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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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.

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WTF, through the aforementioned websites, offers a variety of services that include flights, insurance, car rental, and travel accommodation and packages across hotels, motels, serviced apartments, resorts, guesthouses and bed & breakfasts. The service allows customers to book rooms at a heavy discount and at the same time help hotels better manage their vacancies.

FY12 impress, while 1H13 disappoints

At first glance WTF’s FY12 results looked good, however when placed in the context of the weak domestic travel market, the results were fantastic. Revenue over the year was up 5%, to $145.3 million. Net profit was $58 million, up 13.8% on the FY11 result.

The results were driven by an increase in accommodation rates and sales, and also some significant growth in WTF’s flight booking service. WTF’s operating profit margin also increased from 56% to 59%, with the group demonstrating good cost control whilst expanding revenue.

On a more disappointing side, WTF said the first quarter of fiscal year 2013 continues to reflect economic weakness. The 1Q13 performance was in line with the 1Q12 and likely to continue for the remainder of 2012.

The group is essentially saying that it expects little revenue or margin growth for the 1H13 as the operations continue to endure a period of prolonged weakness.

The good news

The AGM was not all bad news with WTF announcing its plans to lift its booking commission rate by 1% from 1 January 2013. This will be followed by a further lift of the same amount on 1 January 2014.

The group had $1.16 billion worth of transactions in FY12, and a 1% increase in commissions on this figure would increase of $11.6 million in revenue.

If the group’s strong operating profit of 59% stays consistent, the increased commissions would equate to a pre-tax profit increase of $6.8 million.

Even with flat transaction growth over the next two years, the two sets of increased commissions suggest the company still has the ability to grow earnings.

Outlook

WTF’s FY12 results showed a company that is able to grow earnings even in a tough environment. We think that the increase in commissions starting 1 January 2013 will negate the effect of continued weakness within the domestic accommodation market.

We would also expect some of the increased revenue to be redirected towards expanding into the less mature flight and holiday letting businesses, which has already started to show promising signs. Given the aforementioned factors we feel WTF has plenty of scope to continue growing its earnings, providing further support for the share price.

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The company also delivers a full range of telecommunications products and services to home and business consumers through its retail operations.

Its network infrastructure includes fixed line, fibre and wireless services connecting voice customers with call collection areas throughout Australia and data and internet customers with more than 350 exchange areas.

FY12 results

Last week TPM reported their FY12 results, which showed an EBITDA of $261.4 million, a 12% growth on the prior year. The result was slightly ahead of its upgraded EBITDA guidance of between $250 million and $260 million.

TPM posted a net profit of $91.0 million, a 16% rise on prior corresponding period. The result was hurt by a pre-flagged $23 million one-off tax expense relating to a change in taxation legislation.

Normalised NPAT (which excludes one-off expenses) jumped 46% to $114.2 million. Total revenue over the period lifted 15% to $663.1 million.

Nextgen

Late last month Leighton Holdings announced that it is exploring the sale of its telecom assets, in an effort to reduce balance sheet pressures.

It is believed that Nextgen Networks, which specialises in high performance, premium data services for corporate, government and carrier markets, is on the chopping block.

TPM is reportedly interested in the assets which are expected to fetch anywhere between $500 million and $800 million. We think that the business would be a perfect strategic fit for TPM and could provide some synergy benefits with its current infrastructure.

Given that Nextgen has forecasted for a CY13 EBITDA of $125 million we believe that TPG would be able to acquire the asset completely through debt, given earnings would more than cover the extra debt liabilities.

A capital raising is also a possibility, but given the likely earnings accretive nature of the purchase we can’t see a raising being completed at a steep discount.

Outlook

TPM has been a consistent performer over the last few years, growing earnings in what could only be described as a weak consumer environment.

The group has forecasted EBITDA growth of over 6% for FY13, which we feel is conservative. TPM has a history of conservative estimates with only 6% EBITDA growth forecasted for FY12 and 12% achieved.

The possibility of the purchase of Nextgen is also appealing, given the likely favorable terms TPM would be able to achieve due to Leighton’s need to relieve balance sheet pressures. Overall we think TPM has the capacity for continued growth and this is likely to be reflected in its share price.

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Atlas Iron (ASX:AGO) is an emerging iron ore producer and explorer.

