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Equities Commentary

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.

Growth Focus: Bega Cheese Ltd (BGA)

by Patrick Taylor

Date of Data Capture: 20/6/2018
Classification: Food Processing - Dairy
Current Price: $7.52
Market Capitalisation: $1.39B
Forecast EBITDA Growth: 55.81%
Yield Estimate: 1.68%
Consensus Price Target: $7.33
# Covering Analysts: 6
Premium at Current Price: 2.53%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Monthly-Daily
Trend Bias: Up-Flat / Long-Medium

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

Focus:Dividend Income & Capital Growth
Set up Notes:
·    BGA goes through cyclical rallies and declines every couple of years, even as the price climbs towards all-time-highs, now we have fresh signs another uptrend could be beginning here.
·    Performance has been good and steady, combining well with very strong forecasts through to 2020 showing robust earnings growth on booming sales in expanding markets.
·    Pricing is looking attractive with linear resistance breaking last month and $7.50 structure cracking right now as the well-correlated longer-term signal turns positive.
·    Only one resistance target remains at $8.00 before the stocks faces blue sky and support is layered down from $7.00 and $6.50 if needed.

Growth Focus: Bega Cheese Ltd (BGA)

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

One of the favoured setups we use when looking to find value is in recovery stocks, especially when companies are consolidating strong multi-year rallies – and this is where we find Bega Cheese Ltd (BGA) churning its way up through resistance levels and seemingly destined to continue its rise to the top again.

BGA is a well-aged dairy collective, established in Bega NSW in 1899 and listed on the ASX in 2011 where it achieved significant success, increasing in value by 300% in the time since. Operating within Australia and New Zealand, this company owns Bega Cheese and Tatura Milk and produces milk, cheese, butter, powders and nutritionals. Recent history shows both strong organic growth as well as an active acquisition strategy which should continue to drive pricing higher and could have a whey to go yet.

Performance has been good with steadily improving sales, margins and earnings over the last few years and this is expected to continue and increase going forward into 2020. Earnings growth is set to return in strength this year with aggressive forecasts seen reflecting the recent boost to growth from its Mondelez International acquisition. Current pricing does sit slightly above consensus price targets though it must be noted that these targets have been steadily rising for years and the overall sentiment of the covering analysts are strongly majority positive with no negative, sour notes curdling the outlook.

Techncially speaking they are at a fascinating crossroads between resistance layered between $7.50 and $8.00, sitting directly above current pricing, and the new potential longer-term uptrend that seems to be emerging here following the linear resistance break earlier this month. This coincides well with a fresh positive signal coming through in the long-term/monthly timeframe, though we have to note there is some weakness in the medium-term/weekly timeframe so we could see some downward pressure and choppy price action before the uptrend re-establishes itself. There is good support down to $7.00 and $6.50 if needed, but with strong signal correlation we could not let this one go past your eyes.

Bega Cheese combines solid fundamental performance and growth potential with an exciting technical setup backed by positive price action and recent resistance breaks. We see BGA as a good growth prospect, ready to chase old peak highs at $8.00 and if this resistance ceiling breaks only blue skies would remain - for investors, that would be udderly legendairy.


Growth Focus: Lifestyle Communities Ltd (LIC)

by Patrick Taylor

Date of Data Capture: 7/6/2018
Classification: Real Estate: Aged Care Living
Current Price: $5.85
Market Capitalisation: $595M
Forecast EBITDA Growth: 18.57%
Yield Estimate: 0.70%
Consensus Price Target: $6.17
# Covering Analysts: 2
Discount at Current Price: 5.47%
Price Target Trend: Increasing-Flat
Signal Timeframe: Monthly-Weekly-Daily
TrendBias: Up-Flat/ Long-Short

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

Focus:Capital Growth
Set up Notes:
·    It may not seem like it but LIC just went through a significant pullback and should be entering a new leg on its five-year 500% long-term uptrend.
·    The last two times this happened was in 2016 and in 2013 and in both occurrences the stock returned to renewed growth and further gains.
·    A strong performer for years, LIC had earnings growth of 40% last year and has increasing sales, margins and profits forecast out to 2020.
·    The price has been running hard in recent weeks and we could see some volatility before cracking $6 resistance overhead, so there could be some useful dips coming for opportunistic entries.
·    No further resistance levels remain above $6.00 and there is good support layered down between $5.50, $5.00 and $4.50 if needed.

Growth Focus: Lifestyle Communities Limited (LIC)       

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

When we search for good investment opportunities we often look for strongly performing companies offering favourable entries off fresh growth signals, but they don’t always look like bargains at first. This is sure to be the case here as we take a closer look at Lifestyle Communities Limited (LIC), currently priced just beneath all-time highs but looking like it has plenty of life in it yet.

