Equities Commentary

Growth Focus: Medical Developments International Ltd (MVP)

by Patrick Taylor



Date of Data Capture: 21/6/2019

Name: MEDICAL DEVELOPMENTS INT LTD (MVP)

Classification: Pharmaceuticals

Current Price: $5.44

Market Capitalisation: $350 M

Forecast EBITDA Growth: 51.35%

Yield Estimate: 0.75%

Consensus Price Target: $5.96

# Covering Analysts: 2

Discount at Current Price: 9.56%

Price Target Trend (3-Month): Up-Flat +5.49%

Signal Timeframe: Monthly-Weekly-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:
• Penthrox ‘Green Whistle’ producer MVP has had a volatile run since US FDA approval was put on hold, but with good international growth and very strong forecasting, we think they are set to recover and believe this is a buying opportunity.
• Softer earnings performance last year showed growing pains for MVP as it pushes forward with its strategy of global expansion, but this dip leads into strong growth forecasts out to 2021 on robust sales, margins and earnings gains.
• The 2018 downtrend ended early-2019 with a linear resistance break before price rallied into current range, testing structural resistance at $5.50, we expect the stock to enter a new longer-term uptrend with multi-timeframe momentum.
Support ($): 5.00, 4.75, 4.50, 4.25 & 4.00.
Resistance ($): 5.50, 6.00, 6.50, 7.00 & 8.00.


Growth Focus: MEDICAL DEVELOPMENTS INTERNATIONAL LTD (MVP)

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

Even the most exciting growth stocks take the occasional hit – this can create buying opportunities in the right situations and we believe we have that here with Medical Developments, as the company moves into recovery.

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

The company had a difficult last year, beset by the expenses and complications of aggressive global expansion, the company began to pull back from all-time highs reached in march 2018. The hits kept coming as US/FDA approval was delayed in July, followed by a capital raise within downtrend in August later that year. It was a hard fall for the previous high flyer, but it does create an opportunity if you think the broken stock is on the mend – and we do.

Performance was softer last year with expenditures increasing while sales and income growth were hampered by various trials and tribulations. These hardships overshadowed the significant gains that were made and the company continued to progress on a path to a stronger future. The US debut may still be on hold, but Penthrox was greenlit in additional 26 countries that year – up from 22 new markets the year before. If company forecasts are correct the current number of approved countries will increase from 38 to 77 by the end of 2020.

No matter what the scope of your growth prospects earnings matter, and with the clouds beginning to clear operationally we see forecasts rising aggressively out to 2022. That timeframe allows scope for the approved entrance into large markets like, China, Russia and the US, so robust growth should be expected. The company has also made advances in improving production efficiencies, which should add further strength to a strong recovery, with sales up 56%, revenue up 57% and gross margins up 32% YOY.

Pricing history reflects a previously strong leading stock that has fallen on hard times, but also one that is potentially about to emerge into a new long-term uptrend. The linear downtrend in place from March 2018 to March 2019 took the stock lower by more than 50%, before building base support and rallying up through resistance to pause under a $6 ceiling. Here we find them turning positive on all of our key timeframes and looking like an exceptionally high potential setup. If you are still hurting from missing the strong gains of 2017, MVP might just be about the help with the pain.

Growth Focus: Altium Ltd (ALU)

by Patrick Taylor



Date of Data Capture: 11/6/2019

Name: ALTIUM LTD (ALU)

Classification: Software & IT Services

Current Price: $32.25

Market Capitalisation: $2.86 B

Forecast EBITDA Growth: 46.78%

Yield Estimate: 1.38%

Consensus Price Target: $32.44

# Covering Analysts: 5

Discount at Current Price: 0.59%

Price Target Trend (3-Month): Up-Flat +1.15%

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: (Dividend Income) & Capital Growth

Set up Notes:
• Strong running software design company ALU has been moving higher in aggressive cyclical uptrends - with sporadic pullbacks providing entry points - we have that here with the stock underpinned by an equally strong outlook.
• Performance has been excellent with strong growth seen across sales, earnings and profits since 2013, all while increasing margins – this is set to continue with robust forecasts to 2021.
• We are buying into short-term weakness of a strong uptrend, with pricing breaking through linear resistance just days ago as the stock bounced off $30 structural support with good momentum shown across all key timeframes.
Support ($): 30.00, 27.50 & 25.00.
Resistance ($): 35.00 then clear upside.


