Equities Commentary

Growth Focus: Nearmap Ltd (NEA)

by Patrick Taylor




Date of Data Capture: 13/6/2017

Name: NEARMAP LTD (NEA)

Classification: Software & IT Services

Current Price: $0.575

Market Capitalisation: $210M

Forecast Sales Growth: 37.53%

Estimated Gross Yield: 0%

Consensus Price Target: $0.77

# Covering Analysts: 3

Discount at Current Price: 33.91%

Price Target Trend: Increasing Flat

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:
• NEA is moving out of a sharp 50% consolidation bolstered by good news and a successful bounce off 50c support - with excellent forecasts and strong signalling of a reversal this looks like an attractive entry to an exciting growth stock.
• Expect volatility but the story is backed by good fundamentals with the last set of results showing strong growth in revenue, profits and earnings with continued sales growth expected through to 2018 as they move into profit.
• Momentum is building here with overhead resistance targets sitting at 65, 80 and 95c while support layers down from 55 and 50c from here if needed, with some last line support at 45c.


Growth Focus: Nearmap Ltd

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

Sometimes you need to see the lay of the land in order to find the best place to invest your funds, and here we are bringing our resolution into fine focus with Nearmap Ltd (NEA). This highflying photomapping specialist fell back to earth during the end of 2016 but recent strong reporting gives us the inclination that they may yet show the strength of Atlas and reach once more for the heavens.

Arriving on the map late in 2000 and based in Sydney, Nearmap provides highly detailed photo maps and geospatial location content to corporate clients (like property developers and project planners) to government clients (ranging from public transport and water utilities). NEA maintains excellent margins and is performing above expectations, they hold a strong cash position and now have forecasts that are streets ahead of their current standing, all combining to showcase their powerful scope for further growth.

A close-up inspection of NEA shows much of their revenue is still coming from their Australian operations, despite their having heavily invested in their US operations, which is the biggest dark cloud on their horizon. This is beginning to improve and is easily the most promising market for them and where they could be a titan in their field. Additionally, their near completion of New Zealand photomapping should pave their way into another choice market.

Investors have had to shoulder the weight of extreme volatility in NEA for most of their listed life as they have ranged strongly upwards from their early pricing at 10c to recent highs reaching a top-of-graphic price of 96.5c in October 2016. The well-earned price consolidation that followed that peak was amplified by a capital raising at 70c in November 2016, leading into an abysmal eight months where the price fell by over 50%, declining to a March 2017 low of 43c. Since then we have seen the price work off structural support at 50c and successfully break through their overhead dynamic resistance cluster between 50 and 55c just this week - opening them up to blue skies above.

Nearmap represents a growth story with plenty of room to move, backed by growing performance and exciting forecasts that paint a pretty picture. With technical momentum building across key timeframes and fresh positive signalling coming through as the price breaks through resistance, it could be a good time to snap up some NEA before they zoom off once again.

Growth Focus: Fisher & Paykel Healthcare Corp Ltd (FPH)

by Patrick Taylor




Date of Data Capture: 1/6/2017

Name: FISHER & PAYKEL HEALTHCARE (FPH)

Classification: Healthcare Equipment & Supplies

Current Price: $10.25

Market Capitalisation: $5.76B

Forecast EBITDA Growth: 15.75%

Estimated Gross Yield: 1.9%

Consensus Price Target: $10.47

# Covering Analysts: 6

Discount at Current Price: 2.2%

Price Target Trend: Increasing Flat

Signal Timeframe: Monthly-Weekly-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:
• FPH is emerging from year-long 20% consolidation and is pushing to new all-time highs again right now and has strong performance and forecasting to back it up.
• Their recovery within the first half of 2017 was fuelled by continued good news within a strong sector with favourable demographic outlook and we think there should be more to come.
• Technical momentum has re-established across key timeframes as prices push past historical resistance at $10.20 and we are looking to follow a successful bounce of this newly established $10 support, with more layered down to $9.50 and $9.00 if needed.


