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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Mirvac Group (MGR) is an internally managed, diversified property group.

Since the company sold its hotel management business in December 2011, the company comprises of two core divisions, Investments (MPT/MRES), which is a trust structure and includes office and retail portfolios. The division also includes its Investment Management arm. Development, which develops a variety of property types including, residential, apartments, master planned communities and commercial.

MGR has been undertaking a restructure of its business with a focus on de-risking its earnings stream.

1H12 Results

Last week MGR reported its results for the six months to December 2012, which we think showed some promise of things to come. Statutory profit was $55.2 million for 1H13, impacted by $273 million of inventory impairments.

Revenue was $619.4 million, a 7.1% decline on the same period a year earlier. On an operating profit basis – after tax but before specific non-cash items and significant items – the company made $194.2 million, a 3.6% decline on the previous corresponding period.

Although a decline in profit, it is important to note that the company did increase its operating margin by 120 basis points. The increase in margin was on the back of a higher price received for it development projects.

Tangible Book and Yield

On the back of revaluations in the half, MGR’s NTA increased to $1.64 per share. At the group’s current price it is actually trading at a 1.2% discount to this level as opposed to the property sector which is currently trading at a 16% premium to NTA.

At the release of its first half results the group declared a healthy distribution of 4.2 cents per stapled security and confirmed its full year distribution of between 8.5-8.7 cents per security (cpss).

This equates to a yield of 5.3%, which is slightly higher than the property sector’s average 5.2% and higher than its comparable peers Lend Lease and Goodman Group which are both expected to be around 4.3%.

Looking ahead

Despite a slight decrease in MGR’s 1H earnings the company is looking in much better shape, especially on a balance sheet level. The group’s gearing dropped from 27.4% in 1H12 to 23.8% in the 1H13 and impressively dropped its average borrowing cost from 7.6% to 6.4%.

We believe this will see ratings agencies upgrade the group’s BBB credit rating, with the flow on effect being a further reduction in borrowing costs. In the 1H13 results MGR reaffirmed is guidance of an operating EPS of 10.7-10.8cpss   and DPS of between 8.5-8.7 cpss, which would be a solid result.

We think that tight costs controls as shown by increased operating margins, a solid distribution yield and the chance of the ratings upgrade will see the current divergence in price to NTA between MGR and the rest of the property sector decline over the next few months.

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STW Communications (SGN) is Australasia’s largest marketing communications group, comprising over 75 specialist companies.

Through its subsidiaries, SGN works with Australasia’s biggest brands and some of the world’s biggest companies, including IBM, Ford, Panadol, Bendigo Bank, PepsiCo, Hyundai, Castrol and Dick Smith, to name just a few.s.

The acquisitions

In late October 2012, the company announced plans to acquire three companies, paid for via a $40 million capital raising. Markitforce (75% SGN ownership) is a leader in promotional campaign execution and point of sale fulfilment for local and global clients, with clients such as has Unilever, L’Oreal and Boehringer Ingelheim.

The acquisition will strengthen SGN’s execution capabilities and offer it exposure to the attractive retail and shopper marketing segment, which only adds to its already well diversified portfolio.

Maverick Marketing and Communications(Maverick) (80% SGN ownership) is a leader in experiential marketing from strategic and creative development through to execution. It has clients such as, Telstra BigPond, Coca Cola, Westpac, Bonds, Target and Vodafone to name a few.

The acquisition will provide SGN with experiential marketing capabilities, but we think it will provide a great opportunity for SGN’s current companies to leverage Maverick’s client base.

Switched on Media (SOM) (75% SGN Ownership) is a digital agency specialising in search engine marketing and social media. SOM’s client base includes Canon, Fairfax digital, Cochlear and Westfield. The acquisition of SOM will not only boost but also compliment SGN’s current digital capabilities.

Impact of acquisition

The total cost of the acquisitions (including Amblique) is $30.6 million; this includes an estimate of the likely earnout payments to the previous owners.

SGN forecast a full year contribution from the acquisitions for CY13 as follows: revenue of $29.8 million and EBITDA of $6.1 million. For CY13 the acquisitions are likely to be EPS neutral on a pre-synergy basis.

We expect synergy benefits, especially the cross selling opportunities to some very large blue-chip companies, to provide SGN with some major growth potential.

Outlook

When SGN reported its 1H12 results, it acknowledged the challenging macro economy and stuck to its FY12 forecast for mid-single digit net profit growth. Longer term, however, it remains in a strong position to benefit from the ongoing shift to digital publishing.

This article was distributed to our members on January 23rd, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only SGN but all our current trading ideas. Simply click here and starting trading today.

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ARB Corporation (ARP) is a designer, manufacturer and distributor of accessories for four wheel drives (4WDs). ARP operates throughout Australia from state sales offices with attached warehouses. State sales offices distribute products primarily to ARB branded stores across the country.