With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company has a significant number of direct shipping ore (DSO) projects in WA. DSO projects are those that are in close proximity to ports, which helps to significantly lower capital costs.

One of the more recent ones, the Mount Dove DSO Project, is expected to contribute to AGO’s shipping tonnes later this calendar year.

Iron ore in spotlight

Iron ore miners have been in focus over the past few weeks due to a combination of factors. Among these is the improving prospect for iron ore.

We don’t believe the current spot price around $142 a tonne reflects what is still a favourable supply/demand dynamic for Aussie miners.

The European debt crisis forced some of the higher cost iron ore miners to cut back production last year.

This is likely to ensure the iron market remains in a supply deficit for a few more years yet, which not only supports prices but provides an opportunity for low-cost producers like AGO to fill the breach.

Also, the Glencore/Xstrata merger proposal has thrown the spotlight on pure play iron ore miners. Given the commodities giants’ lack of iron ore assets, the merger may encourage existing iron ore companies to either consolidate or potentially be the subject to an offer.

Output hit by cyclone

For the December quarter, Atlas Iron reported an 11% quarter-on-quarter fall in iron ore mined.  This was due to Tropical Cyclone Heidi, which impacted mining operations and damaged the Utah Point ship loading facility at Port Hedland.

As a result, AGO downgraded its FY12 production target to 5.5 – 5.7 million tonnes, from the previous 6 million tonnes.  However cash costs were within AGO’s targeted $42/ton-$45/ton range for FY12.

AGO, like other iron ore miners, suffered from a fall in iron ore prices during the quarter. However it also positioned itself to take advantage of a recovery in prices.

The company moved from quarterly pricing of its contracts towards shorter term reference points. This means it is more directly exposed to spot prices, which have trended higher in recent months.

Outlook

Despite last quarter’s operational issues, AGO managed to grow its cash pile from $373 million to $380 million.

With strong operating cash flows and competitive cost of production, AGO has significant capacity to fund development projects such as the Mt. Dove mine.

Although AGO faced a number of headwinds in the December quarter, we think it is well placed to take advantage of a recovery in iron ore prices. Atlas Iron (AGO) is an emerging iron ore producer and explorer.

With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company has a significant number of direct shipping ore (DSO) projects in WA. DSO projects are those that are in close proximity to ports, which helps to significantly lower capital costs.

One of the more recent ones, the Mount Dove DSO Project, is expected to contribute to AGO’s shipping tonnes later this calendar year.

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QR National (ASX:QRN) is Australia’s largest rail freight operator and the world’s largest rail transporter of coal from mine to port for export markets.

QRN is a provider of specialist rail engineering, construction and maintenance services in Australia, operating a network of five terminals and more than 40 depots across five states.

The company not only transports minerals but agricultural goods, and is a significant transporter of grain.

Since being privatised by the Queensland government in November 2010, QRN has been a stock to watch with a large percentage of retail shareholders.

QRN has faced some major headwinds since listing, principally the early-2011 flooding and cyclone in that state.

However, the company proved its resilience by managing to record a healthy FY11 underlying profit despite the impact to coal volumes from the floods.

The expansion into the WA and NSW markets also positions the company well for future growth.

Profit shines despite floods

QRN delivered an FY11 net profit of $349.5 million, which compared to a $36.8 million loss a year earlier when it was still owned by the Queensland government.

QR National faced a number of difficulties last year due to the Queensland floods, yet still managed an 11% lift in revenue and a 35% rise in underlying EBIT.

The growth in earnings was achieved due to the company’s focus on cost management and better revenue quality (more customer-focussed contracts).

With a net gearing ratio of less than 10% at the end of FY11, QRN’s balance sheet was in strong enough shape financially to pursue growth initiatives.

Volumes down, but significant growth potential

The Queensland floods had a big impact on QRN’s coal haulage volumes, and the company is yet to fully recover from the damage.

The slow recovery in Queensland coal volumes necessitates an ongoing focus on cost initiatives as well as pursuing new growth opportunities.

The company has recognised the importance of that second point, and is looking to expand its presence in the NSW Hunter Valley coal region and WA’s lucrative iron ore market.

