Equities Commentary

Growth Focus: Baby Bunting Group Ltd (BBN)

by Patrick Taylor

 Date of Data Capture: 29/11/2018


Classification: Toys & Juvenile Products

Current Price: $2.27

Market Capitalisation: $277 M

Forecast EBITDA Growth: 39.78%

Yield Estimate: 3.64%

Consensus Price Target: $2.67

# Covering Analysts: 4

Discount at Current Price: 17.62%

Price Target Trend: Increasing-Flat

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Down / Long-Short
Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive

Recommendation: Buy

 Focus: Dividend Income & Capital Growth

Set up Notes:

·    BBN looks ready to continue its recovery off fresh price support, and is backed by improving earnings, strong forecasting and signs of a new longer-term uptrend emerging here.

·    An earnings slump over the last year is giving way to renewed growth and a greater recovery seems to be underway - this is backed by favourable expectations for expansion across sales, earnings and yield out to 2021.

·    Pricing broke out of a twenty two month linear downtrend earlier this year, rallying up to major resistance before backing down to successfully retest new support as signalling turns positive.

  ·    Price targets sit higher at $2.50, $2.70 and $3.00 with good support layered down to $2.00, $1.70, $1.60 and $1.50 if required.


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

Patience can help you avoid making rash decisions, and sometimes it can help you get wind of a good opportunity after the market has already spat the dummy. We think we have both here with Baby Bunting Ltd as the children’s toy and clothing company looks to get back to its feet after taking a tumble.

Born in Balwyn 1979, BBN remains based in Victoria and has grown into one of Australia’s leading nursery retailers, operating 50 one-stop-shops catering for children aged 0-3. The company has a wide product offering, ranging from prams and nappies to furniture and food, including well-known brands like Ergobaby, Steelcraft and Bugaboo.

The stock is coming out of a tough year, which was caused in part by the failures of competitors and the knock-on effects of clearance sales affecting profits in the short-term. Hidden within this price decline is a great opportunity for enhanced recovery as it looks to capture this abandoned market share while also increasing own-label sales. Roughly seventy competitor stores have left the market and this offers a rare opportunistic market window and management are looking to drive growth with plans to ramp up to eighty stores, with five already opening in 2018, with two more expected by Christmas.

The slow 2018 is already starting to give way to new growth, with a recent update reporting stronger earnings and analyst consensus forecasts predict further strong growth out to 2021. There is a decent 3.8% dividend yield here that is set to continue rising past 5% within the next two years – but our main focus is capital growth and we like the broad expectations for aggressive sales, margins and earnings growth going forward.

Pricing has benefitted from the early signs of recovery with recent reporting helping to lift BBN out of a two-year downtrend mid-2018, with a sharp rally raising prices up from $1.50 to meet resistance at $2.50 before falling back to successfully test new support at $2.00 in recent weeks. With prices rebounding off support BBN now looks ready to go higher with positive signalling present across short, medium and long-term timeframes. We expect price to follow earnings higher and with a great recovery background picture, and exciting technical setup, we think Baby Bunting could be about to experience a newborn uptrend.


Growth Focus: Freedom Foods Group Ltd (FNP)

by Patrick Taylor

Date of Data Capture: 5/11/2018
Classification: Food Processing
Current Price: $5.12
Market Capitalisation: $1.264 B
Forecast EBITDA Growth: 66.84%
Yield Estimate: 1.12%
Consensus Price Target: $6.86
# Covering Analysts: 2
Discount at Current Price: 33.98%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Monthly-Daily
Trend Bias: Up-Down / Long-Short

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

Recommendation: Buy
Focus: Capital Growth
Set up Notes:
·    Despite pulling back 30% over the last 2 months FNP remains in longer-term uptrend and this should be a good opportunity to pick up a high-performing stock at a handy discount.
·    Excellent performance has been driving prices higher and we expect this to continue with very strong forecasts for increasing sales, margins and earnings carrying through to 2021.
·    Pricing has pulled back to $5 support - which was the last breakout zone and it is fairly normal to see this retested – and we have shorter-term signalling turning positive here, right now.
·    Price targets sit higher at $6.00, $6.50 and $7.00 and we see support layered in at $5.00, $4.50 and down to $4.00 if needed.

