Equities Commentary

Growth Focus: Auswide Bank Ltd (ABA)

by Patrick Taylor


Date of Data Capture: 29/3/2018

 

Name: AUSWIDE BANK LTD (ABA)

      

Classification: Commercial Bank

 

Current Price: $5.45

 

Market Capitalisation: $227M

 

Forecast EBITDA Growth: 16.13%

 

Yield Estimate: 6.20%

 

Consensus Price Target: $5.88

 

# Covering Analysts: 2

 

Discount at Current Price: 7.89%

 

Price Target Trend: Increasing-Flat

 

Signal Timeframe: Quarterly-Weekly-Daily

 

Trend Bias: Flat-Down / Long-Medium

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

Recommendation: Buy

 

Focus: (Dividend Income &) Capital Growth

 

Set up Notes:

·    Everyone wants to buy cheap stocks but no one likes what ‘cheap’ looks like… Here we are looking to pick up ABA as it works off a strong support base above $5.00 backed by good performance and an exciting technical set up.

·    Auswide has been steadily growing sales over the last few years, increasing earnings over 26% last year with a strong 2018 expected and good fundamental performance forecast out to 2020.

·    Technically ABA is still working out of a major downtrend with price compressing under falling dynamic resistance, while making good progress with multiple positive signals here.

·    Support is strong here at $5.00 with resistance targets at $5.50, $6.00, $7.00 and $10.00 above.


Growth Focus: Auswide Bank Ltd (ABA)

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


Being able to follow a proven system is of paramount importance when trying to achieve consistently good investment results… this is true even (or maybe especially) when the results go against your own personal bias. We have that here with Auswide Bank Ltd (ABA) and small consumer lender based in Queensland as their strong performance, forecasts and technical outlook practically beckons investors to take a chance on them.

Beginning life in Queensland as the Wide Bay Capricorn Building Society in 1979, it listed onto the ASX in 1994 and expanded via organic and acquisitive growth to become Auswide Bank by 2015. With a growing presence across Central and Northern Queensland the company provides home loans, personal and business banking to customers across Australia. With assets now exceeding $3 billion, combined with improving credit ratings, low and decreasing arrears rates, they look ready to move on with their greater recovery.

Future growth should remain true to form with expectations for further strong organic growth and a continuance of their active acquisition strategy. Performance has been consistently strong over the last few years with improving sales, margins and income driving earnings gains by 26% in 2017 and forecast to jump a further 16% in 2018. Positive expectations continue through to 2020 and support a strong dividend yield estimated around 6.20%, a significant benefit that should have growth investors saying gimme, gimme, gimme.

Pricing history shows two distinct trading periods for the stock with strong gains being made from lows of $2 in 1994 up to $13 by 2007. The fallout from the GFC saw them back at $5 before rallying again to reach $11 by 2011 before beginning a long-term pullback to $5 support from 2013 to today. The trend looks ready to shift again here with positive momentum indicated across multiple timeframes, setting up some very attractive resistance targets to the upside. The first real test will be around the $6.00-$6.50 resistance cluster and from there up to $7.00 and higher, with price support structured around $5.00 if required.

It is often difficult for many investors to pluck up the courage to invest in recovery stocks, but this is often where good opportunities can be found. Here we have just that as ABA looks to combine regional strength, growing domestic presence and strong fundamental performance and forecasts with a very attractive technical outlook. The ability to balance risk and reward is the name of the game here and we think ABA offers an investment opportunity that you may not want to let slip through your fingers.

Growth Focus: EQT Holdings Ltd (EQT)

by Patrick Taylor



Date of Data Capture: 16/3/2018

Name: EQT HOLDINGS LTD (EQT)

Classification: Investment Management

Current Price: $21.09

Market Capitalisation: $428M

Forecast EBITDA Growth: 15.81%

Yield Estimate: 3.97%

Consensus Price Target: $24.39

# Covering Analysts: 2

Discount at Current Price: 15.65%

Price Target Trend: Increasing

Signal Timeframe: Quarterly-Weekly-Daily

Trend Bias: Up-Flat / Long-Medium

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

Recommendation: Buy

Focus: (Dividend Income &) Capital Growth

Set up Notes:
• Moving up within a longer-term uptrend, EQT cleared through linear resistance in September last year and broke through important $20.00 structural resistance in the last few weeks.
• Last year saw sales fall while earnings increased, this year aggregate forecasts predict both to increase and for the price to follow with growth tipped for gains through to 2020.
• Low debt, attractive revenue streams and a decent yield for a growth stock makes this a sort of hybrid growth/yield play.
• Further growth potential is setting up nicely here with positive signalling coming though in multiple timeframes, targeting resistance at $25 and $30 with support layered between $20, $19, $18 and $16.50 if needed.


Growth Focus: EQT Holdings Ltd (EQT)

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

In a market with no guarantees it can be good to find a company you can put some faith in. We are doing that here with financial and trust service provider EQT Holdings Ltd (EQT) as we follow strong performance, excellent forecasts and a strong technical picture that carries a lot of confidence.

Set up way back in 1888 and based in Melbourne, EQT provides a diversified range of fiduciary and financial services across wealth management, estate planning, funds management, institutional services and superannuation. Operating in Australia, with recent moves offshore into Europe and Australasia, has seen good organic growth within an expanding sector benefitting from the ageing boomer demographic. The company has an active acquisition strategy, having completed the takeover of a multiple domestic and foreign companies recently, in addition to a major partnership announced last year, all helping to increase market share and diversity.

Performance has been strong with sales, earnings and profits higher last year after a softer 2016, but also has growth forecast to continue ramping up until 2020. This strong fundamental outlook supports a healthy dividend yield of 3.9% (an added bonus for a growth stock) which is seen increasing steadily in the years ahead. This combines well with their high recurring revenue and low debt as they aim to increase exposure to Asian markets showing a lot of promise.

Technically they look exciting with price pushing past $20 last month and while the current uptrend is 6 months old, if long-term signalling is correct it should have a lot further yet to run. Previous highs were reached way back in 2007 and still remain 30% higher from here, though closer structural resistance at $25 is the next obvious target. With the consensus price target sitting more than 15% above current levels (after this aggregate value forecast rose over 13% in the last 2 months) we should feel secure that EQT’s growth potential is the real deal.

While there are some legitimate concerns regarding its low volume stock liquidity, which could exacerbate dips on poor markets or bad news but could also work in shareholders favour if they continue on their ascendance. Securing a firm combination of strong organic and acquisitive growth both in Australia and overseas, coupled with excellent performance makes forecasts for strong capital growth for EQT very credible. With an exciting technical setup building here with momentum signalling turning positive here across multiple timeframes, the timing seems ready to enter here EQT takes its next leap forward.

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.

 

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.