Equities Commentary

Growth Focus: Ingenia Communities Group (INA)

by Patrick Taylor



Date of Data Capture: 1/8/2019

Name: INGENIA COMMUNITIES GROUP (INA)

Classification: Residential & Commercial REIT

Current Price: $3.42

Market Capitalisation: $808M

Forecast EBITDA Growth: 19.24%

Yield Estimate: 3.30%

Consensus Price Target: $3.62

# Covering Analysts: 2

Discount at Current Price: 5.85%

Price Target Trend (3-Month): Up-Flat +2.84%

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Up-Flat / Long-Medium

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

Recommendation: Buy

Focus: (Dividend Income) & Capital Growth

Set up Notes:
• INA has been moving up within a long-term recovery uptrend and has recently moved out of a 6-year consolidation, with good performance and strong forecasting backing it up we think it should have further to run.
• Strong sales and earnings growth since 2016 has built confidence and a good track record, we see this growth trend extending to 2021 with good analyst sentiment and expectations.
• The major 6-year resistance ceiling at $3 broke earlier this year and has since retested that support level, but now with a move through minor resistance the stock looks to be breaking out in earnest with plenty of targets above it.
Support ($): 3.25, 3.00, 2.75 & 2.50.
Resistance ($): 3.50, 4.00, 5.00 & 6.00.

Growth Focus: INGENIA COMMUNITIES GROUP (INA)

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

Some investments take time to mature before they become the right stock at the right time, but here we are looking to take advantage of the maturing boomer demographic with aged-care real estate specialist Ingenia Communities Group as the stock shows increasing fundamental strength and a reinvigorated stock price.

Listed on the ASX since 2004, INA develops and manages specialist real estate operations with a focus on aged-care and transitional accommodation. Operating through three separate business arms, the company provides holiday, rental and ownership opportunities to customers in Queensland, New South Wales, Victoria and Western Australia, giving investors good geographical spread and sector diversity.

The company has been experiencing solid organic growth, as well as maintaining an ongoing and active acquisition strategy, last seen with the Eighth Gate purchase, increasing total holdings by 10 communities. This is offset somewhat by an equally active program of non-core asset divestment, helping to lower debt and continue the trend of reducing leverage since 2017.

Ingenia has seen strong and steady growth across sales, margins and profits since 2016, this is forecast to continue out to 2021 and is expected set to accelerate in the medium-term. Yield is a healthy 3.20% and will increase towards 3.5% by 2021, and should be well supported by increasing earnings, with EPS being consistently revised upwards over the last 18 months.

Analyst coverage is thin but positive, with both analysts carrying good sentiment and valuations show a discount to current pricing of almost 6%, but it is also worth noting that these targets have been rising steadily higher over the last two years, another trend we expect to continue.

Pricing shows the company is currently in the midst of breaking above important resistance above $3 after forming a support base throughout much of 2018. With major structural and dynamic resistance breaking mid-2018, and again just three months ago, the stock looks like it is forming a new long-term uptrend, and there are plenty of price targets above current levels.

We see good momentum being signalled here across multiple timeframes and believe the strong combination of attractive technical setup and strong fundamental outlook should provide good support, and with positive price action in confirmation, Ingenia shares look to have a new lease on life.

Growth Focus: Independence Group NL (IGO)

by Patrick Taylor



Date of Data Capture: 17/7/2019

Name: INDEPENDENCE GROUP NL (IGO)

Classification: Integrated Mining

Current Price: $5.19

Market Capitalisation: $3.07B

Forecast EBITDA Growth: 23.55%

Yield Estimate: 1.39%

Consensus Price Target: $5.05

# Covering Analysts: 13

Premium at Current Price: 2.70%

Price Target Trend (3-Month): Up-Flat +6.32%

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Up-Down / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Gold, nickel and zinc miner IGO is moving up within both a medium and long-term uptrend (medium pictured here) showing good technical momentum combining well with strengthening fundamental performance and good forecasts.
• Very strong earnings gains in 2018 were driven by a big jump in sales, firmer margins and significant debt reductions – the tough times over the last 10 years have transformed the company and it is looking lean and mean here.
• Major 9-year linear resistance broke at the outset of 2018 and after working through an intermediate down-cycle, pricing now looks ready to move higher after important structural resistance ceiling at $5 broke earlier this week.
Support ($): 5.00, 4.75, 4.50, 4.25 & 4.00.
Resistance ($): 5.25, 5.50, 6.00, 7.00 & 8.00.