Growth Focus: ALTIUM LIMITED (ALU)

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

The old market truism of ‘buy strength and sell weakness’ means that you have to be prepared to pay up for good quality stocks and even be willing to buy a company as it makes new highs. Ideally you want the strong technical outlook to be matched by an equally robust fundamental growth story, and we think Altium Ltd might just be an opportunity worth chasing as it emerges from a minor consolidation after hitting all-time-highs earlier this year.

The company has 30 years of trading history and have been listed on the ASX since 1999, in that time they have matured into a dominant operator in the printed circuit board (PCB) market with integrated services ranging from CAD technological design, parts administration and cutting edge production. With the company having a declared intent to dominate its field, we see good organic growth being supplemented by an ongoing strategy of acquisition, and seeing that PCBs are integral to internet connectivity, the underlying market is good and is expected to remain so in the medium to long-term.

Altium already boasts an enviable client list including global giants like VW, BMW, Toyota, NASA, Boeing, Dell and Microsoft, but are also looking to build on this position to secure market leadership with excellent growth seen in Asia and especially in China. The company is in robust condition with no debt, increasing cash balance, and generally strong performance across key markets and an expanding subscriber base, with growth focus to remain in Asia and America.

Strong fundamental performance has been a driving force behind the consistent uptrend of the last few years with consistent gains seen across sales, margins and profits, with forecasts predicting more of the same out to 2021.
Analysts are largely in agreement with an overall positive aggregate view, though it does need to be noted that current target pricing sees the stock at a premium to expectations, though these have been rising sharply in line with stronger performance, and we expect analysts to follow the price higher.

Pricing shows a classic step/stair uptrend with regular consolidation breaks over the last two years as underlying profit growth has accelerated, this should continue and if we are right we should see pricing solidify the breakout from linear resistance near $33 last week. There remains important peak-high structural resistance remaining at $35 but with our weekly/medium-term indicator rolling to the upside with strong signal correlation, we expect price to follow market expectations higher, and while we know we are chasing this one – it could be quite a catch.


Growth Focus: Reece Ltd (REH)

by Patrick Taylor


Details

Date of Data Capture: 31/5/2019
Name: REECE LTD (REH)
Classification: Construction Supplies & Fixtures
Current Price: $10.38
Market Capitalisation: $5.86 B
Forecast EBITDA Growth: 38.89%
Yield Estimate: 2.15%
Consensus Price Target: $12.58
# Covering Analysts: 2
Discount at Current Price: 20.04%
Price Target Trend (3-Month): Flat +-0%
Signal Timeframe: Monthly-Weekly-Daily
TrendBias: Up-Down / Long-Medium
Indicators:
Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive-Neutral
 


Recommendation: Buy
Focus: (Dividend Income &) Capital Growth

Set up Notes

  • With years of strong domestic performance and earnings growth, REH has pulled back recently after completing a massive acquisition that will almost double revenue and allow access to US markets, expected to significantly boost growth.
  • Consistent sales, earnings and profit gains in Australian and New Zealand operations give a solid foundation for investment, and with the US addition this trend is set to continue further, with strong growth forecasting out to 2021.
  • Reece tends to make cyclical pullbacks within its greater long-term uptrend, and we see fresh signalling here that should combine well with emerging shorter-term positive momentum. 
  • §Support ($): 10.00, 9.75, 9.50 & 9.00.
  • §Resistance ($): 10.75, 11.00, 12.00 & 13.00.

Growth Focus: REECE LTD (REH)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.
 
Having a good business pipeline is essential for a growth company – and here we think we have a sizable opportunity with Reece Ltd (REH) as the construction supplier looks ready to build on recent acquisitions and are set to tap into the US market. 
 
For a company that is almost one hundred years old, having been listed on the ASX since 1992, Reece continues to adapt and evolve as Australia’s largest plumbing and construction supplies business. With 800 branches across Australia, New Zealand, and the United States, the company offers an attractive growth profile that belies its multi-billion dollar market cap.
 
Viewing Reece as a growth prospect isn’t difficult as the company already maintains a strong domestic base with solid historical organic growth and excellent underlying fundamental performance, which is supplemented with an active acquisition strategy. Last year Reece completed a number of takeovers, including Heatcraft in Australia and New Zealand, and also acquired MORSCO in the US - a company of similar size, almost doubling the scope of the combined entity.
 
