Collected Wisdom

This week we look at Corporate Travel Management, Flight Centre, Super Retail Group, Harvey Norman, Fortescue and more.

Summary: Corporate Travel Group has displayed strong organic growth in its half year result, while the BCF and Rays brands disappointed analysts in Super Retail Group’s profit announcement. Flight Centre looks to global retail opportunities, and Harvey Norman announced all countries of operation had posted a profit. Oz Minerals looks at a feasibility study for the Carrapateena mine, and Fortescue manages cost cutting well despite further predicted falls in iron ore.

Key take out: Investors are generally advised to hold Fortescue Metals Group, given that analysts see further falls in iron ore on the horizon.

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.

Corporate Travel Management (CTD)

CTD delivered its first half results last week and shareholders should be a happy bunch. From the result one word really stood out: “Organic”. Organic growth was the story of the report with strong top line growth via winning new business along with solid retention.

In the presentation, CTD pointed out that 73 per cent of total transaction value (TTV), 54 per cent of revenue and 80 per cent of underlying EBITDA growth was organic. And although Australia and New Zealand still contribute 41 per cent of EBITDA, Asia has grown and Europe has been introduced into the equation as well.

The result, especially the cash flow numbers, pleased analysts with very few faults being found. Overall the consensus is for CTD to be a steady medium term growth story with good management around cost controls and the benefits of scale starting to take place with its international expansion and organic growth.

CTD management reiterated their guidance to come in at the top end of the expected range. Analysts are unanimous in their buy call on the travel agent and have an average price target of $13.98. At the time of writing the share price was $12.28.

Investors are generally advised to buy Corporate Travel Management.

Flight Centre Travel Group Limited (FLT)

Flight Centre’s results received a mixed reception. On the whole, the numbers were either just in line or just below analyst expectations. TTV was up 12.8 per cent on the prior corresponding period to $9.2bn and profit before tax was up marginally to $145.9m, an increase of 3.4 per cent on last year.

The most widely commented on issues from the analysts were the decrease in margins due to increased investment into the business. Modest growth is expected from analysts as Flight Centre focuses on becoming a global travel retailer. Online competition is on everyone's mind as well.

The transaction growth and the targeted range of 4-8 per cent on the prior corresponding period as guided by management is enough to have the consensus remain a hold among the analysts.

The average 12 month price target for FLT is $41.36. At the time of writing the share price sat a few cents off at $41.34.

Investors are generally advised to hold Flight Centre Travel Group at current levels.

Super Retail Group (SUL)

Super Retail Group announced its half yearly numbers and immediately the share price was smacked down to $8 from $10. Something in there displeased the market and this came in the form of the soft numbers from the Leisure division.

The Leisure division, made up of outdoors stores BCF and Rays, was disappointing. Sales increased by 4.1 per cent however gross margins declined by 3.1 per cent and segmented EBITDA decreased by a dramatic 29.2 per cent. The excuse for the margin declines for BCF and Rays came in the form of clearance activity and competitive pricing.

Positively analysts believe the issues with the Leisure division to be manageable and can be turned around given an appropriate time frame. Encouragingly, Sports and Auto came through with very solid numbers.

Analysts believe the downside risk of Rays and BCF is now priced in for SUL. The consensus is a hold with the 12 month price target sitting at $9.40 with the share price at the time of writing sitting at $8.43.

Investors are generally advised to hold Super Retail Group at current levels.

Harvey Norman Holdings Limited (HVN)

It was Gerry Harvey’s turn open the books for all to see as Harvey Norman Holdings released its half yearly numbers last week. It was back slaps all round for HVN’s international stable as all countries posted a profit, even Ireland.

With a solid result and some sensible capital management by the team at HVN, what separated analysts on the retailer were in-house views on the housing market. Thoughts on where we are in the housing cycle dictated each analyst’s call. Smaller factors like competition with the likes of JB Hi-Fi continuing to do well and the well-publicized collapse of another electronics retailer also came into play with the latter being beneficial.

The general thoughts are the housing cycle is starting to slow however it is not slowing enough to deter analysts. HVN is a hold but not a great deal separates the analysts. The average twelve month price target is $4.48 with the current share price sitting at $4.88.

Investors are generally advised to hold Harvey Norman Holdings Ltd. at current levels.

Oz Minerals Limited (OZL)

A quick update on OZL: Two weeks ago (February 17) we wrote about OZL’s result in Collected Wisdom (read here). At the time it was a hold with a lot pending on the outcome of Carrapateena, with analysts taking a bet each way.

Last week OZL released an announcement detailing management's plans to proceed with pre feasibility for the South Australian copper-gold mine. In management's estimates Carrapateena will add $150m in average annual cashflow by 2019. It is estimated the copper-gold mine will deliver 20 years of production.

At the same time, to the surprise of many, OZL announced a $60m share buyback. Off the back of this news all analysts re-rated their price target and the consensus view is OZL is a hold. The average 12 month price target two weeks ago was $4.93, this now increases to $5.01.

Investors are generally advised to hold Oz Minerals Limited at current levels.

Fortescue Metals Group (FMG)

The volatile iron ore miner released its first half figures to the market last week. All analysts were impressed by management's cost stripping ability. FMG now has a breakeven price at $US28.8 per tonne. 

The company has guided towards production costs of $US13 per tonne instead of a previously stated $US15 per tonne. Another positive is the company reducing its debt by $US4.4bn.

Despite management doing their best with the cost outs and lowering production costs, the outlook still does hang on the iron ore price. The general consensus is for the iron ore price to continue to decline further before any turnaround is anticipated. But the above mentioned work goes a long way for when that time does come.

The consensus is FMG is a hold and as per usual the price targets vary greatly. The average 12 month price target is $1.97. The most bearish case sits at $0.93 and the most bullish is $2.60. At the time of writing, FMG weighed in at $2.16.

Investors are generally advised to hold Fortescue Metals Group at current levels.

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