BHP

By Jason Fittler,

We see the major diversified miners as the most preferred in the space given their ability to manage margins and cash flow.

BHP, like its competitors, is currently focusing on removing costs from the business, focusing on operating performance, productivity, simplification, expanding margins, and the generation of free cash flow.

BHP is encouraging internal competition for capital to ensure the best return on investments.

BHP plans to focus on its key pillars to increase returns to shareholders, including Iron Ore, Petroleum, Copper and Coal.

We believe BHP's initiatives of reducing costs and CapEx yet retaining growth focus for 2016 are positive for shareholders.

Our price target of A$28.00 is 23% above the current price of $22.70.

BHP intends to continue to pay dividends per share of $1.24 increasing to $1.38 by 2020. This equates to a gross dividend of 8.6% on current prices.

We expect the prices for BHP's key commodities to be subdued over the next few years; with iron ore and copper moving into oversupply, coal already oversupplied, and petroleum suffering from an industry player that is looking to rebalance the market and prompt high-cost players to assume the mantle of swing producer.

Earnings should, however, be supported near term by currency moves (weaker A$, Rand, etc.), volume growth, and further cost cutting.

From a top-down perspective, we are concerned European growth may remain subdued for longer, and that the structural imbalances in China may result in slowing demand and a challenging environment for commodities.

However, we see some evidence that the mining industry is starting to operate in a more disciplined way, which bodes well for the longer-term supply/demand outlook.

BHP is a good long-term buy for investors looking for income and who are comfortable to hold long-term in what I am sure will be a volatile stock.

For more information about BHP please contact us on 07 4771 4577. 

Origin Energy Limited (ORG)

By Jason Fittler

We believe ORG is undervalued on estimates.

We estimate intrinsic value could rise to over $12 per share by FY18e vs. the current share price of around $6 a share, largely driven by the value of the APLNG project as we draw nearer to start-up.

We think the electricity business has now largely troughed and margins should improve over the next few years, with the gas business seeing uplift from re-contracting and additional sales volumes in 2015 - 2016.

However, oil prices in Australian dollar terms remain an issue, particularly given recent weakness and OPEC's reluctance to cut supply. 

Continued weakness of the Australian dollar against the US dollar is a potential key driver of earnings and valuation upside.

An earlier than expected increase in the oil price could lift earnings.

Electricity deregulation in NSW & QLD could lead to greater than forecast electricity earnings.

Every $10 MWh increase in NSW & QLD margin adds $14 million to earnings before interest and tax, all else being equal.

The downside scenario assumes weaker than expected oil prices.

Assuming our currency estimates are maintained but oil trades in line with the futures curve, 2016 earnings would decline 7%.

The valuation impact would likely be more meaningful (25% impact) assuming oil trades in line with current futures curve and at inflation thereafter.

Australian electricity retailers are facing decreasing demand for electricity in the market; they also face pressure from small-scale renewable technologies, especially solar, which are reducing consumer’s demand for grid electricity.

For the gas sector, we are expecting Australian gas prices to increase from $3.50 GJ to $9 GJ due to export parity pricing.

Price growth in electricity tariffs is expected to fall to 2-3% per year compared to the 15% compound growth of recent years.

Currently trading at $5.50 we see upside of 20% and gross yield of 5%.

For more information about Origin Energy Limited (ORG) please contact us on 07 4771 4577. 

Growthpoint Properties Australia (GOZ)

By Jason Fittler

Growthpoint Properties Australia is a fully internalised real estate trust investing in Australian office and industrial properties, and holding 100% stakes on its balance sheet.

It is a pure landlord, with no fund management or development business, with assets under management worth about A$2.2 billion.

Growthpoint provides an attractive 2016 financial year estimated dividend per share yield of 6.4%. However, our concern lies with the ongoing leasing risk facing the group in a time where demand for office space is weak, particularly in Brisbane.

Earnings are sensitive to loss of rental income and with leasing conditions soft, this is a key concern.

GOZ is currently trading at a premium to net tangible assets and our price target.

We believe the most upside lies with mitigating leasing risk over the medium term.

