The company has three main investment funds:

 
1H13 results

MFG’s 1H13 results were amazing. Revenue came in at $32.9 million, a 112% jump on the same period in FY12. Net profit was $20.9 million, a staggering 195% increase on the prior corresponding period.

The group’s operations over the period were characterised by further growth in funds under management, the strong investment performance of its managed investment funds, and further improvement in the group’s net assets per share.

Performance fees and funds under management

The group has two main sources of income, one via management fees, which are set between 1.25% and 1.35% of funds under management.

The other is via performance fees, which are calculated on a six monthly basis at 30 June and 31 December with MFG earnings fees on the excess return (the total return of the fund above the respective benchmark).

 
The performance fees has been the main driver of MFG’s earnings given the fund’s ability to outperform the benchmark – the Magellan Global fund has outperformed on average by 10.2% a year since its inception.

The group has also enjoyed strong inflow of funds, with $1.55 billion added in May alone.

MFG’s funds under management now stands at an impressive $12.9 billion, a massive increase from a year earlier where it held $3.7 billion.

Outlook

MFG has steadily been growing funds under management over the last few years and we see this continuing.

The group has already a received a $396 million mandate from an institutional global equities firm, which commenced the first of this month. We expect continued inflows and performance fees to drive MFG ‘s share price to new heights.

Newcrest was listed as a share to buy for our members on June 14th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

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NCM’s main operations are in Australia, Indonesia, Papua New Guinea, Fiji and West Africa. The group’s flagship mine is PNG-based, Lihir, with the other offshore operations being Gosowong in Indonesia, Hidden Valley (50%-owned) in PNG and Bonriko in Ivory Coast.

NSW-based Cadia Valley and WA-based Telfer make up the company’s domestic operations.

Gold price plunge

Gold holdings at exchange traded funds (ETFs) have fallen significantly in 2013, with the drop in bullion holdings reflecting a dramatic fall in investment demand.

The plunge in gold prices has encouraged China and India, as well as the US and Perth Mints, to ramp up their physical purchases of bullion. However we believe the surge in ETF-related supply is overwhelming any physical demand for the precious metal.

The spot gold price has plunged 16% in the year to date amid a sharp deterioration in sentiment towards the precious metal. Global inflation remains low whilst the US central bank has flagged an end to its monetary stimulus measures sometime this year in response to a strengthening US economy.

We expect these headwinds to persist for a while yet, resulting in an environment where any short-term gain in gold prices is met by even stronger selling.

Higher cost mines threatened by gold

NCM is one of the higher cost gold producers in Australia. Cash costs were $1086 an ounce (oz) for the March 2013 quarter, with a number of its mines plagued by operational issues.

Telfer, which accounts for a quarter of overall production, had cash costs of $1162 an ounce.

This was 27% higher than the previous quarter due to weaker copper output, planned mill shutdowns and the sourcing of ore from higher cost open pit sources.

The group’s offshore mines, Gosowong, Hidden Valley and Bonriko, contribute around 20% of overall production. Cash costs at these mines were $806/oz, $1790/oz and $930, respectively.

With gold prices currently trading around $1400/oz, Hidden Valley has become uneconomical and Telfer’s cash margins are very tight, magnifying the threat of impairment charges at these mines.

Outlook

A major problem for NCM and other higher cost gold producers is the impact plunging gold prices are having on mine profitability. Mine shutdowns and weaker output contributed to a big rise in quarterly cash costs at Telfer, whilst Hidden Valley has become uneconomical given how much cash costs exceed current gold prices.

We believe there is more weakness in store for gold prices, raising the threat of write-downs at NCM’s high-cost mines.

Newcrest was listed as a sell share for our members on June 5th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

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The group comprises of the following three business groups:

>> Engineering Construction, which includes Electrical and Instrumentation Services
>> Maintenance and Industrial Services
>> Infrastructure, which includes Aviation Support Services

1H13 results

MND’s positive first half results have been largely overshadowed by a severe slowdown in tendering activity among the major contractors.

The group’s 1H13 revenue was up 46.6% on-year to $1.3 billion, coming on the back of a surge in construction activity.

However, EBITDA margin declined 60 basis points from 1H12 as the bidding war between mining services companies lowered contract tender rates (similar to how retailers reduce prices to win sales).

Worsening industry conditions have seen Boart Longyear (BLY), Transfield Services (TSE) and UGL Ltd (UGL) all issue profit warnings in recent weeks.

