Collected Wisdom

This week we look at Suncorp, ALS, ResMed, Henderson Group and GUD Holdings.

Summary: Analysts remain neutral on Suncorp despite the company marginally beating consensus with its FY15 earnings, while consensus is also neutral on ALS and ResMed. Asset manager Henderson Group has recorded strong inflows despite challenges in global markets, causing analysts to remain bullish on the stock, while GUD Holdings remains a hold after meeting and in some cases beating forecasts for its recent full-year results.

Key take-out: The market agrees that the outlook for Suncorp is clouded and that growth for FY16 looks challenging.

Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

Suncorp Group (SUN)

Suncorp CEO Patrick Snowball delivered his last results before walking off into the sunset earlier this week (Tuesday, August 4 ). SUN managed to marginally beat consensus with its FY15 cash earnings, but this result appears to have already been priced in.

The group also announced a special dividend of 12 cents per share and a final dividend of 38 cents per share. This takes its total dividend for the year to 76 cents per share, up from last year’s 74 cents.

Despite SUN outperforming the consensus estimates for FY15 the outlook is clouded with the general consensus remaining neutral on the stock. One analyst re-rated SUN from an outperform down to neutral and another maintained a sell call stating the view that margin compression in general insurance will have a flow-on effect into FY16’s challenging growth prospects.

The current price target consensus sees SUN as fair value at current levels with the sell call setting a target of $13 against a current price of $14.30. New CEO, ex-GPT boss Michael Cameron is starting on a solid footing however growth for FY16 looks challenging.

  • Investors are generally advised to hold Suncorp at current levels.

ALS (ALQ)

The general consensus across the board is fairly neutral on the global provider of testing and analytical laboratory services ALS with the majority of price targets from brokers hovering around the mid $5 level against a current share price of $5.25. One outlier lists it as a buy with a price target of $7.08 saying they believe ALQ has hit an inflection point in earnings as opposed to other analysts who are not anticipating a turnaround until after FY17.

Guidance appears to be in line with the broad consensus. During last week’s AGM chairman Nerolie Withnall took the opportunity to highlight a number of the company’s strategic acquisitions including the Portugal-based food laboratory group ControlVet. The Portuguese acquisition brings “increased geographical coverage to the group, and also some new technical services to the Life Sciences Division’s growing portfolio,” Withnall said. A positive outlook in the Life Sciences Division has been noted all round.

The chairman also highlighted the company’s dividend policy remains under review due to the growing earnings from overseas operations. “The board continues to review the capital structure of the company weighing up the overall value to shareholders of ways in which earnings are used. These include paying dividends, reducing debt, funding acquisitions and potentially buying back shares on market,” Withnall said. Historically ALQ has paid out approximately 70 per cent of earnings per share. One source is anticipating this to come down to approximately 60 per cent. ALQ’s current dividend yield is 3.96 per cent.

It has continued to be a tough time for those with exposure to the mining services space and shareholders of ALQ are all too aware of this. The outlook doesn’t look to be improving with expectations of the minerals business to remain weak and oil and gas is up against it as well.

  • Investors are generally advised to hold ALS at current levels.

ResMed (RMD)

At the end of last week (Friday, July 31) ResMed released results for the year and the fourth quarter. The consensus view was RMD delivered a solid result ahead of analyst expectations with strong FY15 revenues off the back of a recovery in mask sales.

It is evident from the run up in share price investors were anticipating strong numbers, however the market is always forward looking and it is headwinds such as currency, gross margin pressure and new product ranges from competitors going into FY16 that have most analysts rating RMD a neutral with one downgrading their call to a sell and few still rating RMD a buy.

An uncertain outlook has the bulk of analysts tossing and turning but in the end remaining neutral on the bringer of a good night’s sleep. The average price target currently sits at $8.49 (current price $7.57) with a target as high as $9.88 from one and as low as $7.16 from another. Read into those what you will but as always take them with a grain of salt.   

  • Investors are generally advised to hold ResMed at current levels.

Henderson Group PLC (HGG)

Henderson Group has again delivered in line with analyst expectations which were set fairly high for the UK-based global asset manager. The overall analyst consensus remains a buy for HGG.

Strong inflows were recorded despite global markets facing challenges in the form of Greece, China and the uncertainty of the election in the UK. Additionally better than expected management fee and performance fee income contributed to the result with HGG saying 83 per cent of their funds outperformed their benchmarks over the last three years. Off the back of this the average price target now sits at $6.57 with the bullish at $7 and the bearish case comes in at $6. At the time of writing HGG’s share price is $6.15.

All analysts, both positive and negative, say continued flows are the key driver and the main risk for HGG and will have a keen eye on the September figures come late October.

For more on HGG see our recent article: Is there more value in Henderson? (July 20).

  • Investors are generally advised to buy Henderson Group at current levels.

GUD Holdings (GUD)

GUD’s full-year results announced at the end of last week met and in some cases exceeded analysts’ expectations with strong margins and sales growth. The owner of brands such as Sunbeam, Oates and Davey has given analysts confidence in the management team's ability to turn the business around with one source saying they were excited by the delivery of top-line organic growth.

The recent acquisition of lighting and electrical supplier Brown & Watson International was also seen as a positive move across the board with analysts.

Consensus currently sees GUD sitting snugly between a buy and a hold with analysts. Currently 36 per cent have it as a buy, 54 per cent as a hold and 10 per cent list GUD as a sell. The current average price target is $9.91 with the upper level valuations coming in at $10.20. GUD’s current price is $9.57.

  • Investors are generally advised to hold GUD Holdings at current levels.

Capilano Honey (CZZ)

Finally we come to Capilano Honey. This is a prime example of the lack of coverage small cap stocks receive within the larger institutions and why they can be worth paying attention to.

The honey producer has been on quite the tear over the last 12 months going from a low of $5.75 to above $16 where it currently sits.

Analysts covering CZZ remain buoyant on the stock and maintain their buy recommendations after the recent acquisition of KirksBees Honey, which is one of the largest active Manuka honey producers. Manuka honey is a higher margin product well known for its high level of antioxidants and its antibacterial healing powers. 

For more on CZZ see our Eureka Interactive with Michael Glennon from Glennon Capital, shareholder of CZZ (from the 13 minute mark).