Assuming no downtime across leases expiring in 2016 and 2017 (representing 7% of portfolio area). There is further scope for cap rate compression across both office and industrial. A 50 bases point firming in the portfolio cap rate would add 5% to our Net Asset Value.

The downside risk lies with medium term lease expiries, as noted above.

Our base case is for 6-months downtime, with risk to this being extended to 12-months.

The company is currently trading above our target and although the yield makes the stock attractive, I would look to acquire on weakness below $2.90.

Recent highs have been $3.35; it is currently trading around $3.08.

For more information about Growthpoint Properties Australia please contact us on 07 4771 4577. 

Macquarie Group (MQG)

By Jason Fittler

MQG has announced it will purchase the Esanda dealer finance portfolio.

This portfolio comprises motor vehicle loans and leases with a book value of $7.8bn.

The purchase price of $8.23bn represents the fair value of the loans and leases to MQG.

The $430m difference relates to provisions, ANZ's deferred acquisition costs ($200m) and acquisition accounting as MQG is required to revalue the loans and leases upon purchase in a lower interest rate environment.

This transaction increases MQG's motor finance portfolio to $17bn.

The transaction will be funded via a $400m Placement, Share Purchase Plan and internal sources. MQG stated this transaction should add 10c to earnings per share in the first full year.

As a result, the deal return on equity is estimated at around 10%.

We note MQG's statement that the transaction will "be accretive to Macquarie Leasing's ROE", yet there was no mention of ROE accretion at the Group level.

MQG also provided an update on its outlook, with profit for first half 2016 now expected to be up 55% on first half 2015 which is $100m higher than the guidance provided three weeks ago. 

The full year 2016 profit is now expected at $2.0billion. As a result, they have upgraded earnings per share by 5.8%.

MQG stated it would pay a first-half dividend of $1.60, lower than we expected to partially fund the Esanda deal. 

MQG provides significant leverage to investors. Leverage to the further roll-out of its infrastructure business; leverage to structurally low-interest rates; leverage to currencies outside the AUD; leverage to equities and the IB cycle; and large operating leverage.

For more information about Macquarie Group (MQG)) please contact us on 07 4771 4577.

Woolworths Limited (WOW)

By Jason Fittler,

WOW, annual profit fell 13% amid escalating competition in Australia's supermarket sector, including from foreign rivals. 

They reported a net profit of 2.15 billion Australian dollars in the year to June 28, compared with A$2.45 billion a year earlier. Revenue was flat at A$61.15 billion.

Its bottom line was weighed down by one-off charges from restructuring, including redundancy costs. They retained a final dividend of A$0.72 a share same as last year.

Australia's supermarket sector was for years dominated by Woolworths Ltd. and Coles Supermarkets. However, new entrants, including Costco Wholesale Corp. and Germany's Aldi, are, shaking up the nation's A$94 billion industry, mainly by undercutting prices.  

The trend has been seen elsewhere, including in the U.K., where supermarkets are under growing pressure. Woolworths is cutting costs faster than projected to adjust to the new environment.

Woolworths has separately announced Chairman Ralph Waters would stand down on Sept. 1, and be succeeded by Gordon Cairns, chairman of Origin Energy Ltd.

In June, Mr. O'Brien said he would leave the company once a successor was found. He accepted responsibility for the disappointing performance of one of the nation's biggest companies, which also runs several discount and home-improvement stores.

The share price has held upon the back of these announcements current around $27.34 per share.

The price of Woolworths has moved quite a bit over the past 12-months with highs of $38.49 and lows of $25.29.

At the current price, it is trading 14% above our price target indicating that the price will be lower for longer.

With a gross yield of 7%, the stock is attractive to hold as long as you have a long investment time frame. And you are comfortable that the new Chairman and CEO will get this company back on track.

For more information about Woolworths Limited (WOW) please contact us on 07 4771 4577.


ANZ Bank (ANZ)

By Jason Fittler,

ANZ announced it is undertaking a fixed $2.5bn institutional share placement, which will be followed by a $500m Share Purchase Plan for retail investors.

This placement is designed to raise common equity to offset APRA's recent announcement to increase mortgage risk weights to an average of at least 25% as an interim measure. The placement will be priced via a book build above a $30.95 underwritten floor.