In addition to revenue, the sharp decline in industry activity is likely to pressure MND’s operating cash flow (OCF).

MND’s OCF slid 37% from the prior corresponding half, and we expect another decline in the current half as weaker revenue squeezes the company’s cash intake.

Chinese growth concerns dims outlook

Unfortunately, we see MND coming under increased pressures in near term as industry activity slows in the face of a weakening Chinese economy.

Chinese GDP rose just 7.7% in the year to March – weaker than economist estimates.

Furthermore, the Chinese manufacturing sector entered contraction territory in May for the first time in seven months, according to the HSBC Flash Manufacturing PMI.

There appears to be an emerging consensus that the resources boom has peaked, putting mining services contractor in an uncomfortable situation where they face lower profit margins.

We expect MND’s own margins to come under further pressure as revenue growth slows and cost-cutting initiatives take time to play out. We don’t think it can repeat 1H13’s solid result, with revenue likely to suffer amid reduced tendering activity.

Monadelphous Group was listed as a sell share for our members on June 3rd. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

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FMG’s holdings in the region cover close to 85,000 sq km, with resources estimated at 13.2 billion tones.

Iron ore outlook

In the last three months of 2012 the price of iron ore soared over 70%. The move was the result of increased demand from China and several high-cost Chinese miners shutting operations.

The chart above shows the price of iron ore prices since the start of this year. Since the February 2013 high of US$159.9 per tonne, the price of iron ore has decreased around 30%.

The main contributor to the weakness in iron ore markets has been the slowing growth in China.

China, which accounts for approximately 60% of global iron ore demand, is facing slowing growth as evident by the recent manufacturing sector data.

The HSBC Purchasing Managers Index (PMI) returned a reading of 49.6 this month, worse than the 50.4 expected by economists. A reading below 50 indicates that the sector is contraction rather than expansion.

Outlook

FMG has a strong long-term production outlook, with the company planning to triple its production over the next few years. The problem with this is that Brazil-based Vale – the largest iron ore miner in the world – is also expanding along with Rio Tinto and BHP.

There is going to be a major amount of new supply entering the market over the next few years, and with the China demand story not as compelling as it once was, we could easily see a structural surplus in the iron market.

This is likely to further pressure iron ore prices, leading to further share price deterioration for FMG.

Fortescue Metals was listed as a sell share for our members on May 30th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

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The group’s main assets are located in Ghana and the Ivory Coast, consisting of the Edikan Gold Mine (EGM), the Tengrela Gold project (TGP) and the Grumesa Gold Project (GGP).

The Edikan Gold Mine in Ghana has 5.6Moz of Measured and Indicated gold resources, including reserves of 3.4 million ounces of gold, and 1.7Moz Inferred gold resources. Production began at the mine in the 3rd Quarter of 2011.

The Sissingue Gold Project which is part of the Tengrela Gold Project. It is the group’s most advanced non-producing project.

Bearish outlook for gold

Gold holdings at exchange traded funds (ETFs) have fallen significantly in 2013. The drop in ETF holdings highlights the extent to which investment demand is weakening.

Inflation expectations have eased considerably in recent months as the world economy fails to gain traction despite coordinated central bank quantitative easing programs.

Below we graph the trend in ETF bullion holdings since the beginning of the year:

As we can see there have been major outflows in recent months, with the surge in supply overwhelming what demand remains for the precious metal.

Whilst physical demand from China and India is expected to continue and may even strengthen to take advantage of collapsing prices, we fear it won’t be enough to ignite a meaningful rally in gold prices.

Weak March quarter

PRU revealed a 12% increase in 3Q13 gold output (from 2Q13) to 57,169 ounces. This helped drive a 7% lift in revenue from the previous quarter to $77.2 million

Worryingly, quarterly cash costs were US$1132 an ounce (oz), up 7% from the previous quarter. PRU guided for cash costs of US$1,100/oz for the six months ending June 30, 2013.

At a time of falling gold prices, PRU’s elevated cash costs are translating into smaller cash margins, negatively impacting overall profitability.

This was evident in the March quarter, where PRU reported a net loss of $892,000. This was in stark contrast to the $15.1 million profit recorded for the December 2012 quarter.

PRU cannot afford more quarters like the previous one, but given how sharply gold prices have fallen since then we expect to see another weak result for the current quarter.