Growth Focus: INDEPENDENCE GROUP NL (IGO)

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

While it is true that flags do represent ‘independence’ in a number of countries around the World, here we are following the technical resistance break of a nine-year ‘pennant’ charting pattern as Independent Group pushes higher on surging nickel pricing, strengthening performance and excellent forecasting.

Listing on the ASX in 2002, IGO has experienced a volatile mix of fortunes in its time, but has nevertheless grown to become a leading Australian integrated miner, producing nickel, gold, silver, copper and zinc. The company has growing exposure to high potential growth metals like cobalt (in addition to nickel and copper) in-line with the companies stated strategy of being a “globally relevant supplier of metals critical to clean energy and energy storage.”

Independence is active in exploration, with new landholdings being added this year, as well as the expansion of existing projects, recently seen with upgrades to its copper, cobalt, gold and nickel assets. A key driver of future growth is seen not just in successful mining and exploration, but also in the development of its ‘IGO process’ where the company is pioneering a method of processing of nickel sulphate, with the potential to improve efficiencies while reducing emissions and waste, with expectations for this process to bring operating costs into the lowest comparative quartile against competitors.

Performance has been volatile, with the company coming through a series of tough patches, but since 2016 we have seen consistently increasing sales, earnings and profits with strong forecasting showing expectations for this to continue out to 2021. Analyst coverage offers up a strong majority positive consensus view and while the current valuation shows only a small discount to target pricing, these targets have been rising sharply in 2019.

Pricing tells an interesting tale here with IGO making an all-time high peak in February 2008, before entering into the GFC with steep declines and an ongoing series of long multi-year trends in the time since. There has been a ceiling of linear resistance capping the stock on every rally within a 9-year pennant pattern of constricting decline. Importantly, this ceiling broken at the start of 2018, before pricing retreated within a medium-term pullback, but is now setting up with good momentum and positive signalling across multiple timeframes.

With price breaking through structural resistance at $5.00 just last week, we see this as an exciting technical setup, backed by world-class assets in strengthening metals, operating a low cost base with a strong balance sheet, and we think this nickel and gold play could really gain some lustre here.

Growth Focus: Medical Developments International Ltd (MVP)

by Patrick Taylor



Date of Data Capture: 21/6/2019

Name: MEDICAL DEVELOPMENTS INT LTD (MVP)

Classification: Pharmaceuticals

Current Price: $5.44

Market Capitalisation: $350 M

Forecast EBITDA Growth: 51.35%

Yield Estimate: 0.75%

Consensus Price Target: $5.96

# Covering Analysts: 2

Discount at Current Price: 9.56%

Price Target Trend (3-Month): Up-Flat +5.49%

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Down / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Penthrox ‘Green Whistle’ producer MVP has had a volatile run since US FDA approval was put on hold, but with good international growth and very strong forecasting, we think they are set to recover and believe this is a buying opportunity.
• Softer earnings performance last year showed growing pains for MVP as it pushes forward with its strategy of global expansion, but this dip leads into strong growth forecasts out to 2021 on robust sales, margins and earnings gains.
• The 2018 downtrend ended early-2019 with a linear resistance break before price rallied into current range, testing structural resistance at $5.50, we expect the stock to enter a new longer-term uptrend with multi-timeframe momentum.
Support ($): 5.00, 4.75, 4.50, 4.25 & 4.00.
Resistance ($): 5.50, 6.00, 6.50, 7.00 & 8.00.


Growth Focus: MEDICAL DEVELOPMENTS INTERNATIONAL LTD (MVP)

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

Even the most exciting growth stocks take the occasional hit – this can create buying opportunities in the right situations and we believe we have that here with Medical Developments, as the company moves into recovery.

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 or the ‘Green Whistle’ which is non-opioid, non-addictive and inhaled to give strong and fast acting pain relief.

