
DISCLAIMER: *Performance is derived from recommendations provided by Australian Stock Report’s Trading Report, opened on or after date of acquisition in Nov 2014 *Return figures are gross returns and do not take into account fees or brokerage costs. *Returns are calculated based on a $50,000 hypothetical portfolio, risking 2% of the overall portfolio balance ($1,000) as a starting point for each trade. *Due to slippage and gapping, losses can sometimes exceed $1,000 on an individual trade. *Opening and closing prices for trades (and therefore the prices used for determining aggregate profit/loss) will be those published on the Australian Stock Report website and will be determined by the price at which they could realistically be executed in the market at the time the recommendation is published. *ASX 200 Accumulation Index Return is calculated based upon the price of the index at the start of the session on the day the first ASX 200 trade was placed, i.e. 24.11.2015
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