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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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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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.

Myer was issued as a share to buy to our members on April 9th, if you would like further information you can sign up for FREE share tips and access all our research files on not only MYR but all our current trading ideas. Simply click here and starting trading today, free for 7 days.

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.

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.

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.

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.

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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.

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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:

 
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:

 
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.