The company had a difficult last year, beset by the expenses and complications of aggressive global expansion, the company began to pull back from all-time highs reached in march 2018. The hits kept coming as US/FDA approval was delayed in July, followed by a capital raise within downtrend in August later that year. It was a hard fall for the previous high flyer, but it does create an opportunity if you think the broken stock is on the mend – and we do.

Performance was softer last year with expenditures increasing while sales and income growth were hampered by various trials and tribulations. These hardships overshadowed the significant gains that were made and the company continued to progress on a path to a stronger future. The US debut may still be on hold, but Penthrox was greenlit in additional 26 countries that year – up from 22 new markets the year before. If company forecasts are correct the current number of approved countries will increase from 38 to 77 by the end of 2020.

No matter what the scope of your growth prospects earnings matter, and with the clouds beginning to clear operationally we see forecasts rising aggressively out to 2022. That timeframe allows scope for the approved entrance into large markets like, China, Russia and the US, so robust growth should be expected. The company has also made advances in improving production efficiencies, which should add further strength to a strong recovery, with sales up 56%, revenue up 57% and gross margins up 32% YOY.

Pricing history reflects a previously strong leading stock that has fallen on hard times, but also one that is potentially about to emerge into a new long-term uptrend. The linear downtrend in place from March 2018 to March 2019 took the stock lower by more than 50%, before building base support and rallying up through resistance to pause under a $6 ceiling. Here we find them turning positive on all of our key timeframes and looking like an exceptionally high potential setup. If you are still hurting from missing the strong gains of 2017, MVP might just be about the help with the pain.

Growth Focus: Altium Ltd (ALU)

by Patrick Taylor



Date of Data Capture: 11/6/2019

Name: ALTIUM LTD (ALU)

Classification: Software & IT Services

Current Price: $32.25

Market Capitalisation: $2.86 B

Forecast EBITDA Growth: 46.78%

Yield Estimate: 1.38%

Consensus Price Target: $32.44

# Covering Analysts: 5

Discount at Current Price: 0.59%

Price Target Trend (3-Month): Up-Flat +1.15%

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Flat / Long-Medium

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

Recommendation: Buy

Focus: (Dividend Income) & Capital Growth

Set up Notes:
• Strong running software design company ALU has been moving higher in aggressive cyclical uptrends - with sporadic pullbacks providing entry points - we have that here with the stock underpinned by an equally strong outlook.
• Performance has been excellent with strong growth seen across sales, earnings and profits since 2013, all while increasing margins – this is set to continue with robust forecasts to 2021.
• We are buying into short-term weakness of a strong uptrend, with pricing breaking through linear resistance just days ago as the stock bounced off $30 structural support with good momentum shown across all key timeframes.
Support ($): 30.00, 27.50 & 25.00.
Resistance ($): 35.00 then clear upside.


Growth Focus: ALTIUM LIMITED (ALU)

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

The old market truism of ‘buy strength and sell weakness’ means that you have to be prepared to pay up for good quality stocks and even be willing to buy a company as it makes new highs. Ideally you want the strong technical outlook to be matched by an equally robust fundamental growth story, and we think Altium Ltd might just be an opportunity worth chasing as it emerges from a minor consolidation after hitting all-time-highs earlier this year.

The company has 30 years of trading history and have been listed on the ASX since 1999, in that time they have matured into a dominant operator in the printed circuit board (PCB) market with integrated services ranging from CAD technological design, parts administration and cutting edge production. With the company having a declared intent to dominate its field, we see good organic growth being supplemented by an ongoing strategy of acquisition, and seeing that PCBs are integral to internet connectivity, the underlying market is good and is expected to remain so in the medium to long-term.

Altium already boasts an enviable client list including global giants like VW, BMW, Toyota, NASA, Boeing, Dell and Microsoft, but are also looking to build on this position to secure market leadership with excellent growth seen in Asia and especially in China. The company is in robust condition with no debt, increasing cash balance, and generally strong performance across key markets and an expanding subscriber base, with growth focus to remain in Asia and America.

