|Summary: The newsletters believe SAI Global has good longer-term upside, despite flat profit forecasts for the nearer term. There are concerns over divisional weaknesses at GUD Holdings, while analysts advise investors to stay with the flow at Macquarie Group, but are concerned that GWA Group isn’t capturing enough business from the building sector’s rebound.|
|Key take-out: The investment press are taking a longer-term view on SAI Global, which has a solid position in the domestic market that delivers the cash flow required to fund growth.|
|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.
SAI Global (SAI)
SAI Global disappointed shareholders at its annual general meeting, forecasting flat net profit after tax in FY14, despite the expected 8-10% growth in revenue. The lack in profit growth is down to operation issues and cost increases, the investment press says.
Despite the subdued guidance a majority of analysts rate SAI Global a buy, with the current issues expected to only impact profits in the near term. The longer-term outlook for the group is much more positive, analysts say, although there are concerns that the share price may come under pressure due to a lack of earnings visibility and lower guidance announcements. This is the fifth time that guidance has come in below expectations since February 2012, one source notes.
SAI Global has a solid position in the domestic market, which delivers the cash flow required to fund growth. However, the information services and standards auditor's aggressive offshore expansion has one source concerned management is overstretched. The lack of clarification on a new chief executive is a further issue of uncertainty. Shareholders had expected that the new CEO would be announced at the AGM but instead were told that current CEO Tony Scotton will stay at the helm until March 2014.
For the most part the newsletters are content to retain their buy call, while also reducing price targets. Among brokers, the consensus target price is now $4.33, compared with a current share price of $4.05.
* According to our value investor partners, StocksInValue, the intrinsic value for SAI Global is $2.49. To find out more visit http://www.stocksinvalue.com.au/
- Investors are generally advised to buy SAI Global.
GUD Holdings (GUD)
GUD Holdings issued a profit warning for FY14 at last week’s annual general meeting, just three months after the group said it expected a consistent financial performance for the year. This is a worrying sign, the newsletters say, and indicates the down cycle in earnings still has a way to go.
Shareholders responded by sending the share price sharply lower; it now sits at $5.35. Despite the downgrade and the subdued outlook, the majority of the investment press still rates GUD a hold.
Weakness from the Sunbeam and Dexion divisions was blamed for the downgrade, with the group saying that fundamental changes were needed in both divisions to achieve long-term success. Sunbeam and Dexion are expected to provide lower contributions than last year.
What’s more, one source notes the current guidance is dependent upon a strong performance from Sunbeam in the run up to Christmas, which it may not be able to deliver.
Management’s plan includes lowering costs by moving production for Dexion offshore and increasing marketing for Sunbeam. The investment press seems to think this will have little long-term effect and are hopeful a restructuring will take place in the coming year.
On a more positive note, the newsletters point to the healthy balance sheet, which could be used to deliver further growth through acquisitions. The high dividend yield is also likely to appeal, although a payout ratio of 90% also brings with it some risks.
* According to our value investor partners, StocksInValue, the intrinsic value for GUD Holdings is $5.30. To find out more visit http://www.stocksinvalue.com.au/
- Investors are generally advised to hold GUD Holdings
Macquarie Group (MQG)
Macquarie Group’s interim result had shareholders and analysts breathing a sigh of relief: judging by the numbers it looks like the group’s equity broking business is back on track. Overall, analysts were satisfied with the result and are forecasting improved earnings growth on the back of positive market sentiment. Nonetheless, the strong share price gains the group has enjoyed in recent months lead a majority of analysts to rate Macquarie a hold.
The global investment bank posted a $501 million profit in the first half, a 39% rise on the previous corresponding period. Meanwhile, shareholders were rewarded with an interim dividend of $1 per share, 40% franked, a 33% rise on last year’s interim dividend.
The big news from the result was that Macquarie is giving shareholders its stake in Sydney Airport via an in-specie distribution on a one-for-one basis. The investment press says this is a unique way of effectively paying a special dividend and returning capital to shareholders. What’s more, it also reflects Macquarie’s growing confidence in operations going forward, the newsletters say. The move is subject to shareholder approval.
As long as market conditions remain favourable, Macquarie should enjoy further growth. On the other hand, any deterioration will put the group under renewed pressure. That said, Macquarie’s balance sheet is solid and supported by its diversified earnings, providing it with a measure of stability, the newsletters say.
