The results are in: few do the heavy lifting, others struggle
The 10 stocks I chose have risen 8 per cent on average, but the heavy lifting has been done by a few while the rest have found the going tough in choppier conditions.
At the end of each quarter I will review my tips. This week we will look at the first five and the rest next week.
Platinum Asset (flat)
After a strong surge into March, the funds management group's share price hit a wall and is flat. The recent fade stems mainly from a discouraging March result.
Platinum has a good record in Japan and, as a result, it has a powerful exposure to rising international sharemarkets.
The company was on a roll from November to February, increasing funds under management by more than 20 per cent, but in March the growth stagnated, causing some investors to jump ship.
I remain bullish on Platinum and I believe Japan and other international sharemarkets will rise further into 2013.
Bell Financial (up)
Bell has a tremendous exposure to a rising Australian market and is up 8.6 per cent. The stockbroking company generates revenue from increased action in equities.
Bell's share price rocketed into March, but then turned and headed lower. The company announced its first-quarter result, posting a net profit of $2.9 million. But with a market capitalisation of $182 million, earnings will have to increase by about 50 per cent on the March result to justify a higher price.
I believe Bell still offers an astute way to play this move. The stock has the ability to touch $1 a share.
Capral Ltd (down)
Picking the aluminium fabrication company has proven to be a poor decision to date, with shares down 6.9 per cent.
At the time I said the catalyst for the stock was an improvement in housing starts and the sale of GPG's 47 per cent holding. Since then GPG has sold its holding to a range of institutions.
Capral fabricates aluminium products for buildings but is most leveraged to the residential market. Unfortunately the positive of GPG selling its stake has been overshadowed by continuing softness in the housing market.
In February, Capral lowered its earnings forecasts, saying the encouraging demand it saw for new housing experienced at the end of 2012 had tapered off.
I am still bullish about the stock. If housing starts pick up from current lows just to the long-term average, Capral could have $15 million to $20 million in earnings before interest, tax, depreciation and amortisation.
With an enterprise value of $60 million and a cash-rich balance sheet, the stock price could double from this point.
Devine Ltd (up)
The Queensland-based property developer and land bank group has risen since February, up 9.4 per cent. While the share price has been disappointing, there is potentially a lot of value to unlock.
Devine's net tangible asset (NTA) backing sits just shy of $2 a share, while the stock price is languishing at 91¢.
The catalyst for Devine's share price to close the gap with its NTA will be a sustained recovery in house prices or the divestment of development assets at book value. The stock has the potential to climb back to $1.40 a share.
RXP Services (up) Ross Fielding's IT services group has got off to a flying start as a listed company. In the past three months it has motored 31.4 per cent higher. The group is tiny, with a market capitalisation of just $60 million, meaning that if it wins any new business it is meaningful.
Management expects RXP will earn $4.5 million to $6 million EBITDA for the 2013 year.
This means the group is no longer attractively valued and will have to grow revenue and profit strongly during 2014 to justify the current price.
matthewjkidman@gmail.com
The Age takes no responsibility for stock recommendations.
Frequently Asked Questions about this Article…
According to the article, the All Ordinaries Index is about 3% higher since the tips were published, while the author's 10-stock list is up an average of 8% — but that outperformance has been concentrated: a few stocks have done the heavy lifting while several others have struggled in choppier market conditions.
Platinum Asset surged into March but then hit a wall and is now flat, mainly because of a discouraging March result and a stagnation in funds under management after solid growth from November to February. The author remains bullish, noting Platinum's strong track record in Japan and exposure to rising international sharemarkets.
Bell Financial benefited from exposure to a rising Australian market and equity trading activity, lifting the share price about 8.6%. The company reported a first-quarter net profit of $2.9 million. With a market capitalisation around $182 million, the article notes earnings would need to rise roughly 50% on the March result to justify a materially higher share price, though the author still sees upside potential.
Capral's shares are down about 6.9%, largely because softness in the residential housing market has outweighed the positive of GPG selling its 47% holding (to institutions). Capral lowered earnings forecasts in February. The article suggests that if housing starts lift back to long-term averages, Capral could generate roughly $15–$20 million in EBITDA and, with an enterprise value about $60 million and a strong cash position, the stock price could potentially double.
Devine's NTA is reported just under $2 per share while the stock was trading around $0.91. The article says the gap could close if there's a sustained recovery in house prices or if the company sells development assets at book value; under those conditions the share price could rise toward about $1.40.
RXP Services has climbed strongly — about 31.4% higher in the past three months — but it remains a small company (market capitalisation around $60 million). Management expects $4.5–$6 million of EBITDA for 2013, and the article warns the group is no longer attractively valued at current levels and will need strong revenue and profit growth in 2014 to justify the price.
The phrase refers to a small number of the author's picks generating most of the overall gains while the remainder have struggled. In this review the average gain of 8% was driven by standout performers, whereas others faced headwinds in choppier market conditions.
The author reviews his tips at the end of each quarter to track performance and catalysts. In this piece he reviews the first five stocks and will cover the rest next week. Investors should watch for company-specific catalysts mentioned in the article — such as improvements in housing starts, divestments at book value, funds under management growth, or stronger revenue and EBITDA — which could change valuations or outlooks.
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