Equities Commentary

Growth Focus: Smartgroup Corp. Ltd (SIQ)

by Patrick Taylor




Date of Data Capture: 19/5/2017

Name: SMARTGROUP CORP LTD (SIQ)

Classification: Business Support Services

Current Price: $7.05

Market Capitalisation: $876M

Forecast EBITDA Growth: 32.87%

Estimated Gross Yield: 3.98%

Consensus Price Target: $7.13

# Covering Analysts: 6

Discount at Current Price: 1.13%

Price Target Trend: Increasing

Signal Timeframe: Monthly-Weekly

Trend Bias: Up Flat; Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• SIQ looks to be coming out of a 9 month consolidation after rising 500% over 2 years and while there is some residual negativity in the very short-term timeframe, this stock looks ready to move ahead with excellent momentum building in the medium and long-term timeframes.
• Strong fundamentals back our view with excellent historical earnings performance and further aggressive growth forecast to continue into 2018.
• Currently working through $7.00 resistance with historical peak resistance target just overhead at $7.50 we expect some volatility here but see good support layered down to $6.50, $5.50 and $5.00.


Growth Focus: Smartgroup Corp Ltd

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

Sometimes it can be hard to tell whether a consolidating stock with a falling price is legitimately sick or whether it is just more of a sniffle and now offers better value with the declines. We believe we have found the latter with Smartgroup Corporation Ltd (SIQ), a business support services company seemingly ready to come out of convalescence.

Beginning in 1999 as a web-based comparison company, Smartgroup has evolved to become one of Australia’s largest employee benefit and workforce optimisation service providers. Working through their brands Smartsalary, Smartleasing, Smartfleet and SmartEquity, SIQ offers outsourced administration; vehicle services; and software, distribution and group services for blue chip clients like the Department of Defence and the WA Department of Health.

Theirs is a market still maturing and the associated expansionary phase has provided SIQ with opportunities for strong organic growth and also via an aggressive acquisition regime in a fragmentary market. This kind of hungry approach often leads to indigestion and by mid-2016 Smartgroup began to hiccup, first following from the temporary earnings dent of the Autopia acquisition and later with the diluting effects of the fund raising for the Selectus takeover. Expansion often takes time to process before the benefits can be had, and that is what we expect here with excellent fundamental performance and strong forecasting highlighting a company with plenty of room for recovery - especially with the gains they have made into the corporate sector.

They offer excellent cash flow and even pay a decent dividend, but really we are here following signs of remission, and we do have that; with good growth seen across margins, earnings and profit with good forecasting backing growth through to 2018. We only have a small discount to target prices here with aggregate valuations coming in just 1% higher than current pricing but those targets have risen over 12% in the last 3 months alone. The six analysts covering SIQ are consensus positive on them with sentiment improving over the last few months as they continued to nurse prices higher.

Historically they show a trend of rare beauty, where after a constrained start in 2014 ranging between $1.60 and $1.20, the beginnings of 2015 saw them start their 600+% rally through to their mid-2016 peak of $7.70. From there they toppled over under the weight of an exhausted trend and consolidated down over 30% over three queasy months before beginning their rally to current levels.

Here we find them working on $7.00 resistance - which may yet see a few minor pullbacks with some weakness showing in the short-term. The medium and long-term picture is one of rude health however and is strong enough to view any weakness here as an opportunity and any bounce off $7.00 as worth following. Declining price does not always mean declining conditions and we believe that SIQ may yet make a longer-term recovery.

Growth Focus: Xero Ltd (XRO)

by Patrick Taylor



Date of Data Capture: 6/4/2017

Name: XERO LTD (XRO)

Classification: Enterprise Software

Current Price: $18.39

Market Capitalisation: $2.16B

Forecast Sales Growth: 44.44%

Gross Yield: 0%

Consensus Price Target: $18.05

# Covering Analysts: 6

Premium at Current Price: 2.27%

Price Target Trend: Increasing Flat

Signal Time Frame: Quarterly-Monthly-Weekly

Trend Bias: Up Flat ; Medium-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• After an extremely aggressive first year in which the stock grew almost 1000% XRO has since fallen sideways within a major consolidation for close to three years from their 2014 peak.
• With performance starting to chase potential now is the time to see if they can continue moving up through resistance and build on the base set up throughout 2016.
• We have good signal correlation and positive multi-timeframe momentum building here as we take aim at major resistance targets around $20 and $24, with old highs towering above at $42.
• Support is good and has some nice structure layered down from $18 to $16 and $14.