The company also sells its products to vehicle manufacturers (OEMs) and exports direct from Australia and Thailand, as well as to customers via its US subsidiary, Air Locker Inc. Aftermarket operations accounted for 66% of overall sales in FY12, whilst export sales represented 22% and OEM sales made up 12%.

4WD sales

According to the Australian Bureau of Statistics (ABS), sport utility vehicle sales grew 5.9% year-on-year in November.  Year-to-date sales in this vehicle category have risen 8.7%. There has also been longer-term shift towards demand for four wheel drives (4WDs) in the Australian vehicle sales market.

Passenger car sales increased 6.4% from November 2009 to November 2012. However, sport utility vehicles grew a far more impressive 37.3% over the same period. We expect this trend to continue as vehicle affordability improves due to the current low interest rate environment.

Moreover the high Aussie dollar has helped to contain car import costs, with the savings able to be passed onto consumers. As 4WD sales rise, there is expected to be greater demand for 4WD accessories.

History of growth

ARP capped off a solid FY12 by reporting a 1.7% increase in net profit to $38.5 million. Sales were up a healthy 5.7%, thanks largely to new store and warehouse growth in the Australian aftermarket (ARB stores) segment.

The recovery in 4WD production from the Japanese earthquake and Thailand floods in 2011 led to a spike in demand for ARP’s products during the financial year. The balance sheet was in healthy shape with a net cash balance of $33.2 million at the end of June 2012.

The results continue a history of robust growth for the group.  In the ten years to FY12, revenue has risen at a compound annual rate of 13.2%, with net profit increasing at a rate of 15.8%.

Outlook

The outlook for ARP is positive despite the still uncertain economic outlook.  The group acquired Northern Territory-based Top Gear Accessories in July 2012 and plans to transform this business into an ARB store by 2013.

Moreover it acquired a property in Perth in preparation for another ARB store there.  In our view, the geographic expansion combined with new store growth will drive even stronger growth in sales

Whilst the high Aussie dollar is hurting ARP’s export sales, we feel the growth in the core domestic market will more than offset this, translating into further gains for ARP’s share price.

This article was distributed to our members on December 20th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only ABR but all our current trading ideas. Simply click here and starting trading today.

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Ainsworth Game Technology (AGI) is involved in the design, production and sale of gaming technology and software. The group’s major market is Australia, but it also has operations in the Americas and Asia, with a focus on expanding its operations North America.

AGI derives most of its Australian revenue from NSW and Queensland. However it is North America where the group is currently looking to expand its presence. So far it has obtained licences in 16 US states, 84 Indian Tribes, 4 Canadian Provinces

FY12 results

AGI’s FY12 results show a company with a solid growth profile.  Revenue over the year jumped 54% to 151 million. Pre-tax profit surged 212% to $46.2 million, with eight consecutive periods of growth, as displayed below.

The group’s reliance on Australia for earnings has decreased, with 32% of FY12 revenue coming from international sources compared to 24% in FY11. Much of this was driven by the company’s expansion into North America, where revenue was up 109% over FY12.

The group’s focus on more profitable operations saw EBITDA margin increase from 26.2% in FY11 to 37.2% in FY12. AGI’s balance sheet is also in a very strong position, with a net cash position of around $51 million and free cash flow of $14.1 million.

Outlook

AGI’s FY12 results were great. We particularly like the net cash position as it gives the group the balance sheet flexibility to continue its expansion in the US.

At the group’s AGM, it forecasted 1H13 profit growth of at least 25% over the $18.8 million made in FY12. However, today the group said that based on the first five months of the financial year it is now expecting an increase of 49%.

The group said that strong sales have continued in its core domestic markets of NSW and Queensland. We see more good news on the horizon for AGI and we expect further share price appreciation.

This article was distributed to our members on December 13th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only AGI but all our current trading ideas. Simply click here and starting trading today.

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Wotif.com Holdings (WTF) is an online travel services business, which represents 23,500 in more than 67 counties. The group’s main website is wotif.com, but it also operates under lastminute.com.au, travel.com.au, Asia Web Direct, LateStays.com, GoDo.com.au and Arnold Travel Technology.

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.

This article was distributed to our members on December 18th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only Wotif but all our current trading ideas. Simply click here and starting trading today.

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Cash Converters (CCV) is a company-owned and franchised retail network that specialises in the sale of second hand goods.

The stores located around the world offers a range of service which varies with pawn-broking loans available in selected markets as well as a personal finance business that operates in various forms in the micro-lending category around the world.

The group has managed to survive through the global economic crisis via its counter-cyclical characteristics – people look to second-hand goods and cash advances in tough times.