QRN recently signed an iron ore haulage contract with the Karara Iron Ore Project, which is expected to deliver $900 million in additional revenue over the next ten years.

That is not say QRN has forgotten its core Queensland market.  Asciano and QRN recently signed a multi-year deal with Rio Tinto to haul millions of tonnes of coal from its Queensland mines.

Importantly, this deal will leverage QRN’s $1.1 billion project to expand the Goonyella-Abbot Point rail network link.

Outlook

QRN’s management has thus far proven its ability to grow earnings in periods of turbulence.

A focus on improving operational efficiency paid dividends for the company in FY11, and given the slow recovery in Queensland coal haulage, we would look for similar diligence this year.

Along with cost initiatives, QRN is positioning itself for growth via the Goonyella-Abbot Point project and its expansion into the WA and NSW mining industries.

In our view, the positive momentum will translate into more near-term growth for QRN.

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Saracen Mineral Holdings Ltd (ASX:SAR) is an Australian mid-tier gold producer based in WA.

The company bought its major assets off Sons of Gwalia back in 2006 – when the latter went bankrupt – and has done well to develop the assets and move from an explorer to a producer.

SAR’s key assets are located in the South Laverton mining district, 120km North-East of famed gold mining town Kalgoorlie, in Western Australia. This includes around 200 granted tenements and applications pending spread over 2,500 square kilometres.

Since purchasing these assets, SAR has spent money exploring the tenements and developing the projects to production.

The company completed a Definitive Feasibility Study on the South Laverton gold project in December 2008 and started producing gold in early 2010.

Ramping up

Having started production in April last year, SAR has achieved strong production quite quickly and established itself as an enticing small producer.

The company produced 111,163 ounces of gold in FY11, its first full year of production, at an average cash cost of $738 an ounce.

SAR has forecast production of around 125,000 ounces in FY12 at costs of around $700-$750 an ounce. So far FY12 is off to a solid start, with the company recently releasing its September quarter Activities Statement. Production of 31,790 ounces at cash cost of $730 was right in light with guidance.

By de-watering some of its flooded pits, SAR hopes to ramp up production to over 160,000 ounces a year by 2015.  Management has proven to be conservative and reliable so far, offering some reassurance in what is a speculative sector.

Saracen Mineral Holdings has managed significant upgrades to its gold resources and reserves, presently standing at around 3,300,000oz and 880,000oz respectively.  Most of the reserves are open-pit, which allows for easier and cheaper mining.

The sizeable resources and potential underground mining pave the way for a long mine life, while the company has extensive exploration potential to upgrade this further.

The hunt for Red October

SAR’s has planned to spend $35 million on exploration activities in FY12, a sizeable budget given the size of the company.

The company recently completed a placement, raising $50.2 million and helping the company to end the September quarter with $60.3 million in net cash and no debt. A share purchase plan and subsequent placement have raised a further $15 million since.

Together with cash generated from production (almost $10 million last quarter), SAR will not need to raise significant fresh capital to fund this.

Much of SAR’s exploration efforts will be in exploring its Red October project. The company expects to have completed dewatering the pits shortly, to be followed by underground development work.

Previous drilling results have confirmed the continuity of ore body at Red October and further exploration efforts could lead to significant resource upgrades relatively quickly.

Production from Red October is expected to commence in FY12, but potential major exploration success could provide a major share catalyst before then.

Outlook

SAR only started gold production just over 18 months ago but is already generating output of around 125,000 ounces a year.

Incremental production upgrades could come in the next few years, but the significant upside potential comes from the development of its Red October operation.

While SAR offers significant exploration upside, its existing production provides extra protection, and suggests that the market could re-rate the stock and push SAR shares much higher than current levels.

SAR is a defiantly a stock to watch.

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Nexus Energy (ASX:NXS) is small cap emerging oil and gas producer, with operations focused on the Gippsland Basin, offshore Victoria and the Browse Basin, offshore Western Australia.

In 2009, NXS transitioned from explorer to producer with the start-up of the Longtom gas project.

The Longtom project was plagued by production problems in late 2010 due to the detection of mercury in its gas.  However those issues have since been resolved and the project has been delivering record production of late.

A lot of interest currently surrounds NXS’s 85% stake in the Crux liquids project (15% Osaka Gas-owned), which is Shell-operated and has a reserve estimate of around 75 million barrels of oil.

