Equities Commentary

Growth Focus: Ausdrill Limited (ASL)

by Patrick Taylor



Date of Data Capture: 8/2/2019
 
Name: AUSDRILL LIMITED (ASL)
      
Classification: Mining Support Services
 
Current Price: $1.42
 
Market Capitalisation: $972 M
 
Forecast EBITDA Growth: 82.49%
 
Yield Estimate: 5.3%
 
Consensus Price Target: $2.10
 
# Covering Analysts: 7
 
Discount at Current Price: 47.89%
 
Price Target Trend: Flat-Decreasing
 
Signal Timeframe: Monthly-Weekly-Daily
 
TrendBias: Up-Down / Long-Medium

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

Recommendation: Buy
 
Focus:(Dividend Income &) Capital Growth
 
Set up Notes:
·    Strong performance has driven the price recovery of ASL, and despite recent falls, we expect this to continue with excellent forecasting and a strong technical setup signaling further upside gains.
·    Earnings were up almost 30% last year on strong sales growth and improving margins, this is set to continue with further aggressive growth being forecast out to 2021.
·    Price targets have been chasing the stock lower through the recent decline, even though the consensus sentiment is strongly positive and the discount to current pricing is very large.
·    We have multi-timeframe buy signals combining well with major resistance breaking last month.

Support: $1.40, $1.20, $1.10 & $1.00.
Resistance: $1.50, $1.60, $1.80 & $2.00.


Growth Focus: AUSDRILL LIMITED (ASL)

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

When you find yourself in a hole... keep drilling. While not normally the best advice, we are happy to see it work here as Ausdrill continue the strong recovery of the last few years, backed by strong performance and excellent forecasting.
Established in 1987, Ausdrill is now a diversified international drilling and mining services company operating in Australia, India, Africa and Europe for clients like Regis Resources, Hidustan Zinc, Western Areas and Consolidated Minerals. Specialising in open-cut and underground contract mining, ASL offers equipment & supplies, diamond drilling, grading, drill & blast, analysis and logistics.
The company has been on a steady recovery path, bolstered by improving market conditions, strong organic performance and an active acquisition strategy. A focus on high quality investments is well reflected in the aquisition of Barminco late last year, with the company being the recipient of the $113M Rosemont Gold Project contract just last month.
Improving fundamental performance and earnings growth (up 30% last year) has been the key driver behind the ongoing price recovery and this is set to improve further with strong forecasts for sales and margin growth out to 2021. We see demand staying steady to strong, with expected valuations in line with projected contract wins, extensions, and a decent pipeline of new business.
Analyst sentiment is similarly rosy with majority positive consensus price targets offering a steep (40%+) discount to current pricing. It is worth noting that the favourable overall outlook has not changed much, with targets being reduced by only 20% during the 60% price decline that began nearly a year ago.
Unsurprisingly, ASL has a volatile price history that needs to be timed to best advantage. We are following our well-correlated longer-term momentum signal and are looking to enter the stock after price broke through linear resistance last month, after bouncing off a good support to build a recovery base just above $1.00. While there is some structural resistance just above current pricing at $1.50 - with some longer-term dynamic resistance around $1.60 - the more interesting resistance targets stretch higher towards the highs of $2.50 reached only a year ago.
We like the sector, the story and the chart here as we follow positive multi-timeframe buy signals and look to catch a break above $1.50, and although we expect price action to remain volatile, this could become a great core investment.

Growth Focus: WiseTech Global Ltd (WTC)

by Patrick Taylor



Date of Data Capture: 25/1/2019
 
Name: WISETECH GLOBAL LTD (WTC)
      
Classification: Enterprise Software
 
Current Price: $20.11
 
Market Capitalisation: $5.86B
 
Forecast EBITDA Growth: 42.13%
 
Yield Estimate: 0.21%
 
Consensus Price Target: $18.45
 
# Covering Analysts: 7
 
Premium at Current Price: 8.25%
 
Price Target Trend: Increasing
 
Signal Timeframe: Quarterly-Weekly-Daily
 
Trend Bias: Up-Flat/ Long-Short

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

Recommendation: Buy
 
Focus: Capital Growth
 
Set up Notes:
·    Logistics software provider WTC has a good track record of strong fundamental performance pushing impressive price growth – a trend that is set to continue with strong forecasting and fresh positive signalling on display right now.
·    Surging sales and strong margins saw earnings up over 40% last year and that is expected to be repeated again in 2019 - with consistent aggressive growth forecast out to 2021, supported by strong sales and cash flow.
·    Pricing can be volatile but with linear resistance breaking earlier this month and the $20 ceiling breaking this week the set up looks ready to go with resistance targets stretching higher above.
·    Support: $19.00, $18.00, $16.00 & $15.00.
·    Resistance: $22.00, $23.00 & $25.00.