While much of the dilutive impact of the raising should be offset by higher returns on Capital (paying down expensive debt), the biggest driver of earning per share downgrades is a more rapid assumption of normalisation in bad and doubtful debts charges.

We continue to believe the market will expect the banks common equity tier 1 capital ratios to settle above 10% given the ongoing drift higher of global bank capital ratios and that the market would consider this level "unquestionably strong".

Since the GFC Australian banks have continued to strengthen their positions against failure and with these measures now in place, it is hard to see them fail.

The question is can they continue to produce the profits and more importantly the yields that investors are chasing.

At the current price levels, ANZ is looking attractive for the long-term investor. However, caution is advised as the other major banks at yet to announce results.

ANZ fell 6% on the back on these announcements and are currently trading around $30, which is below the book build floor making them look like reasonable value at these levels.

Our valuation has been reduced to $33 down from $35.

For more information about ANZ Bank (ANZ) please contact us on 07 4771 4577.   

iShares Global 100 ETF (IOO)

By Jason Fittler

With the current Greek debt default pushing the markets down in Europe and around the world, now is a good time for the long-term investor to start to build or add to positions in International Companies.

IOO is one of the best ways to do this. Note that this is a growth investment which will short-term be volatile. So, you do need a 5-year investment horizon.

Uncertainty in the financial market provides an opportunity for the value investor. At present, the top 100 companies worldwide are now cheaper than they were a week ago.

iShares Global 100 ETF (IOO, formerly iShares Global 100) is an exchange-traded fund seeking investment results that correspond to the price and yield performance of global large-cap stocks, as represented by the Standard & Poor's Global 100 Index (the Underlying Index). The fund is managed by BlackRock Fund Advisors.

The Fund seeks to achieve its objective by investing mainly in securities that comprise its relevant Underlying Index and through transactions that provide similar exposure to securities in the Underlying Index.

The Fund operates as an index fund and engages in representative sampling, which is investing in a sample of securities to have a collective Investment profile similar to that of the Funds Underlying Index.

For the Standard & Poor's Global 100 Index, it is designed to measure the performance of 100 large transnational companies that are of major importance in the global markets and have a minimum adjusted market capitalization of US$5 billion.

With the exception of the U.S, all companies are float adjusted and reconstitution is a continuous process.

As of 31 March 2014, the Index was comprised of stocks of companies in the United States, the United Kingdom, France, Germany, Switzerland, Japan, Spain, South Korea, the Netherlands, and Australia. 

For more information about iShares Global 100 ETF (IOO) please contact us on 07 4771 4577.   

Slater & Gordon (SGH)

By Jason Fittler,

Slater & Gordon (SGH) was founded in 1935 in Melbourne as a law firm primarily serving unions and workers in disputes.

In 2007, it became the first publically listed law firm in the world.

The company entered the UK in 2012 and now possesses roughly even revenue split across Australia and the UK.

SGH is a consumer law firm and provides services across the Personal Injury law (PI) and General Law (GL) divisions, which together include a wide range of practice areas, such as PI, family law, conveyancing, wills, estate planning & probate and criminal law.

Here is a company that 9 out of 11 analysts have it outperforming the market; however, for me it is one to avoid.

This does not mean that these analysts are right just that I see better value elsewhere in the market.

If we take a closer look at the company, it performs on a Beta of 0.81, which means it will generally underperform the market.

It has cash flow issues at present, which has seen the company’s share price fall from the peaks in 2015 financial year of $7.80 back to the current levels of $5.05.

This puts annual growth at zero for the year to date.

If we look further, we see a very small forecast dividend of 1.75% gross, which in part at least is funded through debt. 

The next 12 -18 months is expected to be a continuing period of poor cash flow and has the expectation of more work in progress write-offs.

I note however that our price target is $7.90 some 36% above the current price, so it is looking cheap.

With most analysts already calling this company a buy I suspect that the buying support is drying up, add to this continued cash flow issues, and we can see why the price is down.

In hindsight, this could be at the current price the buy of the year.

However, not for me as the risk is too great for the reward on this company.

Avoid.  

For more information about Slater & Gordon (SGH) please contact us on 07 4771 4577.    