Starting out in 2003, Lifestyle Communities develops and operates secure, gated and low-maintenance resort-style retirement villages catering to the over 50 across Victoria and is based in Melbourne. Lifestyle Communities has grown to become one of Australia’s largest aged care property operators, currently managing 16 communities with over 2,800 homeowners, and also have around 1,600 homes being developed and remain wide open for further organic expansion.

General strong growth is expected in this sector catering to Australia’s expanding retiree population and more specifically the aging Boomer demographic. It is this large age group that has defined so many investment trends over the decades and it is now feeding a growth phase in this industry expected to continue for at least the next few decades.

Our positive view is bolstered by LIC showing improved earnings guidance this year, up more than 20% so far in 2018 with analysts majority positive in sentiment. This broad-based aged-sector strength is reflected in forecasts with strong gains seen across sales, margins and profits through to 2020. This is in addition to the current 5% discount to sharply rising aggregate price targets, and should see a steadily increasing dividend yield add to an already vigorous fundamental outlook.

Pricing history tells a happy tale of expansion with the price rallying by over 500% since 2013 and looks set to travel further with a successful test of support near $5 after a sharp 23% fall from recent highs just below $6. Signal correlation in the monthly-frame is good and the signal we are following here has been seen twice before now, in 2013 and 2016 with the third coming this month as pricing rallied hard off $5 support after failing to crack $6 on the first attempt. We view any dips back from this resistance level as ideal for favourable entries.

With aggressive forecasts in front of them and a cresting wave of an aging population behind them we think LIC is still firmly on the growth path and should offer further gains before this long-term uptrend reaches its full maturity.

Growth Focus: QMS Media Ltd (QMS)

by Patrick Taylor

Date of Data Capture: 23/5/2018
Name: QMS MEDIA LTD (QMS)         
Classification: Advertising & Marketing
Current Price: $1.13
Market Capitalisation: $386M
Forecast EBITDA Growth: 39.20%
Yield Estimate: 1.89%
Consensus Price Target: $1.32
# Covering Analysts: 3
Discount at Current Price: 16.81%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Monthly-Weekly
TrendBias: Up-Flat-Down / Long-Medium-Short

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

Recommendation: Buy

Focus: Capital Growth
Set up Notes:
·    After a strong starting rally of 100% in a year QMS went through a year of consolidation, falling 30% as it formed a base near $1 before breaking upwards again just a month ago.
·    Performance has been strong since listing and saw earnings growth of nearly 40% last year with similar predictions coming for the year ahead, backed by strong expectations for further growth across sales, margins and earnings.
·    Pricing has good signal correlation and with the breaking of linear resistance in April and additional signs of strength we see a new uptrend emerging here.
·    Resistance targets at $1.15, $1.30 and $1.40 loom ahead and we see good support layered down from $1.10, $1.00 and $0.95 if needed.

Growth Focus: QMS Media Ltd (QMS)

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

We have recently been finding a number of companies in the advertising and marketing rising to the top of our selection criteria, and that should be a good thing as it shows good strength across the sector. Whatever they are selling it has us wanting more as we look at QMS Media Ltd (QMS) as the marketing company looks set to pitch higher.

Listing on to the ASX in 2015, this outdoor advertising specialist operates static and digital billboards as well as retail, transit and street advertising throughout Australia and New Zealand. Already the market leader in New Zealand, QMS has the largest ‘on-field’ media network in Australia with stadium advertising across AFL, NRL, cricket, rugby, netball and soccer. Following strong growth in its digital strategy there is a continued digital billboard roll out, and plenty of growth potential remains through organic or acquisitive growth with the added interest of takeover potential adding some shine.

Not that it needs much polish as performance has been strong with earnings growth of nearly 40% last year and forecasts call for a similar result this year. Yield is still low but should climb above 2% next year and until then this remains a great growth prospect and is undervalued by around 16% against the aggregate analyst valuation.  Forecasts show expectations for increasing sales, margins and earnings, with lower debt, continuing out to 2020 and this is well reflected with the covering analysts being all positive with no negative or neutral views. 

Pricing shows QMS doubling from the $0.65 lows of the mid-2015 listing to peak at $1.40 a year later. Since then we have seen a near-textbook-quality distribution pattern develop into a 21-month falling consolidation taking pricing lower by 32% until last month when linear resistance broke on positive long-term signalling. Immediately overhead we have $1.15-$1.20 resistance after bouncing off base support layered between $0.95 and $1.00. There could easily be an opportunistic buying entry closer to $1.05 if overhead resistance holds in the short-term, but with the emerging long-term uptrend we would be looking to buy dips with an eye on the bigger prize.

QMS Media presents an eye-catching combination of very strong historical performance and excellent forecasts, whilst also showing good technical signalling and positive momentum building in the long-term timeframe. There should be some volatility as price works through $1.15-$1.20, but we would be looking for beneficial entries and think it should continue to pay to advertise with QMS.


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.