Growth Focus: 
Freedom Foods Group Ltd (FNP)

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

We don’t take liberties when we recommend stocks - each choice must pass through our selection process and stand out amongst peers with solid performance and great potential. We do however like to take advantage of good opportunities and short-term weakness in great companies, and that is why we are putting Freedom Foods Group Ltd (FNP) back on the table as we hope to take a bite of their healthy dip in price.

Established in 1990 and based in Sydney, FNP manufactures and sells specialty food products, mostly operating within the ‘health and wellness’ sector of the market. Being a mostly domestic operator within Australia, the company is gaining exposure to markets within North America, the Middle East, China, South-East Asia and New Zealand, working with Woolworths, Coles, Aldi, Costco, 7Eleven, Wholefoods and Target, among other major brands.

The market for organic/non-allergenic foods and products has been growing steadily for years - most visible in the gluten-free and organic consumer trends - with further gains forecast to continue and even gain strength out to 2021. Although analyst coverage is relatively thin, aggressive growth across sales, margins and earning is expected and reflected in the current large discount to rising consensus price targets.

A more focussed push into the Chinese markets is coming with FNP recently announcing a joint venture with Theland New Cloud Digimart Co for the development of Freedom’s “Arnold’s Farm” range of snacks and cereals in China
earlier this month. Theland is majority owned by Alibaba and makes its produce available throughout 25 provinces and distributed to 4000 outlets, representing a continuation of five years trading within China and remains a key area of growth for the company going forward.

The share price of FNP gained almost 3000% from the beginning of the rally seven years ago, reaching a peak of $7.00 in September before falling almost 30% over the last eight weeks. Right now the price is sitting just above major support at $5.00 and with short-term signalling turning positive we are expecting a rally to take pricing higher in the short-term and for the longer-term strength to continue. We take confidence in the very large on-market buying by directors and Perich family members taking advantage of recent market weakness. We are also happy to take a bite of FNP at these levels and think they can continue to firm up their bottom line.

Growth Focus: Afterpay Touch Group Ltd (APT)

by Patrick Taylor

Date of Data Capture: 26/9/2018
Classification: Transaction & Payment Services
Current Price: $16.97
Market Capitalisation: $3.69 B
Forecast EBITDA Growth: 46.75%
Yield Estimate: 0%
Consensus Price Target: $23.37
# Covering Analysts: 6
Discount at Current Price: 37.71%
Price Target Trend: Increasing
Signal Timeframe: Monthly-Daily
TrendBias: Up-Down / Long-Short

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

Recommendation: Buy
Focus: Capital Growth
Set up Notes:
·    Some of you may dismiss this as ‘paying-up’ for Afterpay considering the strong performance of the last 16 months – but with excellent growth forecasts and now coming out of a 35% price consolidation, it might be cheaper than it seems.
·    Fundamental growth has been exceptional with earnings climbing more than 700% from 2017 and has very aggressive growth forecasts ahead - driven by surging sales expectations - with price targets up 160% in the last three months.
·    Technically, the price looks attractive after dipping from the recent peak of $23 in August, to reach lows of $15 earlier this month before breaking through linear resistance last week.
·    Higher resistance targets are at $18, $20 and $22 with support layered at $16, $15 and $14 below.


The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.

Despite the price for buy-now/pay-later specialist; Afterpay Touch Group Ltd (APT), recently falling by 35%, it is still up over 200% in the last 12 months. That may have you wondering if they are too expensive, that we are coming in too early, and whether it is a case of buy-now and pray-later.

A fast growing company can look precarious when an investor is trying to find an entry price during the ascension stage of a longer-term uptrend - and even with the recent pullback the stock is still running a triple-figure price/earnings ratio that would normally be a cause for concern. But with investing perspective is everything and as the market is forward looking, relying solely on past performance does not work for growth investing.

Afterpay has a novel approach where the company is paid by the retailers themselves rather than by charging consumers interest payments. Following its success in Australia and New Zealand, APT believes it has a globally scalable business model and they could be right. International expansion is gathering momentum in the US, and a recent capital raising was completed to fund the acquisition of ClearPay and gain access to the UK market.

