Equities Commentary

Growth Focus: Orocobre Ltd (ORE)

by Patrick Taylor




Date of Data Capture:15/2/2018
Name: OROCOBRE LIMITED (ORE)

Classification: Lithium Producer

Current Price: $6.73

Market Capitalisation: $1.68B

Forecast Sales Growth: 58.77%

Yield Estimate: 0%

Consensus Price Target: $7.91

# Covering Analysts: 12

Discount at Current Price: 17.53%

Price Target Trend: Increasing

Signal Timeframe: Quarterly-Weekly-Daily

Trend Bias: Up-Flat / Long-Medium
Indicators:
Short-term: Positive-Neutral
Medium-term: Neutral-Negative
Long-term: Positive-Neutral

Recommendation: Buy

 Focus: Capital Growth

Set up Notes:

·   We view the recent battery commodity sell off as an excellent opportunity to pick up some bargains and with Toyota Tushu buying $282M shares of ORE at $7.50 just last month this seems like a great place to start.

·   With the EV boom picking up speed we are focussed on the very strong forecasts showing aggressive gains across sales, earnings, margins and profits set to carry through to 2020.

·   Technically strong ORE didn’t dip as much as many of their sector peers but still show an excellent discount to steeply rising price targets.

·   Positive fresh short-term signalling should combine well with longer-term strength with good upwards momentum rebuilding here.
 

Growth Focus: Orocobre Ltd (ORE)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.
When we analyse the market, we put the fundamental data and the technical structures of many companies through a battery of tests – this week they connected us to lithium producer Orocobre Ltd (ORE). With the general market recovering from the recent dip we think they are set to make the best of current conditions and could be ready to charge ahead.
Founded in 2005 and headquartered in Brisbane, Orocobre does all of its real business in Argentina where it holds potash, borate and lithium assets. It is really the latter we are here for as the global phase-shift to electric vehicles (EV) gathers momentum, with many top-tier car manufacturers committing more and more funding towards this emergent and disruptive technology. This increasing demand needs greater supplies of lithium and ORE is well placed to deliver it, with production expansion plans pushing ahead right now.
Performance last year was very strong and we see continued strength forecast through to 2020 on the back of increasing sales, high margins and growing profits, with majority positive analyst sentiment offering price targets much higher than today’s level. That should be good news for Toyota Tushu (the trading support/supply company for Toyota Motors - the 3rd biggest global car company) that recently upped their stake in Orocobre by almost $300M at $7.50 just last month. The investment paves the way for their phase 2 expansions, which could really give their earnings growth a jolt and transform their potential even higher.
The recent fears about oversupply seem destined to be reversed, following fresh strength in lithium commodity pricing and lithium stock prices have begun heading higher again. There could be more volatility to come, but here we are happy to follow strong longer-term signalling and focus on strength within an already strong sector, and compared to sector peers the weakness of Jan 2018 failed to bring the price much closer to earth, and really offers a chance to enter the stock cheaply as it recharges it’s uptrend closer to support. With new sales records for EV being set, with the benefits of big electrical-grid-connected batteries becoming clearer and with China emerging as a battery powerhouse, we think you should switch on to Orocobre as we see plenty of positives that should spark your interest.

 

Growth Focus: GR Engineering Services Ltd (GNG)

by Patrick Taylor



Date of Data Capture: 30/1/2018

Name: GR ENGINEERING SERVICES LTD (GNG)


Classification: Mining Support Services

Current Price: $1.47

Market Capitalisation: $182M

Forecast EBITDA Growth: 52.54%

Yield Estimate: 6.85%

Consensus Price Target: $1.84

# Covering Analysts: 1 (thin coverage)

Discount at Current Price:
25.17%

Price Target Trend:
 Flat

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Down / Long-Short

Indicators:
Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive
-Neutral

Recommendation: Buy

Focus: Dividend Income & Capital Growth

Set up Notes:
· GNG fell 75% from 2011 to 2013 before staging a 300% recovery through to 2016. They have since cycled through a minor 30% consolidation (ending late 2017) and now look to be staging a greater recovery here.
·
Fundamental performance has been steadily improving across sales and margins, though profits were softer last year (reflecting their decline in price) but carry forecasting of improving earnings growth through to 2020.
· Technically positive they look exciting here with good momentum seen across multiple timeframes, and this combines well with linear resistance breaking earlier this month, lining up resistance targets at $1.60, $1.80 and $2.00, with support layered in at $1.40, $1.20 and $1.00.


