Collected Wisdom

This week: Resmed, Nine Entertainment, Southern Cross Media, Pacific Brands and more.

Summary: HanesBrands’ purchase of Pacific Brands (PBG) has been received well by analysts who see synergies between the two brands, with consensus a hold on the stock. Resmed’s (RMD) quarterly figures displayed strong growth, leading analysts to a buy call, while an affiliation deal between Nine Entertainment Group (NEC) and Southern Cross Media Group (SXL) led to a buy call for NEC and hold consensus for SXL.

Key take out: Beach Energy’s (BPT) quarterly production figures were in line with analyst expectations, with a hold consensus on the stock as the price ticks up away from FY16 price targets.

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.

Resmed Inc. (RMD)

The maker of medical devices for the treatment of sleep apnoea released its quarterly numbers and once again revenue growth was strong. Revenue was up seven per cent on the prior corresponding period (pcp), to $US453.9m. However, this was offset by an increasing Australian dollar. The US business appears to be very strong with device sales up by 15 per cent.

Currency movement aside, analysts were pleased with the report and remain positive on Resmed – especially with the positioning the recent Brightree gives it. Analysts commented they anticipate the cloud based software should be earnings accretive from FY17 onwards.

The only negative comments from analysts were in regard to potential margin pressure stemming from the mixture in product offering and the faster growing lower margin products. This was outweighed substantially by the positive views.

The current average 12 month price target was $8.44 which sits above the share price (at the time of writing) of $7.38. It is interesting to note the lowest price target for RMD was $8.40.

Investors are generally advised to buy Resmed Inc. at current levels.   

Nine Entertainment (NEC) & Southern Cross Media Group Limited (SXL)

Just a few short weeks since its last appearance in Collected Wisdom, Nine Entertainment is back and with a new partner in Southern Cross Media Group. On April 29, Nine and Southern Cross announced a five year affiliation agreement for Southern Cross to air Nine’s premium content including the cricket, The Block and The Voice (many would disagree with the latter labeled as “premium”…). Southern Cross will broadcast this content in regional areas across Queensland, Victoria and New South Wales.

The new affiliation unseats Nine and Southern Cross’s long running partnerships with WIN and Ten Network (TEN) respectively. Southern Cross will pay Nine a fee of 50 per cent of its revenue.

The analysts were reading from the same teleprompter and were in aggrement that this is a positive step for Nine: It will receive a higher affiliation fee, and this is a win for Southern Cross as it should see a ratings boost.

For NEC the consensus is still positive with the buys just winning out. The current average 12 month price target is $1.40 with the share price at $1.17. Analysts are not as positive on Southern Cross with the consensus settling on a hold. The current average 12 month price target is $1.07 with a share price at the time of writing of $1.14.

Investors are generally advised to buy Nine Entertainment and hold Southern Cross Media Group Limited at current levels.   

Beach Energy Limited (BPT)

Last week Beach Energy came to the market with two updates, one confirming additional cost-outs from its merger with Drillsearch Energy Limited and the other an update on quarterly numbers.

From the merger, it appears that after the accelerated closure of the Sydney Drillsearch office, Beach Energy has been able to take its annual savings expectations up to $40m. This has come predominantly from redundancies of staff and the board as well as cancellation of contractors and elimination of administration costs.

The following day's production numbers were in line with consensus expectations. Sales numbers were solid growing by five per cent, but revenue was down five per cent to $120m off the back of a weak oil price. Production guidance was increased from 8.0 - 8.6MMboe to 9.5 - 9.8MMboe. A point of speculation for analysts was whether or not the new chief executive would be keen to make his mark with a string of acquisitions in FY17.

Currently the average 12 month price target for Beach Energy sits at $0.69. The share price has kicked away slightly, sitting at $0.775 at the time of writing. This is enough for analysts to have Beach Energy as a hold.

Investors are generally advised to hold Beach Energy Limited at current levels.  

Pacific Brands (PBG)

HanesBrands wants to get into our jocks! The biggest news from last week was that Bonds’ undergarment maker Pacific Brands has entered into a Scheme Implementation Deed with HanesBrands for the American manufacturer to acquire 100 per cent of Pacific Brands shares at $1.15. The $1.15 share price represented a 22 per cent premium to the previous closing price prior to the announcement.

Along with the $1.15 offer, Pacific Brands management also flagged a potential special dividend of 9.4 cents per share if the deal goes through. The Pacific Brands board has unanimously backed the proposed acquisition and analysts have chimed in saying the synergies between the two are obvious. Commentators and analysts deem the $1.15 offer quite attractive given current multiples.

Unsurprisingly, the current consensus on Pacific Brands is a hold and the average 12 month price target is $1.15. At the time of writing the share price sat marginally below at $1.147. Shareholders should expect a booklet on the offer in the mail in late May and following that they will be able to vote at a Scheme Meeting in June.

Investors are generally advised to hold Pacific Brands at current levels.