Growth Focus: WISETECH GLOBAL LTD (WTC)

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

Supply chain heavyweight WiseTech Global Ltd has a history of strong performance and we believe they should be able to link together further growth as fresh strength and excellent forecasts predict strong future demand.

Established in 1994, Wisetech has grown into a major international supply solutions company, providing logistics support to over 8000 corporate clients in 130 countries around the world, including many of the largest global operators.  Managing the cutting edge and innovative software as a service platform; CargoWise One, the company provides operational assistance to major supply chains in the execution of over 44 billion transactions every year. While the company has been delivering strong organic growth, this progress is well supported by an ongoing and aggressive acquisition strategy that promises to capture further growth ahead, with recent purchases increasing exposure to large markets in Europe, Asia and the Americas. 

WiseTech has displayed excellent fundamental performance since floating onto the ASX mid-2016, with earnings growth up over 70% in the first full year and further gains of over 44% last year. Analyst forecasts predict 2019 is set to be another good one for investors with earnings set to increase by over 42% this year with only slightly softer growth seen stretching out to 2021. Sales expansion will continue to be the focus as WiseTech pursues new and relatively untouched markets, driving the seemingly ravenous appetite for synergistic overseas acquisitions.

We need to highlight the excellent client retention rate, averaging close to 99% recurring revenue, which should be a strong positive signal and give confidence to investors. Expectations for longer-term strong growth run contrary to subdued consensus target pricing where current values are above expectations - but these targets have been chasing the price higher for much of the stocks trading history and those instances where it has traded at or below fair value have proven to be good buying opportunities.

Earlier this month pricing broke through linear resistance that had formed over the last six months of price consolidation (from highs around $25) and currently shows a very interesting set up where price is currently working against $20 structural resistance. Some whipsawing in the short-term should be expected here as the stock works to break the $20 ceiling and we would look to capitalise on any short-term weakness down to $18 support. Right now we see strong positive signalling combining well with growing momentum across our key timeframes and think it might just be a clever move to pick up some WiseTech.
 

Growth Focus: Baby Bunting Group Ltd (BBN)

by Patrick Taylor



 Date of Data Capture: 29/11/2018

Name: BABY BUNTING GROUP LTD (BBN)

Classification: Toys & Juvenile Products

Current Price: $2.27

Market Capitalisation: $277 M

Forecast EBITDA Growth: 39.78%

Yield Estimate: 3.64%

Consensus Price Target: $2.67

# Covering Analysts: 4

Discount at Current Price: 17.62%

Price Target Trend: Increasing-Flat

Signal Timeframe: Quarterly-Monthly-Daily

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

Recommendation: Buy

 Focus: Dividend Income & Capital Growth

Set up Notes:

·    BBN looks ready to continue its recovery off fresh price support, and is backed by improving earnings, strong forecasting and signs of a new longer-term uptrend emerging here.

·    An earnings slump over the last year is giving way to renewed growth and a greater recovery seems to be underway - this is backed by favourable expectations for expansion across sales, earnings and yield out to 2021.

·    Pricing broke out of a twenty two month linear downtrend earlier this year, rallying up to major resistance before backing down to successfully retest new support as signalling turns positive.

  ·    Price targets sit higher at $2.50, $2.70 and $3.00 with good support layered down to $2.00, $1.70, $1.60 and $1.50 if required.

Growth Focus: BABY BUNTING GROUP LTD (BBN)

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

Patience can help you avoid making rash decisions, and sometimes it can help you get wind of a good opportunity after the market has already spat the dummy. We think we have both here with Baby Bunting Ltd as the children’s toy and clothing company looks to get back to its feet after taking a tumble.

