Equities Commentary

Growth Focus: Appen Limited (APX)

by Patrick Taylor



Date of Data Capture: 11/02/2020

Name: APPEN LIMITED (APX)

Classification: Software & IT Services

Current Price: $26.77

Market Capitalisation: $3.24 B

Forecast EBITDA Growth: 37.73%

Yield Estimate: 0.37%

Consensus Price Target: $28.79

# Covering Analysts: 8

Discount at Current Price: 7.55%

Price Target Trend (3-Month): Up-Flat -0.99%

Signal Timeframe: Monthly-Weekly-Daily

Trend Bias: Up-Flat / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Fast growing tech stock APX is emerging from a recent medium-term consolidation and looks likely to continue higher on strong performance, and forecasts for continued growth out to 2021.
• Strong sales and earnings data last year helped drive strong gains and while growth is expected to slow a little – it is set to remain robust going forward, driven by expanding sales and margins.
• Pricing reflects the rapidly expanding revenue numbers and it has been a year since the last minor pullback - we expect recent weakness to also be a favourable entry opportunity, with excellent positive momentum signalling here.
Support ($): 20.00, 22.00, 24.00 & 26.00.
Resistance ($): 28.00, 30.00, 32.00 & clear.


Growth Focus: APPEN LIMITED (APX)

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

If knowledge truly is powerful, then we are right to take a view on Appen Ltd (APX) as the artificial intelligence specialist moves higher into a potential new longer-term uptrend on strong performance and backed by very attractive forecasting.
Listed since the early stages of 2015, Appen provides data solutions services for technology clients across the globe with over 600 staff spread from the Asia Pacific to the UK and US. Some of the applications of their technology include digital assistants and chatbots, search engine recommenders, and systems for fraud protection. While there exists huge commercial scope for growth within the field of machine learning, there also exists a very significant governmental and state interest in developing AI technology and the efficiencies it offers.

To put this into perspective, the market of AI services was valued at $643M in 2016 and is projected to reach as much as $36B by 2025. That gives APX enormous potential for organic growth, already well-supported by the strong reporting figures of recent years, with sales earnings and margins increasing rapidly. Of particular note is the size and strength of earnings gains seen in the US market, which should remain a core focus for future growth.

Appen has been making a habit of upgrading its earnings guidance, and last reporting showed revenue up 60%, earnings up 81%, margins up 16% and profits up 67% - with forecasting showing solid expectations for similarly strident gains seen through to 2021. Despite the rapid rise of the share price, the stock remains under consensus price targets, which have been steadily increasing over the last 4 years. This favourable view is reinforced by a strong majority positive aggregate analyst sentiment, with no negative views at current levels.

Pricing history shows APX climbing dramatically higher since listing in early 2015, though this incredibly strong performance has been played out through a series of medium-term uptrends. In that time, there have been only intermittent consolidations, when the share price overtook the company’s considerable underlying momentum, ultimately providing fresh entries to those with the patience to wait for them.

Here we believe we have another opportunity with pricing falling from $32 to $20 during the second half of 2019, eventually moving up from its support base to break linear resistance just last month. With momentum building and signalling turning positive again, we are looking to follow the smart money into this world leader in artificial intelligence.

Growth Focus: Saracen Mineral Holdings Limited (SAR)

by Patrick Taylor



Date of Data Capture: 29/01/2020

Name: SARACEN MINERAL HOLDINGS LTD (SAR)

Classification: Gold Mining

Current Price: $3.96

Market Capitalisation: $3.37 B

Forecast EBITDA Growth: 126.36%

Yield Estimate: 0.97%

Consensus Price Target: $4.17

# Covering Analysts: 10

Discount at Current Price: 5.30%

Price Target Trend (3-Month): Up +10.90%

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Up-Flat / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Rallying gold has SAR moving higher after breaking major resistance this month, looking like it is on the cusp of a greater uptrend and backed by strong performance and forecasting.
• Strong earnings growth in 2018 gave way to softer gains in 2019, but analysts expect further recovery with aggressive expectations for much higher sales, margins and profits this year.
• SAR has a history of making strong rallies followed by consolidations, and we see recent strength as an emerging new longer-term uptrend, combining well with shorter-termed positive signalling across multiple timeframes.
Support ($): 3.75, 3.50, 3.25 & 3.00.
Resistance ($): 4.00, 4.25, 4.50 & clear.