Strong fundamental performance has been a driving force behind the consistent uptrend of the last few years with consistent gains seen across sales, margins and profits, with forecasts predicting more of the same out to 2021.
Analysts are largely in agreement with an overall positive aggregate view, though it does need to be noted that current target pricing sees the stock at a premium to expectations, though these have been rising sharply in line with stronger performance, and we expect analysts to follow the price higher.

Pricing shows a classic step/stair uptrend with regular consolidation breaks over the last two years as underlying profit growth has accelerated, this should continue and if we are right we should see pricing solidify the breakout from linear resistance near $33 last week. There remains important peak-high structural resistance remaining at $35 but with our weekly/medium-term indicator rolling to the upside with strong signal correlation, we expect price to follow market expectations higher, and while we know we are chasing this one – it could be quite a catch.


Growth Focus: Reece Ltd (REH)

by Patrick Taylor


Details

Date of Data Capture: 31/5/2019
Name: REECE LTD (REH)
Classification: Construction Supplies & Fixtures
Current Price: $10.38
Market Capitalisation: $5.86 B
Forecast EBITDA Growth: 38.89%
Yield Estimate: 2.15%
Consensus Price Target: $12.58
# Covering Analysts: 2
Discount at Current Price: 20.04%
Price Target Trend (3-Month): Flat +-0%
Signal Timeframe: Monthly-Weekly-Daily
TrendBias: Up-Down / Long-Medium
Indicators:
Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive-Neutral
 


Recommendation: Buy
Focus: (Dividend Income &) Capital Growth

Set up Notes

  • With years of strong domestic performance and earnings growth, REH has pulled back recently after completing a massive acquisition that will almost double revenue and allow access to US markets, expected to significantly boost growth.
  • Consistent sales, earnings and profit gains in Australian and New Zealand operations give a solid foundation for investment, and with the US addition this trend is set to continue further, with strong growth forecasting out to 2021.
  • Reece tends to make cyclical pullbacks within its greater long-term uptrend, and we see fresh signalling here that should combine well with emerging shorter-term positive momentum. 
  • §Support ($): 10.00, 9.75, 9.50 & 9.00.
  • §Resistance ($): 10.75, 11.00, 12.00 & 13.00.

Growth Focus: REECE LTD (REH)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.
 
Having a good business pipeline is essential for a growth company – and here we think we have a sizable opportunity with Reece Ltd (REH) as the construction supplier looks ready to build on recent acquisitions and are set to tap into the US market. 
 
For a company that is almost one hundred years old, having been listed on the ASX since 1992, Reece continues to adapt and evolve as Australia’s largest plumbing and construction supplies business. With 800 branches across Australia, New Zealand, and the United States, the company offers an attractive growth profile that belies its multi-billion dollar market cap.
 
Viewing Reece as a growth prospect isn’t difficult as the company already maintains a strong domestic base with solid historical organic growth and excellent underlying fundamental performance, which is supplemented with an active acquisition strategy. Last year Reece completed a number of takeovers, including Heatcraft in Australia and New Zealand, and also acquired MORSCO in the US - a company of similar size, almost doubling the scope of the combined entity.
 
While it takes time for any acquisition to settle in and reach full benefit, the US acquisition offers significant sales and earnings potential from a business brand already well established across some of America’s most populous states, offering large target markets. The acquisition should see cost savings and beneficial synergies as well as further potential benefits from Reece’s strong business model and innovative move towards digitisation of the product line and improved delivery performance.
 
Strong fundamental performance will remain a key driver and with an already robust track record of sales, earnings and profit growth since 2013, we gain confidence that forward forecasting is stronger than ever after the US addition. The small dividend is set to increase in significance in the years ahead and aggregate analyst price targets shows a large discount to current pricing with a favourable overall analyst sentiment.
 
Pricing shows a very long and successful history of value gains through long-running multi-year trends, interspersed with occasional consolidations providing buying opportunities into the pullbacks. We are following a well-correlated long-term signal into this entry as the stock builds a support base above $10 and looks to combine with some shorter-term strength emerging now. It may be large for a growth pick but we believe this plumbing giant will be able to handle the increased liquidity.

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.