Growth Focus: Xero Ltd (XRO)

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

Normally we look for a good combination of fundamental and technical strength when focussing on a particular growth stock; choosing to zero-in on robust earnings performance and forecasts, coupled with a high potential technical outlook backed by favourable price action. While this is not quite the same case just yet, we found we could not discount accountancy software company Xero Ltd (XRO) which - even without turning a profit - seems destined to rise above its moniker and add up to something big.

Beginning their charter in 2006, Xero is an online software provider offering personal and small business accounting systems and tools covering transactions, cashbooks, general ledgers, accounts, payrolls, and reporting and management, covering monthly and annual accounts. Holding firm as Australia and New Zealand’s dominant provider of accounting and enterprise software, they are also adding growth in the much larger US, UK markets and carry excellent margins and regular cash flow. We think we can count on them moving forward from this expansionary phase to meet aggressive fundamental forecasts, continue hitting milestones and getting closer to break-even and much higher valuation metrics.

XRO made a dazzling entrance to the market late in 2012 at just over $4 and proceeded to cut a fine figure as prices rose up almost 1000% to reach $43 by early 2014 before their numbers were crunched over the following three years, falling by more than 70% from their peak. The current recovery price-base has been formed by two bounces off $12 support, with the first being mid-2015 and the second in early-2016. Since then we have seen the price break through dynamic resistance around $16 by mid-2016 before moving up to test $20 structural resistance by late 2016. Pricing failed to break through this ceiling and moved down to test $15 structural support once more, with that level holding prices bounced back once again and have since coiled sideways, moving through shorter-termed cycles with momentum building across multiple timeframes.

We see good signal correlation across the major timeframes and these have turned almost universally positive with prices bouncing off dynamic support early in 2017. Add that to Xero’s strong sales growth and fundamental forecasts - and with their landmark one millionth subscriber signing on last month - we think this could be the calm before the storm and this cloud-based service operator could be about to make it rain.

Growth Focus: Link Administration Holdings Ltd (LNK)

by Patrick Taylor



Date of Data Capture: 10/3/2017

Name: LINK ADMINISTRATION HOLDINGS LTD (LNK)

Classification: Business Support Services

Current Price: $7.84

Market Capitalisation: $2.82B

Forecast EBITDA Growth: 25.29%

Gross Yield: 2.18%

Consensus Price Target: $8.29

# Covering Analysts: 5

Discount at Current Price: 5.8%

Price Target Trend: Flat

Signal Time Frame: Monthly-Weekly-Daily

Trend Bias: Up Flat; Medium-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Upon listing LNK rallied 30% in 6 months before consolidating back to baseline just 3 months later. They are now emerging from this base and look to be re-entering a longer-term uptrend.
• Sector and fundamental strength give support to a favourable outlook with good forecast growth seen in earnings, profits and margins.
• Positive short and medium-term signalling have been joined by a freshly green long-term signal that came through just as linear resistance broke last week. We expect this uptrend to continue with obvious resistance targets overhead at $8.00, $8.20 and $8.80 with good support layered down from $7.70 to $7.00.


Growth Focus: Link Administration Holdings Ltd (LNK)

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

With further growth expected across the Australian superannuation industry we are looking to weave together solid fundamental forecasts, exciting technical outlook and a high potential set-up in our attempt to net a profit. Link Administration Holdings Ltd (LNK) has all the points mentioned, and while it can sometimes be tricky to connect the dots correctly, with Link we think we have made the right connection.

