Collected Wisdom

This week we look at NIB, CSR, Ardent Leisure and REA Group.

Summary: NIB has upgraded profit guidance after a better September quarter, while CSR has lifted half-year profit due to cost cutting. Ardent Leisure reported solid first quarter numbers, while REA Group’s quarterly numbers met or exceeded analysts’ expectations.

Key take-out: Analysts say NIB’s good news is already priced into the stock and their average price target suggests upside from here is minimal.

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.

NIB Holdings Ltd (NHF)

The AGM season rolls on and it was NIB’s turn to get the biscuits out – word is they went with the classic Iced VoVo and Scotch Finger combination. Also rolled out for investors was guidance for first quarter FY16. Management upgraded guidance on statutory profit to $90 million - $100m up from previous guidance of $85m - $90m.

The upgrade comes off the back of a better September quarter with analysts saying it was predominantly due to lower claims and therefore the lower cost to the insurer that comes with it. It is believed this should carry on throughout the year. One negative pointed out by an analyst was the reliance on insurance brokers rather than direct sales; if the relationships changed NIB would start to lose market share. Additionally the lapse rate of non-renewed policies is always a concern.

Despite the upgrade analysts have maintained a hold on NIB stating the good news was already priced well and truly into the stock. The 12-month average price target is $3.59 with the share price currently sitting at $3.81 and the most bullish case is set at $3.90 suggesting upside from here is minimal.

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

CSR Ltd (CSR)

Building materials company CSR released half yearly accounts last week (November 4). The results showed significant improvement on the previous corresponding period with net profit up 32 per cent to $92.4m. This was driven predominantly by efficiency improvements and cost cutting.

Analysts now look ahead for more M&A activity for FY16 and prefer this to further capital management. With the consensus a solid hold for analysts on the building materials stock, attention was turned to the risks for FY16. Concern was raised in regards to the outlook for the aluminium prices and electricity costs as well being a concern.

Management told investors to anticipate FY16 numbers to be towards the upper end of guidance given. At the time of writing CSR’s share price was $3.15 and the 12-month average price target sits at $3.59. One analyst did state they would look to start to take profit if the share price continues to strengthen.

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

Ardent Leisure Group (AAD)

US-based bowling and activity centres Main Event Entertainment helped leisure and theme park operator Ardent Leisure to solid first quarter numbers. Main Event contributed $US37.42m in revenue to the group’s total of $165.96m with total group EBITDA up 8.9 per cent to $37.2m on the prior corresponding quarter.

Analysts’ main concern still sits with AAD’s investment in GoodLife health clubs. Even though management have touted a turnaround in membership numbers due to the implementation of their 24/7 strategy across a number of clubs with more to come, analysts still watch on sceptically.

It appears the jury is still out on AAD despite the exposure it gives investors to the declining Australian dollar thematic. The consensus has AAD as a hold and the average price target is sitting at $2.69 with the share price (at the time of writing) at $2.56. The main reason for the hesitation is the unreliable nature of earnings in the theme parks, health clubs and bowling centres.

  • Investors are generally advised to hold Ardent Leisure Group at current levels.

REA Group (REA)

Another quarter and another set of strong numbers for REA Group (majority owned by News Corporation, publisher of Eureka Report), either meeting or exceeding all analysts’ expectations. Revenue grew by 21 per cent and EBITDA by 30 per cent on the prior corresponding period.

These numbers were driven by strong growth in the group's Premier advertising and higher listing volumes in the Australian market. New listing volumes grew by 6.1 per cent in the quarter.

The recent announcement of the acquisition of IPP also pleased analysts as it has the potential to maintain REA’s growth once the Australian market begins to slow.

REA did not give guidance but this is the norm for the company. Analysts are divided between the online real estate business with four calling it a buy and five a hold. Note not a single one has called the stock a sell at the present point. The 12-month price target sits at $51.38 with the share price trading at $48.96 at the time of writing.

  • Investors are generally advised to hold REA Group at current levels.