Growth Focus: Fisher & Paykel Healthcare Corp. Ltd.

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

After trawling the market for good ideas, we think we have a good angle on an interesting growth stock here and we suggest you cast your eyes on Fisher & Paykel Healthcare Corp Ltd. If you can’t catch a stock at the beginning of its recovery you may as well jump on board as it breaks out of consolidation and into new highs and blue skies. That is not to say it is psychologically easy to buy shares at all-time highs, but with their previous uptrend delivering a rally that gained over 500% since listing in late 2012, we know this stock can really move when running.

Founded in 1934 and headquartered in Auckland, New Zealand, FPH manufactures respiratory equipment and consumable medical products aimed at treating breathing and sleep disorders within their Respiratory and Acute Care and Obstructive Sleep Apnea business arms. They have had considerable success over the last few years, based on the simple prescription of driving down costs and expanding existing business footprint while entering new markets around the world.

They are fundamentally strong with excellent recent reporting showing continued growth in revenue and margins, with profits up 18%, along with a dividend increase of 17%. Some extra risk/reward exists with the ongoing litigation with Resmed Ltd (RMD) which may result in a significant price shock that will be either positive or negative – but there is no way to predict this outcome so we won’t bother. Looking forward, we do know that organic growth of the core business is already very good but is set to improve further with manufacturing to increasingly be done in their new facility in Mexico to further reduce costs and increase profit margins. Another bonus is their active approach to research and development with healthy funding, carrying almost no debt and plenty of exciting forward business prospects.

Technically they are very robust, with a beautiful linear uptrend that lasted from late 2012 to mid-2016 which saw pricing increase fivefold. This ended in August of 2016 around $10.00, from where they began their 10 month consolidation with an initial 25% collapse to $7.70 by November that year. The rally of the last 6 months has seen them push back to test their old structural resistance target and previous peak-price high at $10.00 last week. Their recovery has been sharp and built on the strong foundation of good news and beaten expectations, with momentum lining up well across key timeframes here we think their amazing rally of the last few years didn’t expire but rather just paused for breath.

With strong historical performance backed by excellent forecasts for continued growth, coupled with an exciting technical structure with a high potential set up, we are happy to hook up with FPH, a company in hale and hearty health.

Growth Focus: Smartgroup Corp. Ltd (SIQ)

by Patrick Taylor




Date of Data Capture: 19/5/2017

Name: SMARTGROUP CORP LTD (SIQ)

Classification: Business Support Services

Current Price: $7.05

Market Capitalisation: $876M

Forecast EBITDA Growth: 32.87%

Estimated Gross Yield: 3.98%

Consensus Price Target: $7.13

# Covering Analysts: 6

Discount at Current Price: 1.13%

Price Target Trend: Increasing

Signal Timeframe: Monthly-Weekly

Trend Bias: Up Flat; Long-Medium

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• SIQ looks to be coming out of a 9 month consolidation after rising 500% over 2 years and while there is some residual negativity in the very short-term timeframe, this stock looks ready to move ahead with excellent momentum building in the medium and long-term timeframes.
• Strong fundamentals back our view with excellent historical earnings performance and further aggressive growth forecast to continue into 2018.
• Currently working through $7.00 resistance with historical peak resistance target just overhead at $7.50 we expect some volatility here but see good support layered down to $6.50, $5.50 and $5.00.


Growth Focus: Smartgroup Corp Ltd

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

Sometimes it can be hard to tell whether a consolidating stock with a falling price is legitimately sick or whether it is just more of a sniffle and now offers better value with the declines. We believe we have found the latter with Smartgroup Corporation Ltd (SIQ), a business support services company seemingly ready to come out of convalescence.