Growth Focus: SARACEN MINERAL HOLDINGS LIMITED (SAR)

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

You don’t have to scratch too far beneath the surface to find deep value in Saracen Holdings Ltd, as the gold miner prepares to more than double production after buying half of the world-famous Kalgoorlie ‘Super Pit’, and with good strength being shown in the gold price, its potential is shining through here.

Starting out on the ASX in 1992, Saracen has carved out a good long-term track record of gold production and asset accumulation within Western Australia, with operations focused in the Leinster/Kalgoorlie goldfields. Acquiring of 50% of the Super Pit gold mine from Barrick in 2019 will greatly boost production, and is now joint venture partners with Northern Star, while Newmont Goldcorp remains in charge of operations. The current mine life stretches to 13 years, though this will be a major focus within the ongoing expansion and exploration program applied to all assets.

Already showing excellent organic growth, the company saw record production of 120koz+ last year, with current ore stockpiling at 3.3Moz. Group production estimates for 2020 are around 500koz+ and this is expected to increase to 600koz+ in 2021. The company has secured favourable risk mitigation with 500koz+ gold hedging at AUD$1997/oz v AUD$1098/oz current cost of production, which illustrates the robust margins currently being achieved.

Analysts maintain a strong positive majority view on the stock, with no negative sentiment, and at the moment see SAR trading at a discount to rising consensus target pricing. The company has produced strong earnings growth since 2017, but with the extra acquired output this is now set to increase dramatically in 2020. This pattern for strong gains across sales, earnings and profit is expected to stretch further out to 2021. The 2019 acquisition was mostly covered by capital raising, with the smaller residual being debt-funded, though the company maintains good cash and liquidity, with potential for asset sales and has already started early debt repayment.

Saracen tends to cycle through rallies and pullbacks within a greater long-term uptrend. More recently pricing shows the stock moving strongly into fresh all-time highs in 2019, before moving into a consolidation phase, exacerbated by the capital raising. After falling 40% by late 2019 the stock began to rally off a $3 support base and by early 2020 had broken through linear resistance and is now continuing higher within a newly emerging medium-term uptrend. With fresh strength pushing pricing higher it looks like we should have a favourable entry here, and we wouldn’t want to pit ourselves against further gains.

Growth Focus: PSC Insurance Group Limited (PSI)

by Patrick Taylor



Date of Data Capture: 25/11/2019

Name: PSC INSURANCE GROUP LIMITED (PSI)

Classification: Insurance Brokers

Current Price: $2.95

Market Capitalisation: $800 M

Forecast EBITDA Growth: 16.40%

Yield Estimate: 2.86%

Consensus Price Target: $2.80

# Covering Analysts: 2

Premium at Current Price: 5.08%

Price Target Trend (3-Month): Flat +-0%

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Flat / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• PSI is continuing its recovery after emerging from a minor year-long consolidation five months ago, and this new-found strength is well supported by good reporting and forecasting.
• Performance has shown steady and strong growth from 2015, and this is expected to continue out to 2022 with recent acquisitions in the UK and US paving the way for future growth.
• Pricing shows a healthy move through major resistance structure in June, and then again with minor resistance falling in the last few weeks, the stock is building momentum here, with buy signals present across multiple timeframes.
Support ($): 2.90, 2.80, 2.70, 2.60 & 2.50.
Resistance ($): 3.00, 3.10, 3.20 & clear.


Growth Focus: PSC INSURANCE GROUP LIMITED (PSI)

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

When investing it is necessary to manage risk, and take steps to protect against potential worst-case scenarios, so it seems fitting that we are taking a closer look at PSC Insurance Group (PSI) as the growing underwriting specialist continues higher on good performance and looks like it could be a chance worth taking.