The company after a recent capital raising is in a very strong financial position, enabling the acceleration of store acquisitions and an increase to its loan books in Australia and the UK. CCV currently has 106 corporate stores, with 61 in the UK and 45 in Australia.

First quarter trading update

CCV’s 1Q13 results were impressive. The group reported a 1Q13 EBIT of $14.2 million, a massive 43% increase on the prior corresponding period.

The result was driven by a 155.4% increase in EBIT from the UK operations. With the UK loan book growing to 15.3 million pounds, a 146.1% increase on the prior correspond quarter and a 20.8% jump on the June 2012 quarter.

The Australian loan book also preformed strongly, growing to $67.1 million, a 32.7% increase on the same quarter in FY12. The group also noted that it acquired two new stores and opened up another two new in the quarter.

Capital raising

The group last month raised $32.7 million by issuing 38.5 million new shares at $0.85. The funds from the placement will be used to acquire stores within the franchised network, to open new corporate stores and to finance the growth of the Australian and UK personal loan books.

The offer was substantially oversubscribed, by both existing and new institutional investors. The stock price jumped over 12% the day it came out of a trading halt, this in essence signalling the markets approval of  the company’s capital raising.

CCV currently has 708 stores around the world with the largest concentration being in the UK were there are 222 stores of which 61 are company owned. The company has a target of 400 UK stores of which at least 25% of those will be company owned.

The capital raising makes the aforementioned expansion plans possible and with gearing only at 17.6% it still has plenty of room to expand further via debt.

Outlook

CCV delivered spectacular quarterly results and see no reason why this won’t be the case in the next quarter.  We think that the group’s capital raising will be earnings accretive immediately as a decent portion of the funds will be used to buy mature franchise stores.

The funds will also be used to expand its loans books, which it should be able to increase without too much delay.  Overall CCV’s expansion plans should continue to help it continue earnings and we believe this will translate into further share price appreciation.

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SP Ausnet (SPN) is an energy infrastructure company, operating mainly in Victoria. It also operates a gas distribution network in WA. The group has three energy networks, electricity transmission, electricity and gas distribution.

All networks are 100%-owned and located in Victoria, operating as regulated natural monopolies given the high barriers of entry.

• The Electricity Transmission Network carries electricity from power stations to electricity distributors around Victoria
• The Electricity Distribution Network carries electricity from the transmission grid to customers throughout eastern Victoria
• The Gas Distribution Network carries gas from the transmission grid to customers mainly located in western Victoria

1H13 results

SPN’s 1H13 results were a significant improvement on 1H12, mainly driven by an increase in regulated tariffs.

Net profit climbed 15.6% on-year to $169.0 million, which came on the back of a 6.5% increase in revenue.  EBITDA over the half grew an impressive 6.5% to $525 million.

SPN’s balance sheet also improved in the half, with net gearing ratio dropping from 60% to 56% and interest cover increasing form 2.6x to 2.7x. On the funding front, the group has $775 million debt maturing in March 2013.

While the company does have the ability to pay this from current cash (approx. $427 million) and $625 million in undrawn committed bank debt facilities, we wouldn’t be surprised given the current low interest rate environment if SPN refinanced the loan at a significantly lower rate.

Distributions

SGN’s monopoly-like business gives it a stable and predictable income stream in which to pay distributions. This saw the company pay a 4.1 cent distribution in 1H13, a 2.5% increase on the prior corresponding half.

The groups also reaffirmed its full-year guidance of 8.2 cents a security.

Based on a closing share price of $1.045, this represents an attractive yield of approximately 7.5%, or a gross yield of 8.5% if franking stays consistent at 33.3%. In the 1H13, 89% of SPN’s revenue was regulated and essentially inflation protected.

SPN’s yield makes it extremely attractive to income-seeking investors, especially given the recent RBA rate cut and the fact that interest rates are at their lowest since the GFC.

Outlook

SPN is forecasting capital expenditure for 2013 to be around 24% higher than 2012. This investment should help the company continue to grow its earnings and distribution. SPN has not only forecasted for FY13 distribution growth of 2.5%, but also for FY14 growth of 2%.

SPN will continue to deliver stable and predictable revenue growth over the coming years and we think investors chasing yield will continue to drive the share price higher.

This article was distributed to our members on December 14th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only SP Ausnet but all our current trading ideas. Simply click here and starting trading today.

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Commonwealth Bank (CBA) is the nation’s largest bank by market capitalisation, holds the greatest amount of deposits, the most home loans, and also controls a fair chunk of the wealth management market through Colonial First State.

The bank also operates Australia’s largest discount online brokerage operation, Commsec, as well as a multitude of international operations. Importantly, the bank has used its size to grow even bigger over the years. While many financial institutions collapsed over the global economic downturn – or neared collapse – CBA used its massive deposit base to maintain funding and buy depressed assets.

