A Premier performance produces a Just result

It would seem Solomon Lew's Premier Investments has temporarily ditched plans to make a tilt at either Myer or David Jones.

In its half-year results to January 26, Premier booked $3.3 million on the sale of other financial instruments. The company never divulged what these other instruments were, but to have $20 million tied up it must have meant it was serious about something.

The question now for investors is whether Premier is still good value? We wrote about the stock twice last year, saying it was relatively cheap and the new management team had the ability to beat market estimates.

The stock has risen an impressive 94 per cent since June 25 and is now within striking distance of a record high. This has happened despite the company's declining like-to-like sales in its apparel retailer Just Group for the period.

In the six months to January 26, the company posted a solid result, with net profit up 20.7 per cent to $46.5 million.

The key to Premier remains Just, which printed a more modest 9.8 per cent increase in earnings before interest and tax growth (EBIT) to $56.3 million.

Despite a fall in like-for-like sales of 0.9 per cent, Just impressed the market by expanding gross operating margins by 113 basis points. The stock has rallied about 10 per cent since the announcement.

Under the stewardship of Mark McInnes, Just management has done a good job in restoring profitability, but it is renowned for the cost side of the equation rather than increasing revenue.

Once the net cash and Breville shareholding are deducted from the Premier valuation, investors are now paying about 13.5 times 2014 Just Group earnings.

It is difficult to justify another leg-up in Premier's share price unless sales growth resumes or the dividend is increased from the current 4.5 per cent.

Watch on Wide Bay

Wide Bay is the ugly duckling of the rejuvenated regional banking sector. While every other player is enjoying investor support, the Bundaberg-based lending outfit's share price has fallen a weighty 25 per cent since early February.

The catalyst for the sudden decline was the decision to cut the first-half dividend from 25¢ in 2012 to just 13¢ in 2013. This coincided with the appointment of Martin Barrett to replace founding managing director Ron Hancock.

The Wide Bay situation is a salient lesson for investors to keep an eye on performance and not just the dividend yield. At $5.35 a share, the group is trading at book value and paying a dividend yield of 5 per cent fully franked. This is hardly enticing, given competitors such as Bank of Queensland and MyState have similar or better valuations.

Given the circumstances, the stock is worth putting on the watch list, especially if it continues to drop below $5 a share.

Cryosite growth

A micro-cap stock that is becoming interesting again is cord blood group Cryosite. The $24 million company operates the dual businesses of storing cord blood for customers and undertaking drug trials for pharmaceutical companies. Both businesses have grown rapidly.

Cryosite has forecast a net profit of between $1.2 million and $1.4 million for the year to June 30. If the group can hit the top end of this range it will have booked a number of slightly more than $800,000 for the second half. If we annualise this and add some growth for 2014, the company could easily earn $1.8 million for the 2014 financial year.

The medical outfit's profit is highly leveraged to any revenue growth.

In the year to January, the stock rose 328 per cent to 60¢ but has since peeled back to 54¢. If the share price drifts back to below 50¢, it could provide a good opportunity to buy a growth stock.

matthewjkidman@gmail.com. Fairfax Media takes no responsibility for stock recommendations.