Born in Balwyn 1979, BBN remains based in Victoria and has grown into one of Australia’s leading nursery retailers, operating 50 one-stop-shops catering for children aged 0-3. The company has a wide product offering, ranging from prams and nappies to furniture and food, including well-known brands like Ergobaby, Steelcraft and Bugaboo.

The stock is coming out of a tough year, which was caused in part by the failures of competitors and the knock-on effects of clearance sales affecting profits in the short-term. Hidden within this price decline is a great opportunity for enhanced recovery as it looks to capture this abandoned market share while also increasing own-label sales. Roughly seventy competitor stores have left the market and this offers a rare opportunistic market window and management are looking to drive growth with plans to ramp up to eighty stores, with five already opening in 2018, with two more expected by Christmas.

The slow 2018 is already starting to give way to new growth, with a recent update reporting stronger earnings and analyst consensus forecasts predict further strong growth out to 2021. There is a decent 3.8% dividend yield here that is set to continue rising past 5% within the next two years – but our main focus is capital growth and we like the broad expectations for aggressive sales, margins and earnings growth going forward.

Pricing has benefitted from the early signs of recovery with recent reporting helping to lift BBN out of a two-year downtrend mid-2018, with a sharp rally raising prices up from $1.50 to meet resistance at $2.50 before falling back to successfully test new support at $2.00 in recent weeks. With prices rebounding off support BBN now looks ready to go higher with positive signalling present across short, medium and long-term timeframes. We expect price to follow earnings higher and with a great recovery background picture, and exciting technical setup, we think Baby Bunting could be about to experience a newborn uptrend.
 


 

Growth Focus: Freedom Foods Group Ltd (FNP)

by Patrick Taylor



 
Date of Data Capture: 5/11/2018
 
Name: FREEDOM FOODS GROUP LTD (FNP)
      
Classification: Food Processing
 
Current Price: $5.12
 
Market Capitalisation: $1.264 B
 
Forecast EBITDA Growth: 66.84%
 
Yield Estimate: 1.12%
 
Consensus Price Target: $6.86
 
# Covering Analysts: 2
 
Discount at Current Price: 33.98%
 
Price Target Trend: Increasing-Flat
 
Signal Timeframe: Quarterly-Monthly-Daily
 
Trend Bias: Up-Down / Long-Short

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

Recommendation: Buy
 
Focus: Capital Growth
 
Set up Notes:
·    Despite pulling back 30% over the last 2 months FNP remains in longer-term uptrend and this should be a good opportunity to pick up a high-performing stock at a handy discount.
·    Excellent performance has been driving prices higher and we expect this to continue with very strong forecasts for increasing sales, margins and earnings carrying through to 2021.
·    Pricing has pulled back to $5 support - which was the last breakout zone and it is fairly normal to see this retested – and we have shorter-term signalling turning positive here, right now.
·    Price targets sit higher at $6.00, $6.50 and $7.00 and we see support layered in at $5.00, $4.50 and down to $4.00 if needed.


Growth Focus: 
Freedom Foods Group Ltd (FNP)

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

We don’t take liberties when we recommend stocks - each choice must pass through our selection process and stand out amongst peers with solid performance and great potential. We do however like to take advantage of good opportunities and short-term weakness in great companies, and that is why we are putting Freedom Foods Group Ltd (FNP) back on the table as we hope to take a bite of their healthy dip in price.

Established in 1990 and based in Sydney, FNP manufactures and sells specialty food products, mostly operating within the ‘health and wellness’ sector of the market. Being a mostly domestic operator within Australia, the company is gaining exposure to markets within North America, the Middle East, China, South-East Asia and New Zealand, working with Woolworths, Coles, Aldi, Costco, 7Eleven, Wholefoods and Target, among other major brands.

The market for organic/non-allergenic foods and products has been growing steadily for years - most visible in the gluten-free and organic consumer trends - with further gains forecast to continue and even gain strength out to 2021. Although analyst coverage is relatively thin, aggressive growth across sales, margins and earning is expected and reflected in the current large discount to rising consensus price targets.