Emerging on the ASX in late 2015, PSI is a diversified insurance services company, operating throughout Australia, New Zealand, the United States, and the United Kingdom. Conducting business through brands like PSC Insurance Brokers, Chase Underwriting and Paragon the company provides services to more than 90,000 customers. The company has been seeing broad-based organic growth but also has a very active acquisition strategy, most recently seen expanding market share in the US and UK.

Performance has been strong and shows increasing revenue, earnings and profits up strongly since 2016, also supporting a fair dividend, though we are primarily attracted to the company for its growth prospects. And indeed the strong trend of expansion is set to continue with forecasts showing expectations out to 2022, primarily driven by strong sales and earnings growth. Analyst coverage is thin, so while there is a slight premium to consensus targets, these valuations are largely static and don’t correlate well to price performance.

Pricing history shows a brief but successful time on the market for PSI, where strong longer-term rallies in 2016 and 2017 were followed by medium-term consolidations before the stock plateaued-out in 2018. Since then the stock has tested overhead resistance at $3.20 twice last year before eventually moving into downtrend taking prices 30% lower by early 2019. Emerging from this constructive base 6 months ago we now find the stock crouched beneath overhead structural resistance at $3, but with good longer-term momentum building, we think they look good here.

With an attractive combination of strong organic growth and an acquisition strategy carving out international market space we believe PSI looks good for an entry here, and if expected gains come through as expected, this expanding insurance company could have you covered.

Growth Focus: Fleetwood Corporation Limited (FWD)

by Patrick Taylor



Date of Data Capture: 7/11/2019

Name: FLEETWOOD CORPORATION LTD (FWD)

Classification: Homebuilding & Construction

Current Price: $2.25

Market Capitalisation: $213 M

Forecast EBITDA Growth: 20.06%

Yield Estimate: 2.28%

Consensus Price Target: $2.54

# Covering Analysts: 3

Discount at Current Price: 12.89%

Price Target Trend (3-Month): Flat -1.55%

Signal Timeframe: Quarterly-Monthly-Weekly

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:
• Emerging from a two-year consolidation, this modular accommodation specialist has been showing fresh price strength on good overall performance and is backed by strong forecasts.
• Softer sales took income lower in 2018, and while currently negative this is set to turn back positive in 2020 and remain strong out to 2022, supported by broad gains across sales, margins and earnings, with yield set to improve also.
• Pricing shows a downtrend reflecting the softer performance since 2017, and importantly we see the linear downtrend breaking 2 months ago and then rallying through overhead resistance - we see momentum building across all timeframes.
Support ($): 2.00, 1.75 & 1.50.
Resistance ($): 2.50, 3.00 & 4.00.


Growth Focus: FLEETWOOD CORPORATION LIMITED (FWD)

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

There is often good value in stocks coming out of consolidation, when there is already some blood on the floor and the stock is making a recovery out of a support base. We think we may have that here with Fleetwood Corporation, as the specialist homebuilder breaks out of a long-running downtrend, finds fresh strength on good forecasting and looks ready to move higher all over again.

This is a well-established company, having been listed on the ASX since 1992, and has grown to become a strong player in the niche Modular Accommodation & Construction sector. Also providing more general accommodation solutions and village management services, the company-owned brands include Fleetwood Australia, Modular Building Systems, Searipple, Osprey Village, Camec, NRV and NRC.
Roughly two-thirds of all income stems from its Modular Accommodation business, followed by Parts and Services, and then Village Operations comes in last, but is also seeing the strongest growth.

Fleetwood has been active on the acquisition front, with MBS and NRV being added to the portfolio in the last 12 months, and funding was secured through a mix of a capital raise and asset sales, with further divestment of non-core assets yet to come. The purchase of MBS reflects a key strategy point, as the company looks to secure its leadership status in the modular accommodation space, seen to be a sector bound for expansion and future growth by servicing an improving mining sector.