Growth Focus: GR Engineering Services Ltd. (GNG)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

Over the last few years the commodities markets have gone through some volatile times (none more than the precious metals) and now with a potential new gold rush building up in Western Australia it could be a good time to look at GR Engineering Services Ltd (GNG) who are well placed to ride this emergent wave and could begin to shine once more.

Founded in 2006 and headquartered in Perth, GNG consults and contracts engineering, design and construction services to the resources and mineral processing industry. With operations stretching from Australia to Africa and Europe, GR Engineering has delivered integrated project services in over 20 countries for a vast range of precious, bulk and industrial commodities, though we see the buoyant West Australian mining sector as being responsible for most of the strong forecasting ahead.

Performance over the last few years has been relatively steady despite some challenging conditions, and even though 2017 saw declines in sales and earnings, forecasts for 2018 are strongly positive and show favourable sales and earnings growth through to 2020. It has to be noted that there is only one analyst covering the stock, but with a growing presence in a recovering industry we are happy to look for unrecognised value and good indirect exposure to a sector with excellent growth potential.

GNG Floated on to the ASX in 2011 around $2 before falling around 80% to build a base of support around 40c by 2013 and then rallying back up to test $2 by 2016. That resistance ceiling held strong and forced pricing back to find support near $1.20 before bouncing back and breaking through linear resistance by the end of 2017. Right now we see positive signalling coming through on multiple timeframes and with price action showing good signal correlation, this sets up an attractive entry with historical resistance targets found significantly higher than current pricing levels.

Due to the often extreme volatility seen within the commodities industries there can be benefits to gaining indirect exposure through mining services companies, and with capex increasing for mining exploration and development we think the tide should continue to carry GNG higher. With steady performance and encouraging fundamental forecasts combining well with a solid technical recovery and attractive longer-term set up we think that with GNG we may just be unearthing a bargain.

 

Growth Focus: Perseus Mining Ltd (PRU)

by Patrick Taylor




Date of Data Capture: 19/1/2018

Name: PERSEUS MINING LIMITED (PRU)

Classification: Gold Miner

Current Price: $0.43

Market Capitalisation: $455M

Forecast Sales Growth: 49.65%

Yield Estimate: 0%

Consensus Price Target: $0.53

# Covering Analysts: 8

Discount at Current Price: 23.36%

Price Target Trend: Increasing-Flat

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Flat-Down / Long-Medium

Indicators:
Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive

Recommendation: Buy

 Focus: Capital Growth

Set up Notes:
· PRU is looking to build a greater recovery on the back of improving gold prices and their own organic expansion with their Sissingue gold mine expected to begin production in Jan 2018.

· Fundamentals have been improving following a tough 5-year drop in gold prices and severe consolidation throughout the sector - with strong forecasts of improving sales, earnings and profits, PRU should be due a re-rating.

· Their technical outlook shows good potential for further gains with strong longer-term signalling and multi-timeframe momentum building here as price moves up from a strong support base layered between 30-40c, with resistance targets stretching higher at 60c, 80c and $1.00.


Growth Focus: Perseus Mining Ltd. (PRU)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

When in elephant country you should be on the lookout for elephants, accordingly we have our eye on Ivory Coast gold miner Perseus Mining Ltd (PRU) as they look to bring their second mine on line and in time to ride a buoyant gold price that has been on a mammoth run.

First breaking ground in 2003, Perseus is headquartered in Perth and primarily operates the Edikan gold mine in Ghana; producing 200koz/year since 2012, and are about to begin production at the first of their two gold mines being developed in Côte d'Ivoire. The Sissingué Project is currently being commissioned ahead of schedule and expects to move into first production by the end of this month and into full production by March 2018 ramping up to 70-80koz/year. The second mine in development is the Yaouré Project which received its Initial Resource and Reserve Estimates in Nov 2017 and should eventually lift their total combined production to around 500koz/year.

