Growth Focus: Melbourne IT Ltd (MLB)

by Patrick Taylor

Date of Data Capture: 29/10/2016


Classification: Internet Services

Current Price: $1.97

Market Capitalisation: $199M

Forecast EBITDA Growth: 24.91%

Gross Yield: 2.34%

Consensus Price Target: $2.68

# Covering Analysts: 4

Discount at Current Price: 36.04%

Price Target Trend: Increasing

Signal Time Frame: Monthly-Daily

Trend Bias: Up-Flat Long-Short

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

Recommendation: Buy
Focus: Capital Growth

Set up Notes:
• MLB has been making these long, looping recovery rallies all the way up its impressive run since 2011, good long-term correlation and momentum shows they are ready to rally again.
• With the price sitting directly underneath important structural resistance at $2 we can only expect volatility in the near future, but with short-term positive signalling in place it should have some push.
• We could see a short-sharp spring-boarding pullback from resistance here, but we have nearby support layered in at $1.90, $1.80 and $1.70, but a very favourable fundamental outlook rounds out an excellent growth prospect.

Growth Focus: Melbourne IT Ltd (MLB)

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

It can sometimes be hard to leave a good legacy, to separate the bad from the good, the shelfware from the showstopper and the ‘not-it’ stocks to the ‘it’ opportunities we look for. We think we have accomplished this somewhat literally this week with our choice of Melbourne IT Ltd (MLB) as this fundamentally strong internet services company enters a technical hot spot and could be about to plug into further gains.

Melbourne IT first hit the on-switch back in 1996 before listing on to the ASX in 1999 - just in time to catch the end of the tech bubble which saw it shoot from $4 to over $10 within 3 months. But by the start of 2000 the tech bubble was cached out, cashed out and ready to pop. The bust took MLB with it, all the way down to 16c by late 2011 – only to rally again to $2.66 by mid-2007. Another dip lasting until 2011 and a reversal rally later brings us to where we are now with the stock continuing to reboot itself and looking ready to march on.

Currently maintaining the same hard-driving rally since 2011 - best seen as a quarterly very-long-term uptrend - MLB reached a multi-year peak of $2.20 in early 2016 before beginning a deep dive down 25% to $1.65 just 4 months later as a long-term monthly downtrend came and went. This move was caught and well-correlated in the long-term monthly timeframe and it is this same signal that we are following here as it turns positive once again - and just in time to see this rally morphing into a positive longer-term uptrend after this consolidatory period spent de-fragging that growth.

Their fundamentals are a main driver here with excellent growth seen across sales, profits, earnings, and margins – which are forecast to remain connected to strong growth going forward. All four analysts have only positive views and are happily placed with attractive price targets for MLB and foresee no bugs in their system. While Melbourne IT’s share price is just now emerging from one of its, low-looping consolidations, the analysts have not dumped their valuations at all and with remarkable consistency they still hover some 36% higher than where they are currently priced on the market.

The positive signalling, excellent cross timeframe momentum coupled with aggressive fundamental growth leads us to believe that another long-term positive upswing is due to commence. Despite recent shareprice down-time, and even with significant structural resistance looming directly overhead, we are expecting them upload further gains.


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.

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