Equities Commentary

Growth Focus: Afterpay Touch Group Ltd (APT)

by Patrick Taylor

Date of Data Capture: 26/9/2018
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

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.


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.

Growth Focus: Helloworld Travel Ltd (HLO)

by Patrick Taylor

Date of Data Capture: 13/9/2018
Classification: Travel – Consumer Services
Current Price: $5.41
Market Capitalisation: $665 M
Forecast EBITDA Growth: 21.47%
Yield Estimate: 3.81%
Consensus Price Target: $6.01
# Covering Analysts: 4
Discount at Current Price: 11.09%
Price Target Trend: Increasing
Signal Timeframe: Monthly-Weekly-Daily
TrendBias: Up-Flat/Medium-Short

Short-term: Positive-Neutral
Medium-term: Positive

Recommendation: Buy
Focus:(Dividend Income &) Capital Growth
Set up Notes:
·    HLO continues its long-term recovery backed by strong performance and forecasting as pricing pushes against overhead resistance at $5.50.
·    A strong performer since 2016 with analysts forecasting further robust growth to 2021 on expanding sales, margins and earnings.
·    A decent dividend is a nice bonus and should pass 4% by 2020 but we like the potential for further capital growth and the majority positive analyst recommendations should help that.
·    Pricing is pushing against minor resistance at $5.50 through with signalling turning positive here we should see that tested soon with old price targets much higher above and good support layered from $5 to $4 below.

Growth Focus: Helloworld Travel Ltd (HLO)

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

After nearly a decade of underperformance and falling prices, long-suffering investors could be about to enjoy a well-earned change of scenery with Helloworld Travel Ltd (HLO) as the travel agent looks to continue its recovery on the back of strong performance, exciting forecasts and a compelling technical outlook that we believe is packed with potential.

Starting out in 2000 this travel distribution company provides international and domestic travel services to clients around the world, with 2000 staff members in Australia, New Zealand, US, India, Europe and Asia Pacific. The company operates retail, wholesale and travel management segments through a wide array of brands including Helloworld Travel, Harvey World Travel, Travel scene, Jetset Travel, My Travel and the newly acquired Magellan Travel. The recent addition of the latter group nicely maps out the combined prospects for further expansion via both organic and acquisitive growth.

Performance has shown steady and sizable gains for the last few years, with earnings up 18% last year and similar growth expected ahead with strong forecasts showing increasing sales, margins and profits out to 2021. This growth profile stacks up nicely with the current 12% discount to sharply rising consensus price targets and carries a strong majority positive outlook. It should be mentioned that HLO can be a low volume stock at times so patience may be needed on entries and exits.

Apart from that little bit of extra baggage, there is also a decent 3.8% dividend yield here, which is expected to increase towards 5% in the same timeframe, but really we are here for growth and there should be plenty of scope with strong sector performance backing them up. A similar growth trend is seen across travel generally with airline passenger numbers showing strong enough growth that we can be reasonably sure that the growth expectations are well grounded.

Pricing history shows HLO travelling through some incredible highs and lows as it navigated the dot.com boom and bust and again during the GFC. The strong rally leading up to the peak of 2007 gave way to a crushing bust and seven years of declining valuations before a new long-term uptrend began in 2014. In the time since we have seen the stock moving up through major resistance barriers and pushing higher backed by good performance.

Right now Helloworld Travel offers an attractive ticket, combining excellent fundamental performance and strong forecasting, with an exciting technical outlook and fresh positive signalling across major key timeframes. If strong analyst support and rising targets are correct, this will be no flight of fancy.

Growth Focus: Pilbara Minerals Ltd (PLS)

by Patrick Taylor

Date of Data Capture: 31/8/2018
Classification: Lithium Mining
Current Price: $0.81
Market Capitalisation: $1.5 B
Forecast EBITDA Growth: Initiating Production
Yield Estimate: 0%
Consensus Price Target: $1.10
# Covering Analysts: 7
Discount at Current Price: 35.80%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Monthly-Daily
TrendBias: Up-Flat/Long-Medium

Short-term: Positive-Neutral
Medium-term: Neutral

Focus:Capital Growth
Set up Notes:
·    Lithium companies on the ASX have been falling in price while electric vehicle sales and forecasts have been surging higher – if forward forecasting is correct then this is a great buying opportunity as PLS moves towards production.
·    With no real performance data we like the 36% discount to the consensus price target of $1.10, recent resource upgrade, company specific forecasting, and strong sector expectations for rapidly growing global demand for lithium.
·    While pricing has pulled back 35% this year (after the 200% rally from late 2017) we see early-stage positive signalling coming through here now.
·    W
e mark strong support at 80c with further support layered down to 70c and 60c with resistance targets higher at $1.00, $1.10 and $1.20.