Fundamental performance has been mixed, with consistent production belying the volatility in share price - being more so a fair reflection of underlying gold commodity pricing which rallied 650% from 1999 to 2012 and then fell 45% through to 2015. This pricing pattern is not just mirrored in PRU but has been magnified significantly and with gold pricing improving we expect a reciprocal type of recovery in price, especially as they begin to increase production ounces on the back of their new mine. Forecasts are favourable with good growth now kicking into gear and set to continue through to 2020 with positive consensus analyst sentiment and increasing price targets.

Historically PRU began an amazing run from 2004, recording capital gains of 2500% through to 2011 before falling 95% by 2013, since when they have basically been drifting sideways and making occasional rally and pullbacks from resistance. Right now we have price rallying on good news, combining well with a strong technical set up showing positive momentum across multiple timeframes. Due to the strength of signalling we believe they are likely to continue higher through overhead resistance and begin chasing old resistance targets that stretch far above today’s price levels.

Perseus maintains a high margin business with costs of production seen continuing at around $700, giving a good buffer to any weakness to the currently rising gold price. While reducing debt will be part of their progress, we expect the company to soon shift focus to the completion of their three mine strategy and to also continue with high potential exploration. With performance improving on the back of stronger commodity prices as Perseus ramps up production - and with price breaking out of a long-term downtrend on strong signalling - we believe they will continue to increasingly tweak the myth they are named after and turn ever more stone to gold.

 

Growth Focus: Base Resources Ltd (BSE)

by Patrick Taylor



Date of Data Capture: 16/11/2017

Name: BASE RESOURCES LIMITED (BSE)

Classification: Integrated Mining

Current Price: $0.32

Market Capitalisation: $239M

Forecast EBITDA Growth: 18.18%

Yield Estimate: 0%

Consensus Price Target: $0.49

# Covering Analysts: 2

Discount at Current Price: 53.13%

Price Target Trend: Increasing

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Flat / Long-Short

Indicators:

Short-term: Positive-Neutral
Medium-term: Neutral-Negative
Long-term: Positive-Neutral

Recommendation: Buy

Focus: Capital Growth

Set up Notes:

·   With an ongoing recovery across the heavy mineral sands industry Base is looking to continue to leverage its high quality/low cost production with excellent forecasts for sales earnings and profits carried through to 2019.

·   Fundamentally strong BSE saw earnings growth of 82% last year and while their outlook is moderating going forward, there should be plenty of growth left within an improving sector.

·   Technically exciting, they rallied over 1000% from 2009-2011 before pulling back to baseline by 2015 and then rallying 600% to reach current levels with good momentum behind them here.

   ·   Resistance targets are 35, 40, 45 and 55c with support layered down from 35, 30 and 27.5c



Growth Focus: Base Resources Ltd (BSE)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

A strong base normally refers to a sturdy foundation on which to build future growth - and we believe that to be the case here with Base Resources Ltd (BSE) as the Kenyan heavy mineral sands miner looks to rebuild value on resurgent commodity pricing, excellent cash flows and strong forecasts rising up in front of them.

Base was formed out of Perth in 2007 and began production in Kenya in 2014 on their Kwale Heavy Mineral Sands mine in Nigeria. Initially their timing was not great as they emerged from first production into softening prices for Rutile, Zircon and Ilmenite, though the high quality nature of their deposit, along with low costs of production saw them weather the downturn and become a more efficient operator with high margins and good profit performance.

While Kwale was initiated with a 13-year mine life projection, we have seen them optimising their strategy to maximise value from current operations while actively working to increase the quality of their reserves – all the while undergoing further extension testing and exploration to build on their position as Kenya’s flagship miner.

Fundamentally a strong performer, Base has seen steadily increasing operational cash flows, with maiden profit achieved this year and sales forecast to ramp up to 2019 before slightly moderating by 2020. That does allow for short-term earnings strength lying dead ahead and should see profits and prices rising – adding confidence to our recommendation is the fact that the company has reduced their debt by half since going cash flow positive in 2014, showing excellent risk management.