Operations show good brand recognition and loyalty with strong client retention and repeat business - this is highly important as the customer base is dominated by younger demographics underserved by traditional credit services. APT has existing partnerships with major retailers like Myer, David Jones, Office Works,  Target, Jetstar, Revolve, Lorna Jane, Adore Beauty, Cotton On, Urban Outfitters, to name just a few and has plenty of scope for further growth.

Business has been good with the last set of results showing massive growth in sales and earnings, with excellent forecasts out to 2021. Despite underlying profit growth and stronger operating margins, the company does see the need for incremental fund-raisings to support international growth. This type of approach can be well received if lead by cash flow and the market seems open to the story with strongly positive analyst sentiment reflected by the large discount to fast rising consensus target prices.

Technically the stock looks good for a shorter-term entry after the recent pullback, with signalling calling us to make the most of the linear resistance break last month. There remains some residual negativity in the medium-term which is an effect of the recent drop, but right now with strongly positive analyst sentiment and a large discount to value expectations, we are happy to pay up and go after what could be a bargain.

Growth Focus: Helloworld Travel Ltd (HLO)

by Patrick Taylor

Date of Data Capture: 13/9/2018
Classification: Travel – Consumer Services
Current Price: $5.41
Market Capitalisation: $665 M
Forecast EBITDA Growth: 21.47%
Yield Estimate: 3.81%
Consensus Price Target: $6.01
# Covering Analysts: 4
Discount at Current Price: 11.09%
Price Target Trend: Increasing
Signal Timeframe: Monthly-Weekly-Daily
TrendBias: Up-Flat/Medium-Short

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

Recommendation: Buy
Focus:(Dividend Income &) Capital Growth
Set up Notes:
·    HLO continues its long-term recovery backed by strong performance and forecasting as pricing pushes against overhead resistance at $5.50.
·    A strong performer since 2016 with analysts forecasting further robust growth to 2021 on expanding sales, margins and earnings.
·    A decent dividend is a nice bonus and should pass 4% by 2020 but we like the potential for further capital growth and the majority positive analyst recommendations should help that.
·    Pricing is pushing against minor resistance at $5.50 through with signalling turning positive here we should see that tested soon with old price targets much higher above and good support layered from $5 to $4 below.

Growth Focus: Helloworld Travel Ltd (HLO)

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

After nearly a decade of underperformance and falling prices, long-suffering investors could be about to enjoy a well-earned change of scenery with Helloworld Travel Ltd (HLO) as the travel agent looks to continue its recovery on the back of strong performance, exciting forecasts and a compelling technical outlook that we believe is packed with potential.

Starting out in 2000 this travel distribution company provides international and domestic travel services to clients around the world, with 2000 staff members in Australia, New Zealand, US, India, Europe and Asia Pacific. The company operates retail, wholesale and travel management segments through a wide array of brands including Helloworld Travel, Harvey World Travel, Travel scene, Jetset Travel, My Travel and the newly acquired Magellan Travel. The recent addition of the latter group nicely maps out the combined prospects for further expansion via both organic and acquisitive growth.

Performance has shown steady and sizable gains for the last few years, with earnings up 18% last year and similar growth expected ahead with strong forecasts showing increasing sales, margins and profits out to 2021. This growth profile stacks up nicely with the current 12% discount to sharply rising consensus price targets and carries a strong majority positive outlook. It should be mentioned that HLO can be a low volume stock at times so patience may be needed on entries and exits.

Apart from that little bit of extra baggage, there is also a decent 3.8% dividend yield here, which is expected to increase towards 5% in the same timeframe, but really we are here for growth and there should be plenty of scope with strong sector performance backing them up. A similar growth trend is seen across travel generally with airline passenger numbers showing strong enough growth that we can be reasonably sure that the growth expectations are well grounded.

Pricing history shows HLO travelling through some incredible highs and lows as it navigated the dot.com boom and bust and again during the GFC. The strong rally leading up to the peak of 2007 gave way to a crushing bust and seven years of declining valuations before a new long-term uptrend began in 2014. In the time since we have seen the stock moving up through major resistance barriers and pushing higher backed by good performance.