* According to our value investor partners, StocksInValue, the intrinsic value for Macquarie Group is $24.79. To find out more visit http://www.stocksinvalue.com.au/
- Investors are generally advised to hold Macquarie Group.
- Note: John Abernethy put an underperform recommendation on Macquarie Group in his Eureka Report article, Spotting stock bubbles published on October 2, 2013.
GWA Group (GWA)
Building product supplier GWA Group flagged improving conditions at the company’s annual general meeting last week, citing “positive movements in building approvals flow through to completions”.
For the newsletters, the upbeat comments were outweighed by the fact that the uptick in the housing recovery hasn’t yet translated into earnings growth for the company. This, combined with sharp share price growth, has a majority rating it a sell.
Indeed, GWA shares have rallied a staggering 85% in the past year. Currently trading on a PE ratio of 21, the share price is looking pretty lofty. It’s difficult to see how this can be sustained, the newsletters say.
With bathroom and kitchens accounting for 80% of EBIT, investors were pleased to hear that the division is performing well, offsetting weakness in both the door and access and heating and cooling divisions.
But analysts are mindful of the challenges ahead, including the stubbornly higher dollar, putting pressure on the group via cheaper imports.
Despite a lift in the domestic housing recovery, the newsletters point out that GWA will lag the broader market, since its products are typically those installed last.
* According to our value investor partners, StocksInValue, the intrinsic value for GWA Group is $1.55. To find out more visit http://www.stocksinvalue.com.au/
- Investors are generally advised to sell GWA Group.
Takeover Action October 31-November 6, 2013
|31/10/2013||Argosy Minerals||AGY||Baru Resources||86.83||Closing Oct 31|
|29/10/2013||Australian Power & Gas Company||APK||AGL Energy||98.18||Delisted|
|25/10/2013||Central Australian Phosphate||CEN||Rum Jungle Resources||88.16||Ext to Oct 25|
|01/11/2013||Coalbank||CBQ||Loyal Strategic Investment||62.27||75% proportional offer|
|01/11/2013||Elemental Minerals||ELM||Dingyi Group Investment||29.46|
|04/11/2013||Emerald Oil & Gas||EMR||Confederate Capital Pty Ltd||24.73||30% proportional offer|
|26/07/2013||Energia Minerals||EMX||Cauldron Energy||0.00||Closing Nov 16|
|01/11/2013||Inova Resources||IVA||Shanxi Donghui||60.34||Chinese Mofcom approves|
|29/10/2013||Graincorp||GNC||Archer Daniels Midland||28.32||FIRB decision by Dec 17|
|28/10/2013||Hidroco||HRC||Agri-Trade Investment Group||70.30||Completed|
|04/11/2013||Lemur Resources||LMR||Bushveld Minerals||54.39||Closed|
|21/10/2013||Marathon Resources||MTN||Bentley Capital||19.98|
|17/09/2013||Trust Company||TRU||Equity Trustees||2.54||Mutual due diligence. Ext to Nov 29|
|31/10/2013||Warrnambool Cheese & Butter||WCB||Bega Cheese||18.00||ACCC clearance|
|08/10/2013||Warrnambool Cheese & Butter||WCB||Saputo Inc||0.00||Closing early Dec|
|18/10/2013||Warrnambool Cheese & Butter||WCB||Murray Goulburn Co-operative Co||0.00|
|Schemes of Arrangement|
|11/10/2013||Clough||CLO||Murray & Roberts Holdings||61.60||Vote Nov 15|
|23/08/2013||Platinum Australia||PLA||Jubilee Platinum||0.00||Vote adjourned for amendments. Suspended from ASX.|
|18/10/2013||RHG||RHG||Resimac-Australian Mortgage Acquisition Co||0.00||Reinstated from suspension|
|03/09/2013||Trust Company||TRU||IOOF Holdings||0.00||Vote Nov|
|27/09/2013||Trust Company||TRU||Perpetual||0.00||Board supports proposal. ACCC and Monetary Auth S'pore, NZIO clearance. Vote Nov 28|
|04/10/2013||Billabong International||BBG||Coastal Capital||7.59||Post re-financing/equity proposal|
|19/09/2013||Billabong International||BBG||Altamont Consortium||4.00||Post re-financing/equity proposal|
|19/09/2013||Billabong International||BBG||Centerbidge/Oaktree Consortium||33.90||Post re-financing/equity proposal|