Growth Focus:Pilbara Minerals Ltd

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

You either believe that electric vehicles are the future of transport or you don’t. Taking into account the superior performance, safety advantages, much reduced ongoing maintenance, and the low-cost convenience of home ‘refueling’, we believe electric vehicles have many advantages that will continue to drive them forward. The current weakness seen across the battery metals space should provide a good entry opportunity into Pilbara Minerals Ltd (PLS) as the emerging lithium supplier begins to ramp up production and gets ready to charge ahead.

A bright future doesn’t ensure a smooth path and this year has seen many battery commodity stock valuations sliding back down on profit-taking and underlying materials price consolidation. This is a normal part of the market cycle and doesn’t mean the sector is slowing down, because if anything it seems to be speeding up, with EV sales performance beating expectations with growth forecasts accelerating.

If you are having trouble reconciling the recent pullback with the robust outlook you are not alone, but at least we have some guidance from what the major automakers think is going to happen, with nearly 100 billion US dollars being allocated for EV investment by major automakers like Ford, VW, Toyota, BMW, Mercedes and Porsche. This is in addition to increasing growth from leading EV specialists and isn’t yet including scope for trucks, buses and cargo shipping, and flight engines which will all require more batteries and more lithium. 

All of the near-term PLS lithium production has been secured through offtake agreements in place with major players General Lithium, Jiangxi Ganfeng Lithium Co, POSCO, and Great Wall – with tantalum offtake secured by Global Advanced Metals. In May the company increased the size of the Pilgangoora lithium resource by 36% and just last month showcased confident plans for expansion aggressive production growth whilst maintaining high margins and a long mine life. This provides a nice backdrop as the company fast approaches ramp up into full production with forecasts calling for an aggressive move into first profits. 

Founded at the start of 2005, PLS listed in 2007 and experienced some twists and turns on a somewhat rocky road before the beginnings of the current electrification wave saw them racing ahead in 2015. The stock tends to move in large trend cycles; moving up over 2000% from 2015-16 before falling back 64% by mid-2017, and then rallying 300% by year-end before pulling back by around 40% this year. Currently price is sitting above support at 80c and while we do have some short-term positive signalling we may be a bit early on catching the bottom here with some residual negativity seen in the medium-term, and could see pricing push lower towards deeper support.

Regardless of the background noise and volatility, we like the high potential opportunity presented here with PLS showing an exciting combination of aggressive growth forecasts and a strong discount to consensus target pricing. As the company gets closer to full production we should see interest and investment return to the stock as it prepares to power forward.   

Growth Focus: Mount Gibson Iron Ltd (MGX)

by Patrick Taylor

Date of Data Capture: 2/8/2018
Classification:Iron Ore Miner
Current Price: $0.44
Market Capitalisation: $473 M
Forecast EBITDA Growth: 44.85%
Yield Estimate: 4.65%
Consensus Price Target: $0.55
# Covering Analysts: 2
Discount at Current Price: 25%
Price Target Trend: Increasing
Signal Timeframe:Quarterly-Monthly-Daily
TrendBias: Up-Flat/ Medium-Short

Medium-term: Neutral

Focus:Dividend Income Capital Growth
Set up Notes:
·    We are looking for the recovery to continue on MGX as it aims to get the Koolan Island mine dewatered and operational in 2019, taking advantage of an improving iron ore market.
·    Performance has been declining over recent years following the collapse of iron ore pricing and the 2014 flood of the Koolan pit, but plans aim for a return to mining operations next year.
·    Pricing has seen two major cycles unfold in the last 15 years, with pricing increasing by 1000% before declining by 90% each time, right now we seem to be at the beginnings of another rally if it can break through resistance overhead.
·    We see resistance targets at 45c, 50c and 65c with support layered at 40c, 35c and 30c.

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

It is unfortunate the famous cliché of the Chinese word for "crisis" meaning both “danger” and “opportunity” is completely incorrect as it would apply well to Mount Gibson Iron Ltd (MGX) as the company looks to recover from its 2014 flood disaster. The danger that befell the Chinese backed iron-ore miner could well become a great opportunity for investors as they look to recover their asset and return to mining.