Wealth Defender Equities Limited (ASX: WDE)

By Jason Fittler

Wealth Defender Equities Limited (ASX: WDE) is a listed investment company that invests in mid-cap stocks; a segment of the market that most investors are under-represented in.

The portfolio will be managed by Perennial Value Management, a fund manager with a long record of accomplishment of outperformance.

A unique feature of this company is its risk management strategy, with the company aiming to provide around 50% of capital protection against moderate market falls.

This strategy will allow investors to enjoy the long-term benefits of investing in shares while providing reduced risk to investor capital through a range of professionally managed strategies designed to cushion the portfolio in significant market downturns.

This should lead to an enhanced outcome over the long-term.

There is a high level of key person risk with this company with two of the senior personnel having significant industry experience, which would be hard to replace in the event of their departure.

This company is suitable for those investors seeking capital growth and income, with reduced capital risk.

We believe the gross dividend yield will be approximately 6.5%. It is trading at $0.96 slightly below the asset backing of the company of $0.99 per share.

The fund aims to outperform the ASX 300 index and is suited for investors with smaller amounts who are chasing exposure to these sectors without the risk of selecting individual companies.

WDE provides a low-risk structure to gain exposure.

The company floated in May at $1 per share with subscriptions double of what was requested. Since then the price has traded below the Net Tangible Assets as investors watch, how the money was being invested.

WDE is a long-term investment that should provide less volatility and solid long-term growth, which is currently trading at a discount.

Origin Energy Limited (ORG)

By Jason Fittler

I last looked at this company back in December 2014 with a view to accumulating the stock if you had a long-term outlook. 

Since then the company share price has been quite volatile, so too has the price of Oil. However, the market has also changed considerably in the past 6-months. The banks are no longer the sweethearts of the market. So we need to look towards the materials and energy sectors to find growth.   

ORG is currently trading around $12.75.

Our price target has moved up from $14.30 to $15.80 providing expected growth of 26%. 

We note that there will continue to be headwinds in the short-term as competition in this sector has lead to intense price competition. 

However are expecting income to improve later in the year when ORG starts shipping from its APLNG joint venture in New Zealand.  

ORG has also announced some cost cutting measures that appear robust and achievable which will assist in improving their cash flow. On top of this we also expect to see a sale of its 50% stake in Contact Energy which again with firm up the company. 

Exchange rate weakness and deregulation in electricity in NSW and QLD have the potential to be key earnings drivers for the company. 

We will continue to watch the oil price for weakness as a pull back to recent lows will have an impact on the earnings and short-term price target. 

Forecast dividends for 2016 financial year are 4.2% and expected to increase to 6.8% in 2017 financial year. 

At present, there is no franking on these dividends.  As the chase of the high dividend that the banking companies provided starts to cool we need to start looking for more growth in the portfolio which still has a solid income stream. 

ORG is a long-term buy for income and long-term growth. 

ORG is a core holding for portfolios with a long term view. 

QBE Insurance Group (QBE)

By Jason Fittler

QBE is one of the world's top 20 general insurance and reinsurance companies, with operations in more than 40 countries.

The company has grown strongly since listing on the ASX through a combination of organic growth and ongoing acquisitions in Australia and abroad.

QBE is currently a constituent of the S&P/ASX20 benchmark on the ASX.

Given softening trends in the US and persistent tough conditions in Australia and Europe, QBE's expectation of "broadly flat" global pricing continues to appear optimistic. 

Despite this backdrop, cost savings, specific initiatives and continued re-weighting to growth assets should support their 2015 and 2016 underlying margins.

With large loss experience to date tracking broadly in line with expectations – US slightly better, Australia and Pacific worse, individual risk benign. We continue to believe a margin around the mid-point of 8.5-10.0% guidance is achievable.

Currently trading around $13.95, we have a price target of $15.00 and forecast gross dividend of 7.3% giving an expected return over the next 12 months of 8%.

QBE has struggled over the past years on the back of two issues, higher than expected high-value claims and low-interest rates.

With claim down back in line with expectations and long-term bonds rate point to increase, QBE is one to accumulate at the current price.

Over the past 12 months, we saw the price of the company below $13 per share and above $14.50 per shares.

QBE is a company I would look to buy on weakness and hold for the income and long-term growth.