The banking giant also has diverse exposure geographically with stakes in several banks in the fast growing China.

1Q13 Trading Update

Despite facing slowing credit growth, CBA was still able to generate solid earnings growth in 1Q13. The group reported a 1Q13 statutory profit of $1.8 billion.

Unaudited cash profit, a measure more reflective of underlying performance, was $1.85 billion, a 5.7% increase on the prior corresponding quarter.

A breakdown of the results revealed net interest margins (NIM) were broadly stable in the quarter, relative to 2H12 NIM of 2.06%. The company noted that asset repricing impacts were largely offset by continued deposit pricing pressures.

The company’s’ trading income improved to a level consistent with the company’s long-term average run-rate, the result was also helped by a positive Credit Valuation Adjustment. CBA’s asset growth was mainly a function if of increased retail deposits, which now make up of 63% of the group’s total funding.

The Australian Retail division had a particularly good quarter, with improved lending margins, improved credit quality and good growth in customer numbers at its Bankwest subsidiary.

The Wealth Management and Insurance division produced solid volume growth, with Funds under Administration and Funds under Management growing by 6% and 4% respectively. Insurance premiums grew by 3%, with cross selling to the banks retail customer base showed signs of improved penetration.

With regards to CBA’s other division, the bank said most were trending at similar run rates to the 2H12.

Looking ahead

CBA’s quarterly update was solid, with a clearly improved tone from previous periods. Although the company did note slower revenue growth, it did increase profits by over 5%, this is an indication that the group has been able cut its expenses to cover for any reduction in revenue.

On a return on equity (ROE) basis, CBA does look attractive to its major rivals, with an average (ROE over the last three years of 17.6%, which is over 1% higher than any of its rivals.

Overall we expect a continuation of growth for CBA’s earnings in the current quarter, and this should hopefully translate into continued share price appreciation.

This article was distributed to our members on November 30th, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only Commonwealth Bank but all our current trading ideas. Simply click here and starting trading today.

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The Reject Shop (TRS) is a discount variety retail company, targeting Australian consumers through low price points, bargain-purchasing and convenient shopping locations. The group has 239 stores in Australia, which includes the 18 new stores it added in FY12.

TRS offers a wide variety of general consumer merchandise, with a focus on everyday needs, such as toiletries, cosmetics, homewares, personal care products, hardware, basic furniture, household cleaning products, kitchenware, confectionery and snack food.

The company has two key advantages that many of its mid-to-upper market rivals don’t – a strong AUD benefits earnings due to lower import costs, whilst the substitute nature of its products can appeal to cost-conscious consumers.

FY12 results

After a somewhat disappointing FY11, TRS got itself back on track in FY12. The company grew its net profit by 35.6% on-year, to $21.9 million. The addition of 18 new stores helped sales climb 9.9% over the year, to $555.3 million.

An increase in the amount of stores was not the only reason for the jump in sales; comparable store sales grew 0.5% over the year, with a 3.2% jump in the second half.

The group’s balance sheet is also in a healthy position. TRS was able to reduce its debt by $16.9 million in FY12, while increasing free cash flow from $1 million in FY11 to $25.2 million in FY12.

A strong Aussie dollar combined with a reduction in shipping costs saw the company’s gross margin rise from 38.9% in FY11, to 44.1% in FY12.

Consumer environment

Australian retailers have been operating in an extremely challenging consumer environment, but we could be seeing a return to better conditions.

Last week saw the release of the Westpac Consumer Sentiment survey, which showed the consumer sentiment index rising 5.2% to 104.3. It is the highest level the index has been at in 19-months, and the first time over 100 in nine months. A reading above 100 indicates that more consumers are optimistic about the economy than pessimistic.

The main reason for the uplift in the consumer confidence is likely the recent series of rate cuts, and yesterday’s release of the RBA’s minutes from the October meeting did flag the possibility of further interest rates cuts in the coming period, which in turn could see a further increase in confidence.

Outlook

TRS’s FY12 results were impressive on several fronts. The group was able to grow sales on a comparable basis, improve its margins, increase its free cash flow, record a huge jump in profit, all while paying back $16.9 million in debt.

The recent pickup in consumer confidence could not have come at a more perfect time, with the busy Christmas season just around the corner. Whilst the company declined to provide any specific guidance for FY13, we feel that with the addition of 17 new stores before Christmas, strong sales growth is all but assured.

Overall we see continued growth for TRS, which should hopefully translate to further share price appreciation.

This article was distributed to our members on November 21st, if you would like further information you can sign up for FREE 7day recommendations and access all our research files on not only The Reject Shop but all our current trading ideas. Simply click here and starting trading today.

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