Right now Helloworld Travel offers an attractive ticket, combining excellent fundamental performance and strong forecasting, with an exciting technical outlook and fresh positive signalling across major key timeframes. If strong analyst support and rising targets are correct, this will be no flight of fancy.

Growth Focus: Pilbara Minerals Ltd (PLS)

by Patrick Taylor

Date of Data Capture: 31/8/2018
Classification: Lithium Mining
Current Price: $0.81
Market Capitalisation: $1.5 B
Forecast EBITDA Growth: Initiating Production
Yield Estimate: 0%
Consensus Price Target: $1.10
# Covering Analysts: 7
Discount at Current Price: 35.80%
Price Target Trend: Increasing-Flat
Signal Timeframe: Quarterly-Monthly-Daily
TrendBias: Up-Flat/Long-Medium

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

Focus:Capital Growth
Set up Notes:
·    Lithium companies on the ASX have been falling in price while electric vehicle sales and forecasts have been surging higher – if forward forecasting is correct then this is a great buying opportunity as PLS moves towards production.
·    With no real performance data we like the 36% discount to the consensus price target of $1.10, recent resource upgrade, company specific forecasting, and strong sector expectations for rapidly growing global demand for lithium.
·    While pricing has pulled back 35% this year (after the 200% rally from late 2017) we see early-stage positive signalling coming through here now.
·    W
e mark strong support at 80c with further support layered down to 70c and 60c with resistance targets higher at $1.00, $1.10 and $1.20.

Growth Focus:Pilbara Minerals Ltd

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

You either believe that electric vehicles are the future of transport or you don’t. Taking into account the superior performance, safety advantages, much reduced ongoing maintenance, and the low-cost convenience of home ‘refueling’, we believe electric vehicles have many advantages that will continue to drive them forward. The current weakness seen across the battery metals space should provide a good entry opportunity into Pilbara Minerals Ltd (PLS) as the emerging lithium supplier begins to ramp up production and gets ready to charge ahead.

A bright future doesn’t ensure a smooth path and this year has seen many battery commodity stock valuations sliding back down on profit-taking and underlying materials price consolidation. This is a normal part of the market cycle and doesn’t mean the sector is slowing down, because if anything it seems to be speeding up, with EV sales performance beating expectations with growth forecasts accelerating.

If you are having trouble reconciling the recent pullback with the robust outlook you are not alone, but at least we have some guidance from what the major automakers think is going to happen, with nearly 100 billion US dollars being allocated for EV investment by major automakers like Ford, VW, Toyota, BMW, Mercedes and Porsche. This is in addition to increasing growth from leading EV specialists and isn’t yet including scope for trucks, buses and cargo shipping, and flight engines which will all require more batteries and more lithium. 

All of the near-term PLS lithium production has been secured through offtake agreements in place with major players General Lithium, Jiangxi Ganfeng Lithium Co, POSCO, and Great Wall – with tantalum offtake secured by Global Advanced Metals. In May the company increased the size of the Pilgangoora lithium resource by 36% and just last month showcased confident plans for expansion aggressive production growth whilst maintaining high margins and a long mine life. This provides a nice backdrop as the company fast approaches ramp up into full production with forecasts calling for an aggressive move into first profits. 

Founded at the start of 2005, PLS listed in 2007 and experienced some twists and turns on a somewhat rocky road before the beginnings of the current electrification wave saw them racing ahead in 2015. The stock tends to move in large trend cycles; moving up over 2000% from 2015-16 before falling back 64% by mid-2017, and then rallying 300% by year-end before pulling back by around 40% this year. Currently price is sitting above support at 80c and while we do have some short-term positive signalling we may be a bit early on catching the bottom here with some residual negativity seen in the medium-term, and could see pricing push lower towards deeper support.

Regardless of the background noise and volatility, we like the high potential opportunity presented here with PLS showing an exciting combination of aggressive growth forecasts and a strong discount to consensus target pricing. As the company gets closer to full production we should see interest and investment return to the stock as it prepares to power forward.   


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.