Beginning in 1999 as a web-based comparison company, Smartgroup has evolved to become one of Australia’s largest employee benefit and workforce optimisation service providers. Working through their brands Smartsalary, Smartleasing, Smartfleet and SmartEquity, SIQ offers outsourced administration; vehicle services; and software, distribution and group services for blue chip clients like the Department of Defence and the WA Department of Health.

Theirs is a market still maturing and the associated expansionary phase has provided SIQ with opportunities for strong organic growth and also via an aggressive acquisition regime in a fragmentary market. This kind of hungry approach often leads to indigestion and by mid-2016 Smartgroup began to hiccup, first following from the temporary earnings dent of the Autopia acquisition and later with the diluting effects of the fund raising for the Selectus takeover. Expansion often takes time to process before the benefits can be had, and that is what we expect here with excellent fundamental performance and strong forecasting highlighting a company with plenty of room for recovery - especially with the gains they have made into the corporate sector.

They offer excellent cash flow and even pay a decent dividend, but really we are here following signs of remission, and we do have that; with good growth seen across margins, earnings and profit with good forecasting backing growth through to 2018. We only have a small discount to target prices here with aggregate valuations coming in just 1% higher than current pricing but those targets have risen over 12% in the last 3 months alone. The six analysts covering SIQ are consensus positive on them with sentiment improving over the last few months as they continued to nurse prices higher.

Historically they show a trend of rare beauty, where after a constrained start in 2014 ranging between $1.60 and $1.20, the beginnings of 2015 saw them start their 600+% rally through to their mid-2016 peak of $7.70. From there they toppled over under the weight of an exhausted trend and consolidated down over 30% over three queasy months before beginning their rally to current levels.

Here we find them working on $7.00 resistance - which may yet see a few minor pullbacks with some weakness showing in the short-term. The medium and long-term picture is one of rude health however and is strong enough to view any weakness here as an opportunity and any bounce off $7.00 as worth following. Declining price does not always mean declining conditions and we believe that SIQ may yet make a longer-term recovery.

Growth Focus: Xero Ltd (XRO)

by Patrick Taylor



Date of Data Capture: 6/4/2017

Name: XERO LTD (XRO)

Classification: Enterprise Software

Current Price: $18.39

Market Capitalisation: $2.16B

Forecast Sales Growth: 44.44%

Gross Yield: 0%

Consensus Price Target: $18.05

# Covering Analysts: 6

Premium at Current Price: 2.27%

Price Target Trend: Increasing Flat

Signal Time Frame: Quarterly-Monthly-Weekly

Trend Bias: Up Flat ; Medium-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• After an extremely aggressive first year in which the stock grew almost 1000% XRO has since fallen sideways within a major consolidation for close to three years from their 2014 peak.
• With performance starting to chase potential now is the time to see if they can continue moving up through resistance and build on the base set up throughout 2016.
• We have good signal correlation and positive multi-timeframe momentum building here as we take aim at major resistance targets around $20 and $24, with old highs towering above at $42.
• Support is good and has some nice structure layered down from $18 to $16 and $14.


Growth Focus: Xero Ltd (XRO)

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

Normally we look for a good combination of fundamental and technical strength when focussing on a particular growth stock; choosing to zero-in on robust earnings performance and forecasts, coupled with a high potential technical outlook backed by favourable price action. While this is not quite the same case just yet, we found we could not discount accountancy software company Xero Ltd (XRO) which - even without turning a profit - seems destined to rise above its moniker and add up to something big.

Beginning their charter in 2006, Xero is an online software provider offering personal and small business accounting systems and tools covering transactions, cashbooks, general ledgers, accounts, payrolls, and reporting and management, covering monthly and annual accounts. Holding firm as Australia and New Zealand’s dominant provider of accounting and enterprise software, they are also adding growth in the much larger US, UK markets and carry excellent margins and regular cash flow. We think we can count on them moving forward from this expansionary phase to meet aggressive fundamental forecasts, continue hitting milestones and getting closer to break-even and much higher valuation metrics.