Performance has been improving steadily since 2017, with good overall growth despite fluctuating revenue and margins, with reporting showing strong earnings growth in 2019. This growth path is seen extending out to 2022, with a very strong pickup in earnings forecast to occur in the two years ahead, and these strong expectations are matched by a strong majority positive consensus analyst sentiment and significant discount to target price projections.

Recent pricing history shows the company making strong gains out of the GFC slump, rallying more than 300% by 2012 before entering a precipitous four-year downtrend, ending with a seemingly minor 200% rally by early-2018. We are following freshly positive long-term signalling here as the stock emerges from a good support base, with linear resistance breaking in September, after pricing fell back into downtrend again over the last two years. Volatility is expected to continue as the stock secures new support, but with an excellent long-term setup and strong forecasting we think it could be a landslide opportunity.

Growth Focus: Western Areas Limited (WSA)

by Patrick Taylor



Date of Data Capture: 23/10/2019

Name: WESTERN AREAS LIMITED (WSA)

Classification: Nickel Ore Mining

Current Price: $3.25

Market Capitalisation: $889M

Forecast EBITDA Growth: 114.11%

Yield Estimate: 1.21%

Consensus Price Target: $3.05

# Covering Analysts: 14

Premium at Current Price: 6.15%

Price Target Trend (3-Month): Up-Flat +17.31%

Signal Timeframe: Quarterly-Monthly-Daily

Trend Bias: Up-Down / Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Moving higher within a medium-term uptrend WSA looks set to continue its upward journey, backed by steadily improving performance, an exciting technical setup, and strong forecasting.
• Consistent sales growth from 2017 belies a volatile earnings history, with underlying nickel commodity pricing and fluctuating margin levels causing large swings in value, but here we see very strong forecasting expected into next year.
• Pricing shows recent medium-term cyclical price moves with the company still working out of a major long-term downtrend from 2008 highs, we are following long-term signalling here, backed by fresh strength in the shorter-term timeframes.
Support ($): 3.00, 2.75, 2.50, 2.25 & 2.00.
Resistance ($): 3.50, 4.00, 4.50, 5.00 & 6.00.


Growth Focus: WESTERN AREAS LIMITED (WSA)

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

We are always looking for the hottest spots and best areas in the market for emerging growth trends - with the recent strength and excellent outlook for nickel, we think we might be unearthing a bargain with Western Areas as the low-cost producer surges on strong results and forecasting.

Listed on the ASX since mid-2000, Western Areas is an Australian nickel miner/producer with some of the lowest cost and highest grade nickel assets in the world. The company has an active asset development program, with resources and reserves being significantly upgraded in recent years. Ongoing investment into its mines should see growth maintained, with particular focus being given to the underground expansion of the Odysseus mine at Cosmos in Western Australia, offering a long-term mine life at low costings. An active exploration program is maintained with further high-potential prospects in Western Australia and Canada, providing a healthy pipeline for future growth.

Recent results showed strong mining performance offset slightly lower mine grading and currency moves. Increasing nickel pricing saw a boost to cash flow, adding to a good balance sheet recently boosted by the sale of its Kidman stake to Wesfarmers. Recently, the Indonesian government brought forward its planned 2-year ban on nickel exports to January 2020, which should see stockpiling continue to be reduced with LME levels already at 11-year lows, which should provide ongoing price support.

Performance fundamentals have been mostly good, with strong sales growth leading mostly steady gains in earnings, though the softer results of 2019 should give way to a strong 2020, with forecasting showing a strong boost to sales, margins, and earnings expected out to 2021. Analyst sentiment remains strongly majority positive, and while the stock does currently 6% sit above consensus targets, these aggregate valuations have risen 17% in the last 3 months alone.

Since listing on the ASX almost 20 years ago WSA has seen a great many positive and negative cycles, though the current uptrend is really best seen as a greater recovery from a long-running downtrend, in place since mid-2008. The current recovery uptrend began in January 2019, as linear resistance broke and price bounced up off $2 support, and by September price was working on the $3 resistance ceiling, with this level is now turning into support. We see longer-term signalling for a new uptrend beginning here, now gaining some shorter-term momentum, and we think Western Areas could be a great place to be.

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.