With liquefied natural gas (LNG) seeing global demand as an alternative fuel source, NXS and its peers are in good standing owing to the LNG boom and recovering commodities market.

The company is in the midst of securing financing for its share of Crux’s development, and a final investment decision (FID) is expected by the end of the year.

The Crux of the matter

Nexus is looking to commercialise the Crux project, but before a FID can be reached, it must secure financing.  The group is currently trying to obtain up to US$1 billion in financing, with the lenders currently conducting due diligence.

Encouragingly, NXS has also identified a potential JV partner for the project, and is expecting a binding proposal in the next few weeks.

NXS’ proposed 35% sell-down of its equity stake in the project, combined with the potential US$1 billion in debt financing, are signs that the group is on track achieve the FID by the proposed target date.

The economics of the project have already been confirmed under varying capex and schedule sensitivities.  Construction of the project is expected to total around $1.78 billion.

Therefore, achieving FID by the target date will help alleviate concerns over NXS’ ability to fund the project’s developments costs.

Whilst the stock has rallied ahead of the FID, we believe the market has yet to fully price in the huge revenue potential of the project (assuming a positive FID).

The Longtom and short of it

In late October, NXS reported Longtom gas production of 6.4 petajoules (PJ), which was 7.4% higher than the previous quarter.

Saleable gas production totaled 6.2 PJ, which was up 6.7% on June quarter output. This drove revenue up from $27 million to $29 million in the same period.

The increase in Longtom output has continued the turnaround in this asset, which faced production issues early in the financial year due to mercury detection in the delivered gas.

The installation of mercury removal equipment has so far allowed Nexus Energy to meet gas nominations under its contract with customer, Santos.

Future growth will come from the exploration of Longtom South, which is a prospect located 4km south of Longtom.

Given the proximity of the two fields, it wouldn’t cost NXS as much to develop Longtom South. If gas is ultimately discovered, it will provide another source of cash flow, thus increasing the company’s value.

Outlook

NXS has had a fantastic turnaround in the past few months, as anticipation builds ahead of its proposed FID by the end of the year.

The company is in the midst of securing financing for the project and is also in negotiations to sell down part of its stake.

That’s not to say either of these will definitely happen, as there is always the chance of NXS failing to obtain the required funding.

However, NXS hasn’t indicated any issues with the FID process thus far.  Therefore we believe the potential payoff from taking a position in Nexus Energy is worth the risk.

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Myer Holdings (ASX:MYR) is one of Australia’s largest department store groups targeting a wide spectrum of consumers.

Myer has a national network of stores in Australia. It retails 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.

A cloudy macroeconomic picture has been a major thorn for MYR and its retail peers in recent times.

However, the RBA’s recent rate cut could be the first sign of a near-term turnaround in the company’s fortunes.

Although MYR’s first quarter sales were weak, we see a pickup in momentum heading into 2012, which makes the stock an attractive proposition around current levels.

Confidence is key

MYR’s troubles have stemmed largely from concerns about the Australian economy, specifically the deterioration in consumer sentiment.

Consumer sentiment has remained weak for much of the past year amid global market volatility and the RBA’s hawkish stance on monetary policy.

This has prompted consumers to save more and cut back on discretionary spending, which has hit the sales of retailers such as MYR and David Jones.

However, things have improved in recent weeks, particularly with the RBA’s recent dovishness translating into an interest rate cut this month.

Consumer sentiment shot up 6.3% this month in response to the rate cut as well as the potential for further easing.

When combined with the Aussie dollar’s recent decline, the economic conditions are ripe for a near-term pickup in domestic consumer spending. This should come as a welcome relief for MYR’s sales heading into 2012.

Deflating trading conditions

Yesterday MYR reported a 3.5% fall in 1Q12 sales from a year earlier to $$681.million. On a like-for-like basis, sales were down 5.1%.

The group experienced a tough trading environment during the quarter, but nevertheless said sales were tracking expectations.  It also reaffirmed its full year forecast for flat sales and a 10% fall in net profit.

This came as a relief to the market, which had feared a worse result given the recent global economic turbulence.

The sales result came on the back of a tough FY11, in which net profit fell 3.6% to $162.7 million. Sales were also down for the year amid challenging retail conditions.

