Equities Commentary

Growth Focus: Base Resources Ltd (BSE)

by Patrick Taylor



Date of Data Capture: 16/11/2017

Name: BASE RESOURCES LIMITED (BSE)

Classification: Integrated Mining

Current Price: $0.32

Market Capitalisation: $239M

Forecast EBITDA Growth: 18.18%

Yield Estimate: 0%

Consensus Price Target: $0.49

# Covering Analysts: 2

Discount at Current Price: 53.13%

Price Target Trend: Increasing

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Flat / Long-Short

Indicators:

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:

·   With an ongoing recovery across the heavy mineral sands industry Base is looking to continue to leverage its high quality/low cost production with excellent forecasts for sales earnings and profits carried through to 2019.

·   Fundamentally strong BSE saw earnings growth of 82% last year and while their outlook is moderating going forward, there should be plenty of growth left within an improving sector.

·   Technically exciting, they rallied over 1000% from 2009-2011 before pulling back to baseline by 2015 and then rallying 600% to reach current levels with good momentum behind them here.

   ·   Resistance targets are 35, 40, 45 and 55c with support layered down from 35, 30 and 27.5c



Growth Focus: Base Resources Ltd (BSE)

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

A strong base normally refers to a sturdy foundation on which to build future growth - and we believe that to be the case here with Base Resources Ltd (BSE) as the Kenyan heavy mineral sands miner looks to rebuild value on resurgent commodity pricing, excellent cash flows and strong forecasts rising up in front of them.

Base was formed out of Perth in 2007 and began production in Kenya in 2014 on their Kwale Heavy Mineral Sands mine in Nigeria. Initially their timing was not great as they emerged from first production into softening prices for Rutile, Zircon and Ilmenite, though the high quality nature of their deposit, along with low costs of production saw them weather the downturn and become a more efficient operator with high margins and good profit performance.

While Kwale was initiated with a 13-year mine life projection, we have seen them optimising their strategy to maximise value from current operations while actively working to increase the quality of their reserves – all the while undergoing further extension testing and exploration to build on their position as Kenya’s flagship miner.

Fundamentally a strong performer, Base has seen steadily increasing operational cash flows, with maiden profit achieved this year and sales forecast to ramp up to 2019 before slightly moderating by 2020. That does allow for short-term earnings strength lying dead ahead and should see profits and prices rising – adding confidence to our recommendation is the fact that the company has reduced their debt by half since going cash flow positive in 2014, showing excellent risk management.

Technically they are capable of big moves within long trends and here we are catching them as they pause under 35c resistance with good momentum behind them. We expect volatility to remain as it works through this ceiling but with well-correlated and positive signalling across the long and short-terms timeframes we expect their recovery to continue.

It is easy to see the limited mine life of Kwale as a current weakness for BSE, and admittedly this does limit the longer-term scope of this recommendation, but as management are now working actively to extend their production into the 2nd phase of Kwale, we expect this to improve and add further upside potential. This foundation should also not be ignored as BSE currently has an enviable ability to utilise their strong and improving cash position to add exploration and development targets, meaning there remains plenty of time for Base to build on strength and this could just be the start of a new beginning.


Growth Focus: Medical Developments International Ltd (MVP)

by Patrick Taylor



Date of Data Capture: 28/10/2017

Name: MEDICAL DEVELOPMENTS INT LTD (MVP)

Classification: Healthcare & Pharmaceuticals

Current Price: $5.92

Market Capitalisation: $350M

Forecast EBITDA Growth: 23.41%

Yield Estimate: 1.06%

Consensus Price Target: $6.90

# Covering Analysts: 3

Discount at Current Price: 16.55%

Price Target Trend: Increasing-Flat

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Flat / Long-Medium

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

Recommendation: Buy

Set up Notes:
• After rising 550% from 2015 into early 2016, MVP then pulled back 35% to reach $4.25 by late 2016 - pricing formed a base range between $4.50 and $5.50 throughout most of 2017 until breaking above $5.50 resistance in the last two weeks.
• Fundamentally strong in previous years MVP had softer 2017 growth, but we see performance improving again here with aggressive forecasts supported by very strong growth expectations across sales, margins, earnings and profits.
• Technically exciting they are moving out of an 18-month consolidation and should chase old resistance targets at $6.50 and $7.00 before opening up, and we see good support layered down from $5.50, $5.00 and $4.50 if needed.