Starting out in New Zealand 2005, Link has since headquartered in Sydney and grown operationally across countries including Australia, South Africa, India, Germany and Hong Kong. With customers like AustralianSuper and REST, LNK businesses cover fund administration, corporate markets and information/data servicing. They are the top superannuation software company in Australia with defensive earnings and revenue coupled with recent signs of recovery growth and are attached to some exciting fundamental forecasts which should combine well.

While excellent price growth has been seen across the superannuation services sector recently, Link spent the majority of 2016 weakening off until finally coming loose at the end and whipping down almost 30% from their mid-year peak. Since then they have steadied above $7 support before breaking through primary linear resistance last week and have technical indicators turning positive across multiple timeframes in tandem right now.

In the 18 months since listing they have gone through the well-worn channel where a company gets an initial IPO-pop and price rally which is then followed by a dip that clears the stag profits. This is normally a small-scale boom and bust cycle that establishes primary support and resistance and basically sets the stage for the development of the company in the market going forward. This is what we have here – on a very large scale – registered in the monthly timeframe and representing a very large pattern with significant potential.

With further broad growth expected across the sector, Link is well situated and should see strong fundamental conditions unite well with improving price performance and positive signalling now seen in the longer-term timeframe. This longer range setup ties in well with pre-existing uptrends currently ongoing in the medium and shorter-term timeframes and should allow prices to hitch higher yet. For all these reasons we think your portfolio might just have a missing Link.

Growth Focus: SpeedCast International Ltd (SDA)

by Patrick Taylor




Date of Data Capture: 25/2/2017

Name: SPEEDCAST INTERNATIONAL LTD (SDA)

Classification: Satellite Telecommunications

Current Price: $3.89

Market Capitalisation: $929M

Forecast EPS Growth: 87.13%

Gross Yield: 2.08%

Consensus Price Target: $4.87

# Covering Analysts: 6

Discount at Current Price: 25.19%

Price Target Trend: Increasing Flat

Signal Time Frame: Monthly-Weekly-Daily

Trend Bias: Up Flat ; Long-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• After an initial aggressive growth phase saw gains of 125%+ from 2014-2015 SCA then consolidated down 30%+ over most of 2016, there are signs that this longer-term downtrend is now easing and is beginning to reverse.
• Strong fundamental performance and forecasts back up the positive technical view with good discounts to consensus targets and further earnings growth expected.
• Technical signalling is turning positive across multiple timeframes and while some overhead resistance remains at $4.00 – linear resistance broke recently and in-line with shorter-term indicators, support lies $3.50-$3.80.


Growth Focus: SpeedCast International Ltd (SDA)

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

Normally the last thing you want to hear about a satellite company is that it has fallen, but indeed that is why we are buying SpeedCast International Ltd (SDA). After a stellar first year - where this global communications company rose by 150% to reach a zenith of $4.75 by late 2015 - things soon fell back to earth and prices cratered by 30% to hit a low of $3.02 only a year later. With strong performance and forecasts, backed by robust organic and acquisitive growth, we believe their star may be on the rise again.

SDA provides satellite communications and internet services to remote or unique clients unable to connect to more standard service models, including mining outposts, oil rigs and cruise ships. Their recent buyouts of other players in the field like WINS Ltd and Harris Caprock Ltd have been mixed blessings as capital raisings and share issues have taken their toll on the share price in the short-term. What we haven’t seen yet is the true extent of the benefit of these purchases in expanding overall market share and diversity - these should be significant but might yet prove to be meteoric.

SpeedCast does pay a small dividend but it is their prospects for future growth that brings this stock into our orbit, coming off a launching pad of increasing sales, earnings margins and profits that is forecast to continue to rise and fuel future growth. Feeling this same gravitational pull of positive forecasting the six analysts covering SDA have aligned for a consensus price target of $4.87 carrying only positive outlooks for the company. These predictions carry them above their previous highs and represent a current discount of 25% to today’s pricing, leaving them plenty of space to fill.

On the technical view we see a strong rally lift them over twelve months, after an initial stumble on entry to the market, before entering into a year-long consolidation they are only emerging from now. The longer-term signal carries good correlation and turned positive just as linear resistance broke around $3.80, which decent signal carriage from smaller timeframes adding to momentum and potential under resistance at $4.00. That ceiling didn’t pose a strong barrier the first time it broken and with clear signs that strength is returning to SDA and we might just be seeing their uptrend attempting a re-entry here.

