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.

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

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

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

1H13 Results

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

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

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

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

L7 Solutions and the Fibre business

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

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

Outlook

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

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

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

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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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Credit Corp Group (CCP) is a receivables management company, specialising in debt purchase and debt collection. CCP’s primary business is the acquisition of purchased debt ledgers (PDLs) comprised of distressed debt from Australian and New Zealand credit issuers.

Over the past several years’ the company has made significant investments in technology and resources, which has led to solid infrastructure that is geared to produce sustainable long term performance.

With the infrastructure in place the group has begun to expand into the large US market, where it now employs 30 full-time staff.

1H13 results

CCP enjoyed a solid 1H13, in which underlying net profit rose 12% to $14.6 million.  The higher profit came on the back of a 6% increase in underlying revenue.

Over the half, the company grew its PDL collections and fee income to a record $72 million, a 54% increase on the same period in FY12. CCP also reported that the contracted pipeline for purchasing grew to $105 million in the 1H. This is a great result considering that the upper end of the guided range for FY13 was only $70 million.

The group also declared a half year dividend of 20 cents per share, fully franked – a 54% increase on 1H12’s interim dividend. Collections as % of total PDL continues to improve, rising from 71% at the end of FY12 to 72% at the end of December.

The rise in the collection rate highlights the company’s disciplined approach to purchasing, especially in the face of the strong competition from sector peers.

CCP’s US operations, which are only in the second year of operations, grew debt purchasing from $2.2 million as of June 30, 2012 to $4.0 million at the December 31, 2012.

The Australian loan book branded ‘MoneyStart’ also had solid growth over the half, doubling to $12 million in six months to December.

Outlook

The two most impressive points we took out from CCP’s 1H13 results were the massive increase in PDLs and the company’s disciplined investment approach, which has allowed it to increase its collection rate.

The Australian and US commercial loan books look solid and we expect further growth in the coming six-month period. The group has made specific mention of its plans to grow its US operations through optimisation and technology upgrades, which we believe will show exponential growth given the size of the market.

The group has plenty of room to grow its consumer loan books given its almost unleveraged balance sheet. Overall we were pleased with CCP’s 1H12 result and we expect the company’s current earnings momentum will translate into further share price appreciation.

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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.

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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.

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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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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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Technology One (TNE) is an end-to-end software solutions provider, catering for a number of industries including government, education, financial services, health and community, utilities, and managed services such as mining, property and media.

Diversified product base

TNE is diversified across a number of different products in that it is able to tailor software solutions to meet the needs of its various clients. For example, TechnologyOne Financials offers solutions that can more easily interpret accounting and financial information.

Because it generates revenue from multiple streams including business and non-business, TNE is not as sensitive to the economic cycle as some other tech companies.

Strong operating metrics

TNE has a history of earnings and revenue growth. Revenue has increased at a compound annual rate of 14% per annum since 2003, with net profit growing at 10%.

Moreover, the group’s EBITDA margin has hovered around 20% over the past five six-month reporting periods. TNE derives the bulk of its revenue from software licensing and consulting fees. The company receives an initial licensing fee for each of its software, which is supplemented by annual licensing fees and consulting service fees.

In 1H12, TNE’s annual licensing fees grew 18% due to high customer retention and satisfaction rates. Although R&D expenses jumped 11% on-year, the Connected Intelligence (Ci) enterprise suite has enjoyed a positive reception thus far. Ci is the group’s flagship suite of products.

TNE’s R&D spend is being ploughed into the next generation Ci, and we would expect the product improvement to be a key driver of sales going forward.

Future is in the cloud

TNE is currently in the process of building its own cloud product, TechnologyOne Cloud. The aim is to offer the Ci enterprise suite through the TechnologyOne cloud.

Cloud computing is the process of storing applications and other data on web-based servers, enabling end users to access the centrally-stored information from multiple locations.

The cloud’s key benefit for TNE’s clients is that they don’t have to install software on all of their computers and devices, which significantly reduces the cost of doing business.

The tech industry is only beginning to scratch the surface with cloud services. Apple released their own version of the cloud with the iPhone 4S, known as the iCloud, late last year.

TNE’s version is currently in the trial phase, but we would expect strong demand for this service once it is up and running after the next few years.

Outlook

TNE has enjoyed solid growth since 2003 due to the quality of its product and service offering. The software industry has low barriers to entry, so there has to be a continual focus on maintaining higher customer satisfaction levels and investing in future technology.

The 18% growth in 1H12 annual licensing fees demonstrates TNE’s customer focus, whilst its investment in TechnologyOne cloud is expected to reap long-term benefits.

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

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