Growth Focus: Medical Developments International Ltd.

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

Normally when the MVP leads the field to the sound of a successful whistle it has nothing to do with Methoxyflurane… But thankfully for us, this time it does as we look to follow Medical Developments International Ltd (MVP) as they move past recently broken resistance and look to chase old highs on renewed strength and excellent potential for further gains.

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

With Penthrox sales continuing to grow rapidly into an expanding market we expect this product to remain the main driver of growth - a good example of this was seen in September when Penthrox was recommended for all UK ambulances and again in October when the green whistle was approved for use in Mexico. To put this in perspective; Penthrox received regulatory approvals from 1 country in 2015, 3 countries in 2016 and has approvals pending for 22 countries within 2017. A further 15 countries are set for approval in 2018 and with major approvals pending for the USA and Russia in 2020, and China and Asia by 2021 their future is clearly mapped out.

Listing in early 2004 MVP saw an initial boom before eventually retreating under the weight of the GFC to remerge with the market in 2009 and rallying nearly 1000% by 2013, before consolidating those gains down by over 50% by late 2014. The start of 2015 sparked a rally of more than 500% by May 2016 and then a steady 9 month dip to support for most of 2017 until that broke 2 weeks ago. With that initial push pulling back from resistance we have been waiting for fresh positivity and we have that here as signalling turns positive across all of our key timeframes with excellent momentum building here.

As market size is set to increase rapidly we are given further confidence by the Chairman, Mr David Williams who stated this month: “we have a scalable solution and the depth to quadruple the business and quadruple it again.” And it is from this foundation of strong organic growth that we expect the company to move strongly forward. It is rare to find such a good combination of fundamental performance and forecasting coupled with such broad-based and positive signalling – accordingly we believe it’s time to take part in MVP before the whistle blows.

Growth Focus: Aconex Ltd (ACX)

by Patrick Taylor




Date of Data Capture: 18/10/2017

Name: ACONEX LTD (ACX)

Classification: Software & IT Services

Current Price: $4.66

Market Capitalisation: $893M

Forecast EBITDA Growth: 36.67%

Yield Estimate: 0%

Consensus Price Target: $4.45

# Covering Analysts: 9

Premium at Current Price: 4.5%

Price Target Trend: Flat-Decreasing

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Down / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• After rallying 300%+ from Jan 2015 to Jul 2016 and then falling 60%+ to Feb 2017 ACX is now showing signs of a greater recovery.
• Clearing past major linear resistance in Apr 2017, pricing has constricted sideways under dynamic resistance until breaking that today.
• Fundamental performance has led pricing up and down – and ahead we see strong growth forecast across sales, profits and earnings.
• Technical signalling is well-correlated and sees most timeframes positive or turning positive as significant resistance at $4.50 breaks.
• A minor ceiling remains at $5.00 with higher targets at $5.50, $6.60 and $8.00 and support layers down from $4.50, $4.00 and $3.75.


Growth Focus: Aconex Ltd (ACX)

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

The inevitable fallout from sky-high expectations can create good opportunities and we see that here with Aconex Ltd (ACX); the world’s leading cloud-based project delivery platform, as pricing emerges from a seven month consolidation and looks to be building a greater recovery.

Aconex began operations in 2000 and projected on to the ASX late in 2014 with strong earnings driving price performance as the business leader of digital management systems for large scale project collaboration. Excessively high expectations often lay the foundations for disappointment and in 2016 below estimate earnings growth led to a significant fall in price – we see good potential here for buyers as pricing grips higher and earnings forecasts firm up again. Their market-share should continue to expand domestically, with exciting opportunities in China and the US supporting strong forecasts for increasing sales, margins, earnings and profit growth over the short and medium-term.

