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.

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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.

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Kingsgate Consolidated (KCN) is a gold miner, operating in South East Asia, South America and Australia. The company’s major operation is the Chatree Mine in Thailand, and it also has the smaller Challenger Mine in South Australia.

Rising cash costs squeezing margins

In late January, KCN revealed a 13.4% slide in 2Q13 gold output relative to the same period a year earlier. Compared to 1Q13, gold output rose slightly by 4%.

Production was affected by the temporary closure of the Chatree North Expansion Plant (Plant 2) and interruptions at Challenger following the establishment of two new mining fronts.

The biggest disappointment with the result was another rise in the group’s cash costs. Cash costs rose 37% from 1Q13 to US$975/oz. However, compared to 2Q12 costs surged 60%.

KCN attributed the cost squeeze to lower ore grades at Chatree and ore sourced from an area of Chatree’s Pit A that was known to have lower recoveries.

The poor 2Q13 production result contributed to a 76% slide in 1H13 net profit to $8.1 million. Revenue was up 10% on-year, however the growth was driven primarily from stronger gold sales. Weaker output from Challenger and a lower realised average gold selling price detracted from the growth in revenue.

Gold prices trending down

The price of gold has weakened noticeably in recent months. Spot gold is trading around 7% below KCN’s 1H13 average realised selling price of US$1676.

The outlook for the precious metal has declined amid signs of weakening physical demand and diminished prospects for further monetary easing. In an example of waning demand, the US Mint sold 62,000 ounces of American Eagle gold coins last month.

This was much lower than the sale of 80,500 ounces in February and 150,000 ounces in January. Holdings in gold-backed exchange-traded funds are also 6.9% weaker in the year-to-date.

Furthermore, with the world economy stabilising, central banks like the US Federal Reserve are less inclined to implement additional monetary easing measures.

In our view these are among the key factors that will handicap gold prices, and by extension, KCN’s revenue growth.

Outlook

KCN stuck to its FY13 gold production guidance of between 200,000 and 220,000 ounces. 1H13 production totalled 90,413 ounces, meaning KCN is relying on stronger 2H13 output numbers in order to meet its guidance. Although Chatree’s Plant 2 is now back online, development at Challenger is expected to continue.

Also, the limited availability of stoping areas at Challenger the company highlighted in its 2Q13 production report indicates difficulties accessing the ore body being mined. Therefore we don’t share KCN’s optimism that full year production guidance will be met.

Moreover, the upward trend in its cash costs is coming at a time when gold prices have been retreating. This is creating pressure on cash margins and will ultimately translate into poor earnings in our view.

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Transpacific Industries (TPI) is a recycling, waste management and industrial services company operating in Australia and New Zealand.

Its clients range from small businesses to larger commercial and industrial companies. The group’s core responsibilities include recycling solutions, waste management services, parts washing equipment and waste oil collections.

1H13 result

Despite a poor 1Q result, TPI’s 1H13 result were solid. The group’s revenue improved to $1.16 billion, a 3.8% increase on the prior corresponding period.

TPI’s 1H13 NPAT of $32.3 million, was up significantly from the $7.8 million reported in 1H12. Disappointingly, underlying EBITDA did fall 3.6% over the period to $120.1 million.

The decrease in EBITDA was largely the effect of overall volumes decreasing 24%. NSW volumes, being the main culprit, were down 55% mainly due to the landfill levy differential between NSW and Queensland.

Most of the company’s upside came from its Commercial Vehicles division, with revenue up 16.6% to $228.1 million.

Alleviating debt concerns

The balance sheet has been, and still is, a key source of uncertainty for TPI. The group has been trying to rectify this with a raft of cost savings and debt reduction initiatives.

To this end, TPI reduced its net interest expense by 24% from the previous half to $54.9 million. The company also reduced its operating costs by $5 million in the first half with a further $45 million targeted over the next two and half years.

Outlook

The group’s first half results were solid and while the company has not provided any specific guidance for the second half, it mentioned that it expects similar conditions the first half.