For more information about QBE Insurance Group (QBE) please contact us on 07 4771 4577.    

South32 (S32)

By Jason Fittler

In 2014, BHP Billiton decided to bring together some BHP Billiton’s high quality, well-maintained, cash generative assets to form a new resources company, diversified by commodity, customer and geography.

In May 2015, following a successful shareholder vote, South32 was founded.

Based in the Southern Hemisphere, South32 has its head office in Perth, regional hubs in Perth and Johannesburg, and marketing office in Singapore, and operations are in Australia, Southern Africa and South America.

The company is a globally diversified metals and mining company with a portfolio in bauxite, alumina, aluminium, thermal and metallurgical coal, manganese, nickel, silver, lead and zinc.

S32 is the world’s largest producer of manganese ore and owns the world’s largest silver mine.

S32 also runs an alumina refinery and two modern, cost-competitive aluminium smelters plus ferronickel operations.

If you held BHP shares, you now also hold some S32 shares. The company has limited research out at present but overall it is a good position.

There is expected softening of the sectors in which they operate however the company holds $650 million in cash. S32 has expected cash flow from operations of $1.4 to $1.8 Billion over the next 12-24 months.

The cash flow should be sufficient to cover operating costs and dividends.

Given the soft outlook for some of the commodities S32 produces the company will need to maintain stable production levels and improve costs before any upgrade of its investment rating. 

With an estimated fair value of $2.80, the company is looking cheap making it worthwhile to top up your holding if you are a long-term investor.

For more information about South32 (S32) please contact us on 07 4771 4577.   

Macquarie Group Ltd (MQG)

By Jason Fittler

Macquarie Group is a diversified financial services company, with business operations across corporate and asset finance, equities, fund management, banking and financial services, and FICC.

Macquarie Group established in 1969 as the Australian subsidiary of UK merchant bank Hill Samuel. In 1985, Macquarie diversified its shareholding structure, assumed its present name and obtained an Australian banking license, listing on the ASX in 1996. Macquarie Group diversifies across multiple regions, with 32% of revenue coming from Australia, 35% from the US, 20% from EMEA, and 13% from Asia.

Macquarie delivered a very strong result, taking advantage of buoyant conditions with all divisions except Equities contributing to growth.

Importantly MQG's return on equity rose to 14%. It is the first time it has well exceeded its cost of capital since the financial crisis.

We see MQG as a highly leveraged organization, heavily exposed to further AUD correction, low-interest rates, market conditions and a more appropriate compensation structure. We do not believe this operating leverage is fully appreciated by the market.

In the event market conditions continue to be strong, interest rates remain low, and MQG updates its remuneration structure, it could trade up towards $95. This would imply 2.5x book.

However, if market conditions deteriorated sharply and asset prices begin to fall, MQG could see significant pressure on its earnings with its ROE reverting significantly below its cost of capital. This could result in a reversion back towards fundamental valuation methodologies.

It is forecast to pay a gross dividend of 5.2% and although not a high as other banks the upside growth potential is more.

At the current price, the company is looking fairly valued however there is some upside potential for the company in the medium term especially if the economy recovers.

For more information about Macquarie Group Ltd (MQG) please contact us on 07 4771 4577.   

Incitec Pivot Limited (IPL)

By Jason Fittler

IPL is a long-term story but if targets achieved then in two years this will a high yielding company based on the current price and provide solid growth.

The three key drivers are:

1.  A strong earnings growth profile over the next 3yrs, driven largely by the commissioning of the Louisiana ammonia plant,

2.  Attractive relative valuation with the stock trading on a one-year forward price earnings ratio, reflecting a 20% discount to the Australian Industrials ex-financials,

3.  And a strong forward cash flow forecast of C.A$0.6bn p.a. from 2017 once Louisiana fully ramps up. This should underpin capital management initiatives and an increase in the payout ratio.

Incitec's key upside potential is dictated by the future profitability of the Louisiana project.

Our base case currently assumes the project returns 15-16% return on capital. However, current spot gas and ammonia prices imply 25% potential return from the capital investment.

Incitec's downside scenario assumes Louisiana only achieves a 10% return following a spike in US gas prices and rapid build-out of domestic US production capacity.