We do recognise that current pricing is above consensus valuations but seeing as the covering analysts have been lagging the price through both ups and downs we expect aggregate estimates will follow the price higher on a rally. Even with shallow price targets the sentiment of that coverage is mostly positive to only slightly neutral, with no negative expectations. This could prove interesting with ACX one of the most heavily shorted stocks on the ASX right now and this borrowed exposure could provide a juicy squeeze should recent strength cement prices higher as we expect.

The chart history for Aconex shows an initial 300%+ rally over 21 months to peak at $8.75 by mid-2016. The exhausted rally collapsed over 60% to reach a nadir low of $2.87 by early 2017. The first signs of recovery came when pricing moved past important linear resistance in April 2017, before cycling under structural resistance layered from $4.50 to $5.00. With the $4.50 ceiling breaking this week we expect $5.00 resistance to be the next target with plenty of room for further recovery growth above and nice momentum building across our major timeframes.

ACX remains debt-free and generating good cash flow - this should continue and speed up as markets and margins mature, providing a strong framework for a greater long-term recovery built on the expected foreign and domestic infrastructure boom. Positive long-term signalling shows fresh potential for a new uptrend emerging here as momentum builds across multiple timeframes in good correlation as it looks to test overhead resistance, and we think this software-as-a-service company can easily manage it as they look to follow their blueprint for success.

Growth Focus: Syrah Resources Ltd (SYR)

by Patrick Taylor




Date of Data Capture: 4/10/2017

Name: SYRAH RESOURCES LTD (SYR)

Classification: Integrated Mining: Graphite

Current Price: $3.51

Market Capitalisation: $1.05B

Forecast Sales Growth: First Production 3Q 2017

Yield Estimate: 0%

Consensus Price Target: $4.42

# Covering Analysts: 5

Discount at Current Price: 25.93%

Price Target Trend: Decreasing

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Up-Down / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Syrah is making its way out of a recovery base after bouncing off strong historical support at $2.50 following a fall from $6.50 – it has done this before with similar setups to right now.
• Fundamentals are lacking here due to the early-stage of the company moving to first production, sales and earnings by the end of 2017. Consensus targets have followed the price down but forecasting get aggressive into 2018.
• Technicals are very attractive with good multi-timeframe momentum and positive signalling setting up the same way as two previous uptrends in 2013 and 2015 gaining over 100%.
• Resistance targets sit at $4.00, $4.50 and $5.50 with support layered at $3.50, $3.00 and $2.50.


Growth Focus: Syrah Resources Ltd (SYR)

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

Derived from the Greek word for “to write” graphite is a form of crystallised carbon whose properties have a great many uses ranging from pencils to metallurgy and nuclear fission regulation to highly conductive electrodes. It is the current importance of the last attribute that leads us to Syrah Resources Ltd (SYR) a cashed up and soon to be new major graphite producer, whose growth potential we see crystal clear.

Established in May 2007 and headquartered in Melbourne, Syrah is developing their 100% owned Mozambique asset; ‘Balama Graphite and Vanadium Project’ into first production by the end of 2017. Balama is the world’s largest graphite deposit and ramping up production on the back of earnings will see them eventually become the world’s major supplier of graphite concentrate. Their timing should spark your interest as graphite is a major component of lithium ion batteries used in electric vehicles, a market forecast for aggressive demand growth.

After listing on the ASX in September 2007 Syrah were thrust into the crucible of the GFC before beginning a scorching recovery in 2009. Having reached a more stable range since 2012 we have seen a number of major trend cycles that correlate very well to our long-term model, which is signalling the emergence of a new greater uptrend right now. More recent history shows them breaking linear resistance early in 2017 before leaving behind their recovery base last month.
Old resistance has become new support at $3.50 with more behind at $3.00 and $2.50, and we see some exciting resistance targets sitting high above at $4.50, $5.50 and $6.50. Consensus analyst targets are some 25% higher than present pricing and while these valuations have been falling they have really only been following the price lower – likewise we expect higher prices to drag targets higher going forward.