The group outlined several key priorities for the remainder of the financial year:

 
The company is well on its way with its cost saving efforts, with 200 management positions currently under review. If TPI can execute its priorities in this financial half, then we believe that the market will continue to push the company’s share price higher.

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JB Hi-Fi (JBH) is a chain of electrical stores, selling leading brands of hi-fi, speakers, televisions, DVDs, cameras, car sound, home theatre, computers, white goods, portable audio and a variety of music, games and movies.

The company has been able to grow its sales over the last 5 years in what can only be described as one of the most difficult trading conditions for retailers in over 20 years.

JBH’s strategies for growth are simple: increase the number of stores, increase sales, and through that, increase profit.

JBH’s expansion is not only in the Australian market, but also in New Zealand. Since entering the New Zealand market in early 2007, it has opened 14 stores.

1H13 Results

JBH’s 1H13 results impressed on several fronts. Sales for the six months to December 31 were $1.81 billion, up 3.1% on the prior corresponding half.

Net profit was $82.1 million, up 3% on the 1H12 result. The group also declared an interim dividend of 50 cents per share, fully franked. This equates to a solid yield of around 6.5% at current prices.

Perhaps the most surprising number released by JBH was its gross margin, which rose by 28 basis points. This number is made even more impressive when it is compared to competitor, Harvey Norman, whose gross margin dropped 260 basis points over the same period.

Consumer environment

The operating environment for the retail sectors has been subdued over the last few years, but this appears to be abating. The latest release of the Westpac Consumer Sentiment survey, showed the consumer sentiment index rising 2% to 110.5 in February.

It is the highest level the index has reached since the end of 2010. A reading above 100 indicates that more consumers are optimistic about the economy rather than pessimistic, with the index having been in the positive territory for the past five months.

There are likely a few reasons for the uplift, with the RBA cutting the cash rate to 1.75% between November 2011 and December 2012, probably the key reason.

Looking ahead

JBH’s 1H13 results showed sales growth and more importantly, expanding margins. While these expanding margins initially helped the company’s profitability, they will be more significant when industry wide sales growth return to trend.

Retail sales figures in January already have hinted of such a return, with an increase of 0.9% from December. Confirming these retail numbers, JBH noted that its sales climbed 11.7% during January (4.2% like-for-like sales growth).

With the consumer sentiment reading at all-time highs and sales growth starting the year off with such a strong number, we see a solid result ahead for JBH, which should translate to further share price appreciation.

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Super Cheap Auto (SUL) is Australasia’s leading retailer of automotive and boating, camping and fishing products.

The company boasts a number of brands, including Super Cheap Auto, BCF Boating/Camping/Fishing, GoldCross Cycles, Ray’s Outdoors and Rebel Sport.

1H13 Results

The group’s recent 1H13 results were a solid improvement on the 1H12 results.

Revenue rose 37% to $1.04 billion, helped by strong Like-for-like (LFL) sales. LFL sales for SUL’s Supercheap Auto division were up 5.2% while its Leisure and Sports divisions sales rose by 2.8% and 8.3% respectively.

The group’s underlying earnings EBIT and NPAT increased 35% and 30% respectively compared to the prior corresponding half. On the back of the strong result, the group was able to increase its interim dividend by 31% to 17 cents per share, fully franked.

Operating metrics

SUL has a history of delivering healthy returns, with its return on equity (ROE) averaging 19.2% since 2008. The group has also grown its half-year revenue by an average rate of 18% over the last five halves.

Moreover, while many retailers have been suffering margin contraction, SUL’s EBIDA margin has risen over 140 basis points. These are extremely impressive results given the tough retail-operating environment over the last few years.

Looking ahead

Going forward, we expect SUL to deliver more robust revenue and earnings growth. The company has shown solid same stores sales growth, with an ability to control costs through supply chain initiatives.

We believe SUL’s good supply chain management will be essential, especially given the company long-term aim to open another 40 Super Cheap Auto stores, 44 more stores in Leisure and 59 more stores in Sports.

Overall, we see continued growth for SUL’s business, which should translate to further gains for SUL’s share price.

Super retail group was issued as a share to buy to our members on March 25th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only SUL but all our current trading ideas. Simply click here and starting trading today, free for 7 days.