Australian explosives players are expected to remain largely rational in an environment where miners are targeting cost reduction as commodity prices soften.

IPL is leveraged to a recovery in US explosives demand brought on by low coal inventories and greater construction demand. With its 800ktpa, Louisiana plant expected to be operational from the financial year 2017.

With the banks looking fully valued, it is time to start looking at the sectors that provide the potential for growth in the coming years when the economy starts to recover.

BHP (BHP)

By Jason Fittler

The company’s share price has been sitting around $30, which makes it good buying.

But, if you spend your time listening to the government and media whine on about resources, you would think BHP was all but gone. 

It is paying a 5% gross dividend and has over 10% upside; we have been acquiring this company on weakness for some time now.

But, here is the kicker. 

BHP Billiton intends to simplify its portfolio by demerging a group of high-quality assets to create an independent global metals and mining company, South32.

Under the proposal, Eligible Shareholders would retain their existing shareholding in BHP Billiton and receive a new share in South32 for every BHP Billiton share held (at the applicable record date).

Approval for the demerger is being sought at shareholder meetings to be held in Perth and London on 6 May 2015.

South 32 has been valued around $2.98 and hence we saw the price of BHP jump on Friday.

We expect the prices of BHP's key commodities to be subdued over the next few years. With iron ore and copper moving into oversupply, coal already oversupplied, and petroleum is suffering from an industry player who is looking to rebalance the market and prompt high-cost players to assume the mantle of swing producer.

Earnings should, however, be supported near term by currency moves (weaker A$, rand etc.), volume growth, and further cost cutting.

From a top-down perspective, we are concerned European growth may remain subdued for longer, and that the structural imbalances in China may result in slowing demand and a challenging environment for commodities.

However, we see some evidence that the mining industry is starting to operate in a more disciplined way, which bodes well for the longer-term supply/demand outlook.

For more information about BHP (BHP) please contact us on 07 4771 4577. 

G8 Education Ltd (GEM)

By Jason Fittler

G8 Education Limited is a childcare centre operator providing developmental and educational childcare services mainly in Australia.

G8 conducts a range of childcare service activities, including the acquisition of childcare centres, the management of childcare centres, industry-related project management, services and consultancy.

G8 also operates childcare centres, both owned and franchised, in Singapore.

The heavily fragmented childcare industry should experience further consolidation.

Industry revenues are set to grow steadily over the medium term as key drivers continue to be supportive, with increasing female workforce participation, growing awareness and belief in developmental benefits, increase in child population and increasing affordability via increased government funding.

It is uncertain at this stage what resemblance the Government's policy will bear to the Productivity Commission recommendations. However, reports from the media indicate the Government has been broadly receptive to the recommendations.

We expect the policy to be revealed alongside or in the lead-up to this year's Federal Budget.

The uncertainty around how the Government will incorporate the recommendations of the policy means we have not changed our 12-month forward DCF of $6.22.

This stock is currently paying a gross dividend of 8.4%, but investors should be cautious, as this is a payout of around 90% of cash earnings per share.

At present around 30% of this dividend is paid through a dividend reinvestment plan, which dilutes the value, your shares.

They are also able to continue with such as high payout ratio due to intuitions being issued shares.

The concern is if interest dries up they will need to borrow for acquisitions, which will see cuts in dividends.

Short-term the company looks like a good. But pending changes to legislation expected in the May budget which will affect the company.

For investors, you receive a high dividend yield and capital growth.

But keep an eye on this one.

For more information about G8 Education Ltd (GEM) please contact us on 07 4771 4577. 

Karoon Gas Australia Limited

By Jason Fittler

If you like to speculate on the market here is a company which dropped 20% last Thursday on the back of poor drilling results.

This means that around $1.68 per share of value was wiped from our valuation. The price has fallen around $1.90 since the start of the financial year.

KAR was trading around $2.00 on Friday after starting the day at $2.60.

Karoon Gas Australia is a mid-cap oil and gas exploration company based in Melbourne, Australia. Founded by Bob Hosking and Mark Smith, it was listed in early June 2004.

Karoon's exploration portfolio includes offshore acreage in Brazil, Peru and the Carnarvon Basin, Western Australia.