Last month’s capital raising at $3.38 has SYR debt-free and well-funded through to first earnings and lends nearby psychological price support. Adding future price support is the Balama project also hosting the world’s largest vanadium deposit - with this metal being a key component in lithium ion batteries prices have been charging ahead along with other new-energy commodities. This future world-class graphite and vanadium mine has low strip ratios, very high grades and is capable of significant production levels for a 40+year mine life - their growth potential from here is elementary and not written in shades of grey.

The graphite sector should experience ongoing heat transfer from the lithium/EV space and Syrah has aggressive forecasting ahead as they get production rolling and then ramping up. With enough cash to get them across the finish line and with offtake agreements in place once they get there, we believe Syrah has growth potential that is truly electrifying.

Growth Focus: EML Payments Ltd (EML)

by Patrick Taylor



Date of Data Capture: 20/9/2017

Name: EML PAYMENTS LTD (EML)

Classification: Transaction & Payment Services

Current Price: $1.945

Market Capitalisation: $476M

Forecast Sales Growth: 35.9%

Yield Estimate: 0%

Consensus Price Target: $2.03

# Covering Analysts: 4

Discount at Current Price: 4.37%

Price Target Trend: Increasing-Flat

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Flat / Long-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• EML is moving out of a 12-month medium-term consolidation after rising over 200% from late 2015 to late 2016. Right now they are pushing up against $2 resistance but show good fundamental and technical momentum here.
• Earnings growth has been strong over the last two years and this is set to continue with strong forecasting for sales, earnings and profits through to 2020, maintaining steady margins.
• Positive signals cross the major timeframes though expect volatility and a pullback or two before the ceiling breaks to reveal the old peak high target at $2.20 and blue sky above.
• Structural resistance sits at $2.00 and $2.20 with structural support layered from $1.90 to $1.80.



Growth Focus: EML Payments Ltd (EML)

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

When the cards are running hot it makes sense to increase your stake. That is what we are looking to do here with EML Payments Ltd (EML) as the payment solutions company continues to their winning streak of strong earnings and profit growth. With excellent performance and strong forecasting ahead of them, we are confident they will stay ahead of the pack.

Originating from Queensland, EML began dealings in 2003 as a gift card provider but has since grown to offer payment solutions to major global corporates across Australia, Europe and the US. Totalling billions of dollars, these payments are facilitated through over 800 payment, payout, gift and reward programs using physical, mobile and virtual payment cards. With ongoing expansion moving ahead with new contracts and acquisitions in Europe and North America we think the odds are stacked in their favour.

EML has shown excellent fundamental performance and grew earnings by over 50% last year (over 100% the year before) and seem set for continued growth with consensus forecasts upping the ante with strong earnings growth seen carrying through to 2020. Expectations are positive across sales, profits and earnings and the attractive forecasts are supported by high margins that are also set to increase to nearly 80% in the near future. With low costs and good cash flow we see plenty of potential for continued organic growth being bolstered by an acquisitive growth strategy that should see them remain a cut above the rest.

Technically, in the bigger picture we see pricing in the early stage of a potentially significant new long-term uptrend after EML consolidated back by 36% over 12 months from their peak price achieved in late 2016. This peak followed a rally of 266% that began the year prior with a similar long-term signal we are following here again. After basing around $1.50 early in 2017 they broke linear resistance by mid-year and began rally back up to where we find them now, working against $2.00 structural resistance. While we see good momentum across most of the major timeframes, we do expect some volatility and even a potential pullback as the price chips away at that ceiling, but you would need a big blind spot to not see their potential.

With excellent performance, aggressive forecasting and an exciting growth profile backed by strong cash flows, we are happy to chip in and lay our cards on the table as we are confident EML Payments Ltd will continue to come up Trumps.

**Disclosure: Taylor Securities clients and staff may have exposure to the stocks we research and write about.**

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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.