This is a selection of my favourite stocks that have little to worry about from the reporting season this time round. The five on my list are:
Specialty Fashion Group (SFH): There are big questions over the women apparel retailer’s sales result given that its sector peers like Noni B (NBL) and Pacific Brands (PBG) have been forced to issue profit warnings because of fragile consumer sentiment and the mild start to winter.
Specialty Fashion won’t be issuing a profit warning as the company has gone into “blackout” – the period just before the release of its profit report when it cannot talk to the market. While that is good news on the one hand, I suspect we will see a drop in same store sales (sales growth from shops open for a year or more) as the group isn’t immune to the headwinds outlined above.
However, I am estimating that management will be able to deliver a 19% increase in sales to $679.5 million for the 2013-14 financial year, thanks to the acquisition of the Rivers chain and new store rollouts.
The key driver for the stock isn’t organic growth but the bedding down of the Rivers acquisition. Sales from Rivers alone are expected to account for a 30% plus uplift in Specialty Fashion’s annualised sales. I have a “buy” recommendation on the stock, with a price target of $1.35 a share.
Mint Wireless (MNW): It’s not so much the earnings – or the lack of it – that investors should be focused on. If anything, the mobile card payment solutions provider is expected to post an even wider loss for the full year.
What shareholders will be more focused on is its outlook as 2014-15 is a “make-or-break” year. Management must show a significant increase in users of its product in the next 12 months if Mint Wireless has any hope of meeting my forecast for the current financial year.
While its net loss is forecast to more than double to $4.5 million in 2013-14 as management invests heavily to capitalise on its first mover advantage in the Australian and New Zealand market, its bottom line should jump $1.9 million into the black on the back of an 11-fold increase in sales to $11.6 million for 2014-15.
Mint Wireless pretty much has the market niche (where a physical card is needed for a transaction) to itself until 2016 when international rivals will enter the local market. I think Mint Wireless will become good based on its current achievements, but the stock is a high-risk venture. This is why I have a “speculative buy” rating on the company with a 35 cent price target.
NetComm Wireless (NTC): The last financial year was a big one for NetComm, with the machine-to-machine (M2M) technology company anticipated to deliver a sharp increase to both its top- and bottom lines.
M2M refers to the technology that allows different equipment to communicate with each other or to a network.
There is little danger of management coming under expectations as its last presentation in May was promising revenue of $61 million and EBITDA of $4.6 million to $5.1 million for 2013-14 thanks largely to its Victorian smart meter contract and orders for its equipment for the National Broadband Network (NBN).
The key risk is more around the sustainability of its earnings growth as the company has historically suffered from lumpy orders of its equipment. This should change from here on out with its global deal with Vodafone and ongoing demand from the company running the NBN, but investors will want to see evidence of that.
If things go according expectations, NetComm can also return to paying a dividend in the current financial year. I have a “buy” rating on the stock with a price target of 86 cents.
eBet (EBT): The gaming solutions company’s August announcement should please both dividend and growth seeking investors.
Management is promising a 57% increase in full year dividend to 5.5 cents a share for 2013-14 and I have upgraded the price target on eBet by 12% to $5.30 to account for its latest acquisition of Flexi-NET.
Flexi-NET competed with eBet in providing stored value card solutions to gaming venues and has 84 locations in New South Wales using its product. eBet is already the largest gaming systems provider in the state, and the deal will add further scale to eBet’s business.
I have upped my 2014-15 and 2015-16 sales estimate by 10% and 11%, respectively, to $60.9 million in the latter year.
Further, management is planning to undertake a capital return of between 5 cents and 6 cents at its annual general meeting later this year. This is likely to deliver a yield of around 3.4% including the 50% franking credit on the regular dividend. This may not sound very exciting to many income investors, but eBet’s robust earnings growth potential should see its dividend rise in the coming years.
I reiterate my “buy” recommendation on the stock and you can see the updated financials here.
Tiger Resources (TGS): What does $47 million buy you? Shareholders in the Africa-focused copper producer are about to find out in September when Tiger Resources releases its half year result (its financial year is the same as the calendar year).
The miner made an unexpected $20 million placement and secured an additional $US25 million debt facility over the past few months to accelerate the expansion of its solvent-extraction and electro-winning (SXEW) plant.
I have factored in the capital injection but have not adjusted my production forecast. I would be keen to hear if management will upgrade its production guidance for 2014 and 2015 as that will lift my current 50 cents a share price target I have on Tiger Resources.
On my numbers, the miner is tipped to produce 42,000 tonnes of copper this year and 38,000 tonnes in 2015 as increasing production from the SXEW plant doesn’t fully offset the wind down of its older heavy media separation (HMS) plant. Tiger Resources aims to produce 50,000 tonnes of copper in 2016.
I have a “buy” rating on Tiger Resources.
Stocks in the earnings spotlight this August
|Company||Code||Est FY14 sales ($m)||Sales growth (%)||Est FY14 EBITDA* ($m)||EBITDA growth (%)||Est total rtn (%)**|
|Specialty Fashion Group||SFH||679.5||19.3||35.0||-15.7||57.7|
|*Operating earnings before interest, tax, depreciation and amortisation (EBITDA) **Based on Eureka Report's 12-mth price target and FY15 dividend forecasts|
|Source: Eureka Report|