As featured in the Herald Sun on June 9th 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.

Buy Shares

Next DC (NXT) – Data-centre company is now approaching profitability. The sale-leaseback of its properties will provide NXT with the cash to pursue opportunities in this high-growth industry.

Ardent Leisure Group (AAD) – Expect FY13 results to surprise to the upside, driven by strong growth and margins in the US and at its local Health Clubs division.

Hold Shares

Regional Express (REX) – Facing rising costs, but this solid performer remains the pick of the airline sector. Trades on a P/E of just 8x and a div yield of almost 6%.

Iluka Resources (ILU) – Experiencing a tough FY13, with demand and pricing soft. However potential sale of iron ore royalties a positive and will strengthen the company’s financial position.

Sell Shares

Beach Petroleum (BPT) – Mid-tier energy producer is struggling under increasing costs. Potential stagnation by Chinese economy could overshadow BPT’s recent supply deal with Origin Energy.

Invocare Limited (IVC) – Acquisitions have driven growth and investment portfolio has appreciated but stock looks significantly overvalued at current prices.

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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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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:

›	Delivering on the cost savings targets of $10 million in 2H13
›	Restore returns in core businesses through debt reduction
›	Continue debt repayment at circa $10 million per month
›	Continuation of divestment program

 
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.

Transpacific was issued as a share to buy to our members on March 28th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only TPI but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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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.

JB Hi-Fi was issued as a share to buy to our members on March 27th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only JBH but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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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.

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Sims Metal Management (SGM) collects, sorts and processes scrap metal materials that are recycled for resale.

The company’s divisions include ferrous recycling, non-ferrous recycling, secondary processing of non-ferrous metals and plastics, international trading of metal commodities and the merchandising of semi-fabricated steel products.

SGM has operations in Australia, New Zealand, the United Kingdom, North America, Asia and Europe and is the world’s largest listed metal recycler with approximately 270 facilities and 6,600 employees globally.

The company is currently in a global search for a new CEO after current CEO Daniel Dienst announced he would retire when his contract concludes on June 30 2013.

1H13 Results

The group’s 1H13 results were disappointing to say the least. Revenue came in at $3.4 billion, a 25% decline on the prior corresponding half, due to a reduction of intake shipments in North America.

SGM reported a 1H13 net loss of $295.5 million, 53.3% better than the prior corresponding period’s $633.2 million loss. The result was attributed to goodwill impairments and inventory writedowns totalling $291.3 million.

On an underlying basis, the group did record a $10 million profit, although the rest was down from $42 million a year earlier. Given the poor result, management decided not to declare a dividend for the first half – the first time the company has not paid an interim dividend since listing.

US and UK Businesses

On 21 January 2013, SGM announced that it will form a special committee to investigate the inventory valuation issues in the company’s UK business.

The result of the committee’s investigation was a $78 million write-down of inventory, of which $16 million was allocated to 1H13 and the remaining balance resulted to a restatement of prior period results.

The write-down represents a massive 29% of the value of inventories in its UK business. That trouble does not stop in the UK.

SGM’s US division, which contributes around 60% f the group’s overall sales, also suffered impairment charges in the first half. The company recorded a goodwill impairment charge of $291 million in the 1H13.

Excluding the write-downs, the US business barely made a profit, reporting an underling EBIT of $2.1 million–a 30% drop from the prior corresponding period.

Looking ahead

The outlook does not look pretty for SGM, at least in the short-term. The $78 million writedown on its UK inventory is extremely alarming because it shows the company’s lack of adequate financial controls in relation to its inventory reporting.

It also brings into question the company’s financial controls in other regions and raises the possibility of further write-downs. Poor management has led to the decision not to distribute a dividend for the first time since it listed, which does not bode well for shareholder confidence.

Moreover, the group downgraded its guidance three times in 2012. Without a significant pickup in US economic activity, we cannot see this year being any different. As such, we feel there is more downside to SGM’s share price in the near-term.

Seek Limited was issued as a share to buy to our members on March 22nd, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only SGM but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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Seek Ltd (SEK) is a provider of online employment services in Australia and New Zealand, but it is also expanding its interest globally. The company’s three main divisions are:

›	Seek Employment, which focuses on the online Australian and New Zealand employment
›	Seek Education, which incorporates Seek Learning and Think Education
›	Seek International, which includes significant interests in overseas online employment based websites

 
The company is the dominant player in the Aussie job ads market. However, with a slowdown in the domestic market, the international and education divisions are the group’s major drivers.