Founded in 1996 and based in Perth, Mount Gibson is an iron ore miner currently operating assets in the Mt Gibson range as well as working to rebuild the sea wall that broke and flooded the main pit of their Koolan Island asset in late 2014. That disaster capped a rage to riches to rags vicious cycle over a 15 year period where the stock rallied 4000% from sub 10c in 2003 to reach highs of almost $4 by early 2008. In the volatility of the GFC the stock declined by over 90% by early 2009 before rallying over 1000% to almost reach $2.50 by late 2010. In the 5 years that followed pricing again declined by over 90% as the stock weathered falling iron ore prices and a catastrophic collapse of the sea wall and flooding of the main pit on its Koolan Island operation.

So this is a recovery story, and it could be a good one – the stock has plenty of cash after receiving the insurance payout needed to rebuild operations there and with plans under way this could be the time to step back in as rehabilitation proceeds with plans for reopening the mine and beginning shipping ore by first quarter of 2019. The stock market tends to be forward looking and price should begin to reflect the rebirth of this major asset and a recovering iron ore market.

Growth Focus: Capitol Health Ltd (CAJ)

by Patrick Taylor

Date of Data Capture: 19/7/2018

Name: CAPITOL HEALTH LTD (CAJ)               

Classification: Healthcare Services

Current Price: $0.32

Market Capitalisation: $250M

Forecast EBITDA Growth: 18.93%

Yield Estimate: 1.61%

Consensus Price Target: $0.37

# Covering Analysts: 3

Discount at Current Price: 15.63%

Price Target Trend: Increasing-Flat

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Flat / Medium-Short

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

Recommendation: Buy 

 Focus: Capital Growth

Set up Notes:

·    CAJ has been a stock of mixed fortunes and large trends. Here we see good potential for the continuation of their long-term recovery with positive signalling combining well with good fundamentals and forecasting out to 2020.
·    Good recent performance has pushed prices higher on expanding sales, margins, profits and earnings - stronger growth is expected ahead which is mirrored by rising price targets. 
·    Pricing has gone through a major boom-bust cycle, climbing 3500% from 2011-14 and then falling 90% to 2016, we see signs of extension to the long-term recovery uptrend running since 2017, with major resistance breaking last month.
·   Support sits at 30c and 25c with resistance targets higher at 35c, 40c, 50c and beyond.

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

When searching the market for investment prospects we are constantly scanning companies for signs of growth and health, accordingly it is fitting that we take a closer look at diagnostic imaging company Capitol Health Ltd (CAJ) to see if recent strength will lead them to a greater recovery.

Headquartered in Melbourne, Capital Health provides diagnostic imaging services throughout Victoria and Tasmania, providing a wide array of scanning services, ranging from X-rays to Doppler, ultrasounds and nuclear medicine. The company has an active acquisition strategy to boost organic growth, recently picking up nine radiology clinics in Western Australia. A counter note was seen in the failed (but well-targeted) takeover attempt of Integral Diagnostics Ltd (IDX) earlier in the year, and we expect this activity to continue as CAJ builds its presence interstate, within a growing sector that is already undergoing M&A consolidation.

Performance over the last few years has been steady rather than robust, but we are happy to increase our exposure to the healthcare market, backed to be one of the main beneficiaries of the ageing Boomer demographic. While CAJ carries decent forecasts for 2018 - with strongly positive consensus analyst sentiment - growth expectations become more aggressive with very strong earnings forecast out to 2020 on the back of improving margins and profits and sales. As the market tends to be forward looking, we should start to see pricing mirror these expectations and in the meantime the stock is currently discounted by over 15% compared to rising consensus target prices.

One aspect that could be causing investor caution might be Capital’s dramatic pricing history; a 90% fall from 2006 to 2010, leading to a 3500% rise from 2010 to 2015, following yet again by another 90% fall by late 2016. The current emerging uptrend could easily be seen as the continuation of the greater recovery uptrend seen since mid-2017 and this is significant with price breaking through important resistance and out of the year-long 25c to 30c trading range just last month.

In recent weeks we have seen pricing pushed back to test the old resistance ceiling at 30c for support, but this should be a buying opportunity as we see good positive momentum developing across multiple timeframes. With an active acquisition strategy in a robust marketplace, with plenty of growth opportunities available, backed by strong forecasting and an exciting technical setup, we think the potential of Capital Health should be clearly visible to all.


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.