A final dividend of 11.5 cents was declared, bringing the full year dividend to 22.5 cents. Maintaining this dividend in FY12 would result in a robust yield ~9%, but even if the group cuts its dividend by 10% (20.25 cents), it would still deliver a healthy yield of ~8%.

Just how valuable?

Despite MYR’s weak 1Q12, we expect an improvement in sales heading into Christmas as consumers take advantage of the recent rate cut.

Unless Europe’s debt crisis intensifies, the rate cut may also prompt consumers to release pent up demand in 2012, which we see as underpinning a sales recovery for MYR.

Heading into FY13, we see a rebound in both earnings and sales for MYR as the Australian economy gathers steam due to the mining boom.

Myer is currently trading at a deep discount to its rivals, given the poor earnings expectation for FY12.  The group’s current P/E of just 8.9x represents a ~30% discount to its industry average.

However we believe the discount is too deep given the company’s relatively stronger leverage to improving consumer sentiment.

Adjusting the discount to 15%, and using a blended EPS spread over FY12, FY13 and FY14, our fundamental-based price target for MYR is $2.77, which represents good value around current levels.

Outlook

Aussie retailers have been out of favour for a while due to cyclical issues (tough economy) and more serious structural problems (strong AUD and online competition).

Whilst we are cautious on retailers as whole due to those structural issues, there is finally some value in the sector given the potential for an improvement in trading conditions.

The RBA’s recent rate cut could prompt consumers to release pent-up demand, which we believe will benefit retailers with strong operational leverage such as MYR.

Although the group’s first quarter sales were weak, we see a pickup in momentum heading into 2012.

Adjusting MYR’s deep discount to its peers, we have a price target of $2.77, which offers decent value at the current share price, particularly when factoring the healthy dividend yield.

If MYR keeps picking up momentum it will be a stock to watch right into the new year.

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Azimuth Resources (ASX:AZH) is a junior gold and uranium explorer, with projects based in Guyana and South America.

The group holds approximately 8000km² of gold tenements in Guyana, and its main asset is the West Omai gold project, which it is currently exploring.

AZH’s other interests are the East Omai gold project, the Amakura uranium project, and the Pandanus West uranium project in Australia.

The company is an exciting prospect that has produced encouraging drilling results at West Omai. There is growing hope that the group’s maiden resource discovery will be significant enough to help underpin the start of production.

Go Guyana

The West Omai project is AZH’s flagship project, and which may contain the discovery of significant gold resources.

West Omai is part of the same corridor that hosts the Omai gold mine, which is the biggest gold mine in South America, having so far produced 3.7 million ounces of gold.

Azimuth Resources is expected to release a maiden resource estimate from the project sometime this quarter.

Given West Omai’s proximity to the Omai gold mine and the encouraging drilling results thus far, a significant resource discovery could be on the cards.

Gold shoots higher

Being an explorer, AZH is tightly leveraged to gold prices.

Although gold was sold-off heavily in September, the precious metal has bounced back strongly in recent weeks amid global economic uncertainty.

The spot price of gold is back above US$1750 an ounce after crashing to just above US$1500 in late September.

Europe’s debt crisis and the potential for another round of bond purchases by the Fed is likely to lure more nervous investors back into gold, which is likely to support prices further.

Such an outcome would be very beneficial for AZH.

Balanced out

AZH completed a $19.4 million capital raising on 31 October, giving it the balance sheet strength to pursue its Guyana exploration program well into 2012.

The raising has come at an ideal time for AZH, which has smartly taken advantage of its strong share price to shore up its finances.

The group also announced plans in April 2011 to list on the Toronto Stock Exchange.

The listing is expected to boost AZH’s global profile, which will come in handy when the group looks at future capital raisings.

Outlook

AZH an exciting prospect that has produced encouraging drilling results at its West Omai project.

The group is expected to release a maiden resource estimate from the project sometime this quarter, and there is hope the estimate will be significant enough to help underpin the start of production.

AZH’s fortunes are closely linked to the price of gold, and with the precious metal on track for continued gains, we believe this will translate into continued strength for AZH’s share price.

This is one of the hot stocks of the year, rising from 25 cent in June to currently be trading beyond 50 cents.

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