1H13 Results

The group’s 1H13 results were a solid improvement on the prior corresponding period, with a few of the key highlights being:

›	Revenue growing 32%, to $275.3 million
›	EBITDA up 20% to $89.8 million
›	Interim dividend increase of 20% to 10 cents a share

 
Seek’s EBITDA margin did fall from 43% in 1H12 to 39% in 1H13, but this was the result of the company obtaining a controlling interest in Brasil and OCC. Without these inclusions, the group’s underlying margin stayed steady at 43%.

The company had $96.5 million on hand at the end of the December half, helped by operating cash flow increasing 5.3%. Overall, the group reported great results despite the challenging macro conditions experienced in the half.

Growth

The above shows the group’s solid history of growing its revenue, much of which has been driven by its domestic business.

With online employment volumes under increasing pressure, the group has turned its focus to international expansion for growth. The group’s approach to this expansion was to target high growth regions.

In the first half of the fiscal year, the group took controlling interest of OCC (Mexico) and Brasil Online (Brazil), both the leading online employment sites in their respective countries.

SEK is also in the process of taking a controlling interest in JobsDB (Asia based) and Zhaopin (China), both are leading online employment sites in high growth areas with increasing internet penetration.

Outlook

SEK’s 1H13 was solid, especially given that its main domestic business experienced an 11% decline in volumes. The key take away from the results was the group’s ability to make up for domestic weakness via its growing international footprint. We particularly like SEK’s approach in this area with the company targeting the high growth regions of Asia and South America.

While domestic volumes are likely to be subdued, its international expansion will see the company’s earnings and share price continue to grow.

Seek Limited was issued as a share to buy to our members on March 13th, if you would like further information you can sign up for FREE share recommendations and access all our research files on not only SEK but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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Amcom Telecommunications Limited (AMM) is a fiber-based telecommunication service provider. AMM has three key business segments; Fibre, Business Services and Amnet.

The Fibre division provides a comprehensive range of high speed products to blue chip corporate clients, government agencies and other telecommunication providers through its own extensive fibre network in all main capital cities across Australia.

Business services offers voice services, data centre management and managed IT services. The Amnet division supplies a variety of communication products with the principal focus being broadband services.

1H13 Results

AMM has an extremely good track record when it comes to growing its earnings, and its 1H13 result was no different. The company recorded an underlying net profit of $10 million, a 20% increase on 1H12. The

Revenue over the year jumped 43% to $136 million, with the November 2011 acquisition of L7 solutions contributing $36.5 million. The uplift in earnings was due to strong organic sales growth from the group’s core data networks and expanded hosted and cloud services offerings.

The group is also showing the ability to increase its recurring revenue base, with the annuity streams of the business at $97 million at 31 December 2012, up from $90 million at June 2012.

AMM also paid an interim dividend of 2 cents a share, a 11% jump on the previous interim payment.

L7 Solutions and the Fibre business

The group acquired L7 Solutions in November of 2011, but is still unlocking many of the synergy benefits that it promised upon acquiring. FY13 will mark the first full year of L7 being integrated within the AMM business, and we expect further opportunities to emerge, especially as group moves into the cloud services space.

The group is expanding its Fibre network, and as it grows, economies of scale will seep through, as shown below by the decreasing capital expenditure per $1 of revenue created.

Outlook

At the release of its 1H results, the company reiterated its FY13 underlying earnings guidance of at least 20% growth. We believe this forecast is achievable considering the company’s history of growing earnings by well over 20% year-on-year over the last 10 years.

As the company grows, its economies of scale benefits will begin to show in all areas, as it has already in the fibre division.

Given the group’s relatively small market share we believe that a combination of organic growth and acquisition based growth (L7 Solutions) will hold the company in good stead in the coming years.

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

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Westfield Group (WDC) is the world’s largest listed retail property group. 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

Today 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.

Buyback extended

WDC declared a final distribution of 24.5 cents, bringing the full year distribution to 49.5 cents. This was a 2.3% increase on FY11’s distribution. The group forecast an FY13 distribution of 51 cents, representing a yield of 4.5% at current prices.

Although this is not as high as some other high yielding stocks in the market, WDC did extend its share buyback for another 12 months, a move likely to provide a good degree of support for the share price.

Outlook

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, providing plenty of scope for WDC to continue delivering steady profit growth.

With the US economy continuing to heal from the GFC, we expect stronger retail activity in the group’s largest market. In our view that will help drive the share price higher in the near-to-medium term.

This article was distributed to our members on February 27th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only WDC but all our current trading ideas. Simply click here and starting trading today.

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