Outlook

Gold prices have suffered a dramatic decline of almost 18% since the beginning of the year. Higher cost producers are expected to be hit hard by the slump in prices.

PRU swung to a net loss in the March quarter amid a spike in operating costs. With cash costs to remain elevated through to the end of FY13, we fear the company is tracking for an even bigger loss in the current quarter.

This is likely to translate into continued share price weakness for the group.

Perseus Mining was listed in the traders report as a sell share for our members on May 22nd. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

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The Drilling Services business provides drilling services to the mineral exploration, development and production, environmental, infrastructure and energy markets.

The Drilling Products business designs, manufactures and sells drilling equipment such as drills and support systems, as well as bits, rods and all requisite tooling.

Industry conditions worsening

The mining services sector has been battered in recent times amid concerns over China’s slowing economy.

Chinese GDP rose just 7.7% in the year to March – weaker than economist estimates. Industrial production also grew a less-than-expected 8.9% annual rate in March.

Furthermore, Chinese manufacturing activity slowed in April, signalling the weak economic growth in the first quarter is continuing into the current quarter.

A slowdown in our resources sector will have negative consequences for related industries such mining services.

Indeed, these fears are being realised with engineering services providers, UGL and Sedgman Limited (SDM) downgrading profit guidance today. Amid difficult trading conditions SDM specifically pointed to delays in mining investment approval and underutilised assets.

SDM’s downgrade followed similar profit warnings from Ausdrill (ASL) and Emeco Holdings (EHL) last month.

Although BLY is one of the more established drilling services providers in the market it is by no means immune to the currently challenging operating environment.

Outlook

Following a positive start to FY12, BLY was buffeted in the second half of the financial year by a sharp slowdown in the mining cycle. Conditions have worsened since the end of 2012, with commodity prices plunging in April and no let up in sight as concerns over China mount.

Roughly two third of BLY’s drilling services revenue is linked to gold and copper. Bullion prices have eased considerably in recent months, squeezing cash margins of explorers and mid-to-small tier producers.

Copper prices have also taken a hit, down around 12% in the past three months. Lower profit margins will likely force copper and gold producers to curtail capex spending.

The implications for BLY include another weak first half result, characterised by lower revenue and earnings.

Borat longyear was listed in the traders report as a sell share for our members on May 15th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

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IIN has built its own network (the iiNetwork), boasts the largest Voice over IP network in the country, abolished monthly phone line rental with Naked DSL and has released wireless modem-and-phone-in-one BoB to the world.

The firm was included in the ASX 200 in 1999 and employs about 2,000 people at present.

The group’s strategy to increase its value is to grow organically and inorganically. IIN recently acquired TransACT in 2011 and Internode in 2012. These acquisitions are expected to deliver considerable synergies to the firm in the coming years.

Recent Results

In its 1H13 report, the firm’s NPAT increased to $31.9 million, 122% higher compared to the prior corresponding period.

Aside from the aforementioned, one of the main highlights of the recent report is the significant 73% increase in the firm’s EBITDA compared to the 1H12. This translates to a 35% improvement in the firm’s EBITDA margin from the prior corresponding period. The solid results were primarily due to the strong organic growth and synergies realized from its acquisitions.

Below are charts of the firm’s reported EBITDA and reported NPAT performance in its 1H13 results. One can easily see the vast improvement from the 1H13 results compared to the 1H12.

Peer Comparison

Despite the recent rally IIN’ share price, the company stacks up rather well when compared to its peers.

IIN is trading on a forward P/E of 16.8x.

This compare to peers Amcom (AMM) and TPG Telcom (TPM) which are trading 22.1x and 19.6x next year’s earnings.

IIN’s forecast dividend yield is around 3.8% more or less in line with AMM’s and higher than the 2.5% forecast for TPM.

Outlook

As previously mentioned, the firm’s recent acquisitions are expected to deliver synergies to the firm.

More importantly, both TransACT and Internode has a solid customer base, which will translate to higher potential earnings growth in the coming financial years.

Some of the benefits from the acquisitions have already manifested in the firm’s recent 1H13 results. We expect the firm to realize the full benefits from the aforementioned in the medium to long term.

Moreover, the firm has been successful with increasing its market share on the back of competitive rates, attractive combination of services, and its acquisitions.

Iinet was listed in the traders report as a buy share for our members on May 13th. For all of our latest share tips and trading ideas sign up for FREE 7 Day Trial and gain full access our research files.

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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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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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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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