With excellent fundamental performance behind them, coupled with global potential and an exciting technical outlook, SpeedCast might be ready to once again eclipse market expectations.

** Edit: 28-2-2017 H1 FY17 Results were released before the publication of this article **
SDA has reported strong EBITDA growth of 42% and NPAT growth of 30% - this is slightly under expectations but still very strong. The stock has been discounted by 10% in the market today and we are using that as an opportunistic entry. We are happy with our analysis and accordingly this article has been published in original format.

Growth Focus: MNF Group Ltd (MNF)

by Patrick Taylor



Date of Data Capture: 10/2/2017

Name: MNF GROUP LTD (MNF)

Classification: Telecommunications Services

Current Price: $4.86

Market Capitalisation: $327M

Forecast EBITDA Growth: 31.46%

Gross Yield: 1.75%

Consensus Price Target: $5.75

# Covering Analysts: 4

Discount at Current Price: 18.31%

Price Target Trend: Increasing

Signal Time Frame: Quarterly- Weekly-Daily

Trend Bias: Up-Flat ; Long-Medium-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• MNF is riding a strong long-term uptrend interspersed with occasional (mostly sideways) consolidations – the current compression seems to be ending with signs indicating the price may be ready to proceed again.
• With good fundamental performance and forward forecasting backing them, we are given additional confidence from recent aggressive upgrades to target pricing.
• There is some weak negativity in the monthly timeframe but this is outweighed by positive momentum seen in the daily, weekly and quarterly timeframes.
• Resistance remains overhead at $5.00 with good support around $4.50, $4.25 and $4.00.


Growth Focus: MNF Group Ltd (MNF)

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

While the idea of buying a great stock at rock bottom prices can be an attractive dream, the reality is that growth is often built most firmly on previous growth. Strong historical performance also comes with a price but all good big companies were once small companies whose price kept going up. Such is the case here where we need to crane our necks back to focus on MNF Group Ltd (MNF) as the erstwhile My Net Phone continue to increase their net sales, earnings, profits and potential.

This voice over internet protocol specialist and integrated voice services company began business in 2004, listed on to the ASX in 2006 and is headquartered in Sydney. MNF is fast growing, cash accretive and actively acquisitive, having absorbed wholesale voice carrier TNZI in April 2015 and also CCI at the start of this month. While these deals pave the way to future growth the full benefits and synergies tend to take a little while to kick in. This seems to be under full swing with TNZI, though the CCI deal, while having some immediate benefits, will take some time to mature.

Luckily MNF is able to stand on its own two feet when it comes to organic growth with deals struck with Telstra in October of 2016 and the Victorian government earlier this month also. This adds to a now familiar tune of strong fundamental growth that is set to keep on going, with EBITDA up 46 last year and significant growth forecasts ahead. While they do pay a small dividend it is really their growth prospects that bring us to the yard and with 4 analysts giving an aggregate target price of $5.75, some 18.3% higher than here, we are happy to take the line.

If we had one hang up it would be hat they haven’t really had a real drop in the market since the GFC and really the best entries to be found over the last few years have been by elbowing into positions during occasional, mostly sideways, consolidations. They seem to be coming out of a medium-term pullback right now as they crouch beneath their all-time highs and structural resistance at $5.00. We see good short-term momentum looking to connect to longer-term strength here as we dial in clear positive signalling and confirming price action.

We like MNF Group because of its exciting technology combined with strong (founder-led) management. When you add their robust fundamental performance, formidable forecasting and well-correlated technical signals, it becomes difficult to ignore the call to pick up MNF.

** Edit: 14-2-2017 H1 FY17 Results were released before the publication of this article **
MNF has reported strong EBITDA growth of 22% and NPAT growth of 21% - this is slightly under expectations but still very strong. Nevertheless they are currently under pricing pressure so hold off short-term buying until this dip completes and use this as an opportunistic entry. We are happy with our analysis and accordingly this article has been published in original format.

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.