Technically they are capable of big moves within long trends and here we are catching them as they pause under 35c resistance with good momentum behind them. We expect volatility to remain as it works through this ceiling but with well-correlated and positive signalling across the long and short-terms timeframes we expect their recovery to continue.

It is easy to see the limited mine life of Kwale as a current weakness for BSE, and admittedly this does limit the longer-term scope of this recommendation, but as management are now working actively to extend their production into the 2nd phase of Kwale, we expect this to improve and add further upside potential. This foundation should also not be ignored as BSE currently has an enviable ability to utilise their strong and improving cash position to add exploration and development targets, meaning there remains plenty of time for Base to build on strength and this could just be the start of a new beginning.


Growth Focus: Medical Developments International Ltd (MVP)

by Patrick Taylor



Date of Data Capture: 28/10/2017

Name: MEDICAL DEVELOPMENTS INT LTD (MVP)

Classification: Healthcare & Pharmaceuticals

Current Price: $5.92

Market Capitalisation: $350M

Forecast EBITDA Growth: 23.41%

Yield Estimate: 1.06%

Consensus Price Target: $6.90

# Covering Analysts: 3

Discount at Current Price: 16.55%

Price Target Trend: Increasing-Flat

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Flat / Long-Medium

Indicators:
Short-term: Positive
Medium-term: Positive/Neutral
Long-term: Positive

Recommendation: Buy

Set up Notes:
• After rising 550% from 2015 into early 2016, MVP then pulled back 35% to reach $4.25 by late 2016 - pricing formed a base range between $4.50 and $5.50 throughout most of 2017 until breaking above $5.50 resistance in the last two weeks.
• Fundamentally strong in previous years MVP had softer 2017 growth, but we see performance improving again here with aggressive forecasts supported by very strong growth expectations across sales, margins, earnings and profits.
• Technically exciting they are moving out of an 18-month consolidation and should chase old resistance targets at $6.50 and $7.00 before opening up, and we see good support layered down from $5.50, $5.00 and $4.50 if needed.


Growth Focus: Medical Developments International Ltd.

Our primary focus here is capital gain, we will select our stocks from the ASX top 500 All Ordinaries Index.

Normally when the MVP leads the field to the sound of a successful whistle it has nothing to do with Methoxyflurane… But thankfully for us, this time it does as we look to follow Medical Developments International Ltd (MVP) as they move past recently broken resistance and look to chase old highs on renewed strength and excellent potential for further gains.

Founded in Victoria 1971, MVP is a leading emergency medicine solutions company that manufactures and distributes pharmaceutical drugs along with medical and veterinary equipment. The company is best known for its well-regarded analgesia product Penthrox aka the ‘Green Whistle’ which is non-opioid, non-addictive and is easily inhaled to give strong and fast acting pain relief.

With Penthrox sales continuing to grow rapidly into an expanding market we expect this product to remain the main driver of growth - a good example of this was seen in September when Penthrox was recommended for all UK ambulances and again in October when the green whistle was approved for use in Mexico. To put this in perspective; Penthrox received regulatory approvals from 1 country in 2015, 3 countries in 2016 and has approvals pending for 22 countries within 2017. A further 15 countries are set for approval in 2018 and with major approvals pending for the USA and Russia in 2020, and China and Asia by 2021 their future is clearly mapped out.

Listing in early 2004 MVP saw an initial boom before eventually retreating under the weight of the GFC to remerge with the market in 2009 and rallying nearly 1000% by 2013, before consolidating those gains down by over 50% by late 2014. The start of 2015 sparked a rally of more than 500% by May 2016 and then a steady 9 month dip to support for most of 2017 until that broke 2 weeks ago. With that initial push pulling back from resistance we have been waiting for fresh positivity and we have that here as signalling turns positive across all of our key timeframes with excellent momentum building here.

As market size is set to increase rapidly we are given further confidence by the Chairman, Mr David Williams who stated this month: “we have a scalable solution and the depth to quadruple the business and quadruple it again.” And it is from this foundation of strong organic growth that we expect the company to move strongly forward. It is rare to find such a good combination of fundamental performance and forecasting coupled with such broad-based and positive signalling – accordingly we believe it’s time to take part in MVP before the whistle blows.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of RM Capital Pty Ltd (Licence no. 221938). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.