A more focussed push into the Chinese markets is coming with FNP recently announcing a joint venture with Theland New Cloud Digimart Co for the development of Freedom’s “Arnold’s Farm” range of snacks and cereals in China
earlier this month. Theland is majority owned by Alibaba and makes its produce available throughout 25 provinces and distributed to 4000 outlets, representing a continuation of five years trading within China and remains a key area of growth for the company going forward.

The share price of FNP gained almost 3000% from the beginning of the rally seven years ago, reaching a peak of $7.00 in September before falling almost 30% over the last eight weeks. Right now the price is sitting just above major support at $5.00 and with short-term signalling turning positive we are expecting a rally to take pricing higher in the short-term and for the longer-term strength to continue. We take confidence in the very large on-market buying by directors and Perich family members taking advantage of recent market weakness. We are also happy to take a bite of FNP at these levels and think they can continue to firm up their bottom line.


Growth Focus: Afterpay Touch Group Ltd (APT)

by Patrick Taylor



Date of Data Capture: 26/9/2018
 
Name: AFTERPAY TOUCH GROUP LTD (APT)
      
Classification: Transaction & Payment Services
 
Current Price: $16.97
 
Market Capitalisation: $3.69 B
 
Forecast EBITDA Growth: 46.75%
 
Yield Estimate: 0%
 
Consensus Price Target: $23.37
 
# Covering Analysts: 6
 
Discount at Current Price: 37.71%
 
Price Target Trend: Increasing
 
Signal Timeframe: Monthly-Daily
 
TrendBias: Up-Down / Long-Short

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

Recommendation: Buy
 
Focus: Capital Growth
 
Set up Notes:
·    Some of you may dismiss this as ‘paying-up’ for Afterpay considering the strong performance of the last 16 months – but with excellent growth forecasts and now coming out of a 35% price consolidation, it might be cheaper than it seems.
·    Fundamental growth has been exceptional with earnings climbing more than 700% from 2017 and has very aggressive growth forecasts ahead - driven by surging sales expectations - with price targets up 160% in the last three months.
·    Technically, the price looks attractive after dipping from the recent peak of $23 in August, to reach lows of $15 earlier this month before breaking through linear resistance last week.
·    Higher resistance targets are at $18, $20 and $22 with support layered at $16, $15 and $14 below.


Growth Focus: AFTERPAY TOUCH GROUP LTD (APT)

The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.


Despite the price for buy-now/pay-later specialist; Afterpay Touch Group Ltd (APT), recently falling by 35%, it is still up over 200% in the last 12 months. That may have you wondering if they are too expensive, that we are coming in too early, and whether it is a case of buy-now and pray-later.

A fast growing company can look precarious when an investor is trying to find an entry price during the ascension stage of a longer-term uptrend - and even with the recent pullback the stock is still running a triple-figure price/earnings ratio that would normally be a cause for concern. But with investing perspective is everything and as the market is forward looking, relying solely on past performance does not work for growth investing.

Afterpay has a novel approach where the company is paid by the retailers themselves rather than by charging consumers interest payments. Following its success in Australia and New Zealand, APT believes it has a globally scalable business model and they could be right. International expansion is gathering momentum in the US, and a recent capital raising was completed to fund the acquisition of ClearPay and gain access to the UK market.

Operations show good brand recognition and loyalty with strong client retention and repeat business - this is highly important as the customer base is dominated by younger demographics underserved by traditional credit services. APT has existing partnerships with major retailers like Myer, David Jones, Office Works,  Target, Jetstar, Revolve, Lorna Jane, Adore Beauty, Cotton On, Urban Outfitters, to name just a few and has plenty of scope for further growth.

Business has been good with the last set of results showing massive growth in sales and earnings, with excellent forecasts out to 2021. Despite underlying profit growth and stronger operating margins, the company does see the need for incremental fund-raisings to support international growth. This type of approach can be well received if lead by cash flow and the market seems open to the story with strongly positive analyst sentiment reflected by the large discount to fast rising consensus target prices.

Technically the stock looks good for a shorter-term entry after the recent pullback, with signalling calling us to make the most of the linear resistance break last month. There remains some residual negativity in the medium-term which is an effect of the recent drop, but right now with strongly positive analyst sentiment and a large discount to value expectations, we are happy to pay up and go after what could be a bargain.
 

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). 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.