XRO made a dazzling entrance to the market late in 2012 at just over $4 and proceeded to cut a fine figure as prices rose up almost 1000% to reach $43 by early 2014 before their numbers were crunched over the following three years, falling by more than 70% from their peak. The current recovery price-base has been formed by two bounces off $12 support, with the first being mid-2015 and the second in early-2016. Since then we have seen the price break through dynamic resistance around $16 by mid-2016 before moving up to test $20 structural resistance by late 2016. Pricing failed to break through this ceiling and moved down to test $15 structural support once more, with that level holding prices bounced back once again and have since coiled sideways, moving through shorter-termed cycles with momentum building across multiple timeframes.

We see good signal correlation across the major timeframes and these have turned almost universally positive with prices bouncing off dynamic support early in 2017. Add that to Xero’s strong sales growth and fundamental forecasts - and with their landmark one millionth subscriber signing on last month - we think this could be the calm before the storm and this cloud-based service operator could be about to make it rain.

Growth Focus: Link Administration Holdings Ltd (LNK)

by Patrick Taylor



Date of Data Capture: 10/3/2017

Name: LINK ADMINISTRATION HOLDINGS LTD (LNK)

Classification: Business Support Services

Current Price: $7.84

Market Capitalisation: $2.82B

Forecast EBITDA Growth: 25.29%

Gross Yield: 2.18%

Consensus Price Target: $8.29

# Covering Analysts: 5

Discount at Current Price: 5.8%

Price Target Trend: Flat

Signal Time Frame: Monthly-Weekly-Daily

Trend Bias: Up Flat; Medium-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Upon listing LNK rallied 30% in 6 months before consolidating back to baseline just 3 months later. They are now emerging from this base and look to be re-entering a longer-term uptrend.
• Sector and fundamental strength give support to a favourable outlook with good forecast growth seen in earnings, profits and margins.
• Positive short and medium-term signalling have been joined by a freshly green long-term signal that came through just as linear resistance broke last week. We expect this uptrend to continue with obvious resistance targets overhead at $8.00, $8.20 and $8.80 with good support layered down from $7.70 to $7.00.


Growth Focus: Link Administration Holdings Ltd (LNK)

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

With further growth expected across the Australian superannuation industry we are looking to weave together solid fundamental forecasts, exciting technical outlook and a high potential set-up in our attempt to net a profit. Link Administration Holdings Ltd (LNK) has all the points mentioned, and while it can sometimes be tricky to connect the dots correctly, with Link we think we have made the right connection.

Starting out in New Zealand 2005, Link has since headquartered in Sydney and grown operationally across countries including Australia, South Africa, India, Germany and Hong Kong. With customers like AustralianSuper and REST, LNK businesses cover fund administration, corporate markets and information/data servicing. They are the top superannuation software company in Australia with defensive earnings and revenue coupled with recent signs of recovery growth and are attached to some exciting fundamental forecasts which should combine well.

While excellent price growth has been seen across the superannuation services sector recently, Link spent the majority of 2016 weakening off until finally coming loose at the end and whipping down almost 30% from their mid-year peak. Since then they have steadied above $7 support before breaking through primary linear resistance last week and have technical indicators turning positive across multiple timeframes in tandem right now.

In the 18 months since listing they have gone through the well-worn channel where a company gets an initial IPO-pop and price rally which is then followed by a dip that clears the stag profits. This is normally a small-scale boom and bust cycle that establishes primary support and resistance and basically sets the stage for the development of the company in the market going forward. This is what we have here – on a very large scale – registered in the monthly timeframe and representing a very large pattern with significant potential.

With further broad growth expected across the sector, Link is well situated and should see strong fundamental conditions unite well with improving price performance and positive signalling now seen in the longer-term timeframe. This longer range setup ties in well with pre-existing uptrends currently ongoing in the medium and shorter-term timeframes and should allow prices to hitch higher yet. For all these reasons we think your portfolio might just have a missing Link.

Disclaimer

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.