In Brazil, Karoon discovered oil at the Kangaroo and Bilby prospects in 2013; follow-up appraisal drilling at Kangaroo is expected to continue in 2015, with exploration drilling planned in the Carnarvon Basin in 2015.

The share price for KAR has not been this low since the bottom of the GFC, since then it has been above $11.50 and back.

So, is the company cheap at these levels?

Our current valuation on the company is $3 per share so it is trading at a discount of 50% to our valuation.

However, before you jump in, keep in mind that it pays no dividend and has no forecast to pay one.

This company runs on its drilling results and the ability to find a development partner once reserves are found. 

At present, oil is at an oversupply that which POEC seem unwilling to manage. Over time, the oil price will stabilise but any recovery is still years away. 

This is highly speculative company.

Only invest money you do not need and if lucky enough to see a good profit, take it.

For more information about Karoon Gas Australia Limited please contact us on 07 4771 4577. 

1300SMILES Ltd -Tenth Anniversary Review

This review marks the tenth anniversary of our company’s listing on the Australian Stock Exchange on 11 March 2005. It does not contain any urgent news, announcement, forecast, or other information which requires disclosure. It is rather a look back over our first ten years as a listed company and a few years before that.

We offer this to the many shareholders, dentists, and staff who have not been with us for all of the last ten years and who may not have ever stopped to think about how our company came to be.

Newcrest Mining Limited

By Jason Fittler

Newcrest is Australia's largest gold producer and a top five global gold company by output.

It owns a portfolio of assets including the World Class Cadia Valley mine in NSW. Other mines include Lihir Island (PNG), Gosowong (Indonesia), Telfer (WA) and 50% of the Morobe JV (PNG), which includes Wafi- Golpu & Hidden Valley.

Current reserves are 80 million oz and resources are 148 Million oz. Copper by-products ensure cash costs are competitive and are forecast by the company to reduce as Cadia East and Lihir ramp up.

Newcrest has reported an interim profit of $200m, down 11% but ahead of expectations of $136m. This was due to revenue being 3% above our estimate.

More importantly, free cash flow of $268m was in-line with the $255m expected. No dividend was declared, as expected.

During the period, Newcrest repaid US$220m from the company's bilateral facilities and ended the half-year with net debt of A$4.3 billion and gearing of 33.9%, which compares to our forecast gearing of 31.5%.

The company finished the half with cash of A$128m, and with undrawn debt has a balance sheet liquidity of A$2.2bn.

This is a positive takeaway for the company and should the company be able to communicate a coherent strategy for Lihir, then our net present value could be increased significantly.

An improved mine plan could deliver an increase to our net present value of $1-2 per share.

The negatives for the company are, Newcrest not being able to deliver a mine plan for Lihir, around $4 per share value for the asset could be at risk.

For more information about Newcrest Mining Limited please contact us on 07 4771 4577. 

1300SMILES (ONT)

By Jason Fittler

1300SMILES our home-grown success story reported this week on their first half profits. 

Keeping in mind that their revenue was hit hard when the government scrapped the Critical Dental Care plan couple of years ago the results were welcome. 

Revenue up 19% and profit up 34% on last year coupled with the dividend for the half increased from $0.065 to $0.09 per share. The market reacted positively to the news with the share price jumping from $6.10 to $6.75 or 10.5% on the back of the release.

On a closer look over the counter sales were up 30%. Earnings per share up 33.6%. Cash flow from operations up 70%. All this with no increase in bank debt.

The year on year growth and zero bank debts places the company in a strong position for acquisitions as they become available. 

The growth can be attributed to:

  • organic growth in the current practices through the ability to accommodate more dentists,
  • the acquisition of BOH Dental in Brisbane
  • and the continuing success of the $1 a day Dental Care Plan which make their services more affordable.

1300SMILES has now been listed for 10 years. Investors in the initial IPO purchased the shares at $0.80 and have been paid $1.17 in fully franked dividends which grossed up is $1.67.

As well as this, the share price has increased around $5.95.

Combined, this is a total return of $7.62 per share or 950%.

With dividends, improving and revenue continuing to grow what will the next 10 years bring.

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