While it takes time for any acquisition to settle in and reach full benefit, the US acquisition offers significant sales and earnings potential from a business brand already well established across some of America’s most populous states, offering large target markets. The acquisition should see cost savings and beneficial synergies as well as further potential benefits from Reece’s strong business model and innovative move towards digitisation of the product line and improved delivery performance.
 
Strong fundamental performance will remain a key driver and with an already robust track record of sales, earnings and profit growth since 2013, we gain confidence that forward forecasting is stronger than ever after the US addition. The small dividend is set to increase in significance in the years ahead and aggregate analyst price targets shows a large discount to current pricing with a favourable overall analyst sentiment.
 
Pricing shows a very long and successful history of value gains through long-running multi-year trends, interspersed with occasional consolidations providing buying opportunities into the pullbacks. We are following a well-correlated long-term signal into this entry as the stock builds a support base above $10 and looks to combine with some shorter-term strength emerging now. It may be large for a growth pick but we believe this plumbing giant will be able to handle the increased liquidity.

Growth Focus: Silver Lake Resources Ltd (SLR)

by Patrick Taylor


Details

Name: SILVER LAKE RESOURCES LTD (SLR)
Classification: Gold Miner
Current Price: $0.83
Market Capitalisation: $655 M
Forecast EBITDA Growth: 42.21%
Yield Estimate: 0%
Consensus Price Target: $0.87 
# Covering Analysts: 3 
Discount at Current Price: 4.82% 
Price Target Trend (3-Month): Up-Flat +6.10%
Signal Timeframe: Quarterly-Monthly-Daily
TrendBias: Up-Flat/ Medium-Short
Indicators:
Short-term: Positive
Medium-term: Positive-Neutral
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Setup Notes

  • SLR looks to be moving into the next stage of recovery as it clears through long-term resistance, backed up by standout performance and very strong forecast growth out to 2021. 
  • Robust earnings have been driving the price recovery higher after the major price slump from 2012-15, and here we see the pattern of increasing sales and profits continuing strongly into next year with solid margins in support.
  • Pricing has broken through a key resistance ceiling at $0.80 and now has no dynamic resistance above it, leaving price free to chase structural resistance levels higher above.
  • Support ($): 0.80, 0.75, 0.70 & 0.65
  • Resistance ($): 0.90, 1.00, 1.25 & 1.50

Growth Focus: SILVER LAKE RESOURCES LTD (SLR)

The primary focus is capital gain - stocks are selected from the ASX Top 500 All Ordinaries Index.
 
Recent strength has returned the shine to Silver Lake Resources as the newly expanded gold producer and explorer looks to continue its recovery track higher on the back of robust performance and glittering forecasts.
 
Silver Lake listed on to the ASX in late-2007 and remains a gold producer and explorer based in Western Australia, with three mining centers feeding a central mill at its Mount Monger asset. The focus in recent years has been increasing production and high-grade feed while investing in expansion and exploration. This approach has worked well with the company increasing the life of mine in its core assets while eliminating debt and increasing cash balance.
 
The ability for Silver Lake to increase assets organically has been significantly boosted with the merger with Doray Minerals last month, transforming the entity into a mid-tier operator with complementary operations in WA. The stated focus will initially be in maximising the value of established assets (reporting showed year on year growth of Ore Reserves up 13% and Measured and Indicated Resources up 37%) while also running an active acquisition strategy with plenty of scope for expansion.
 
Strong fundamental performance has been key to recent strength with increasing sales, margins and profits being seen since 2016, and forecasting shows this trend is expected to stay positive through to 2021. The favourable view is matched by positive analyst sentiment and rising consensus price targets, with valuations increasing in front of price for much of the last two years, and currently offers an attractive discount today's pricing.
 
Silver Lake enjoyed some good timing by floating on the ASX just prior to the gold-run sparked when the GFC began just a few months later and has since shown a tendency to move up and own in large multi-year trends. With a greater recovery rally underway, the immense price swings that followed the boom and bust of the gold market from 2007-2013 provide key resistance targets for the current uptrend that should have further to go.
 
Right now we see important resistance barriers being broken as the stock rallied up to current levels, and we think there should be plenty of potential upside remaining for continued outperformance. Strong fundamental expectations combine well with an excellent technical profile showing growing momentum across multiple key timeframes, all of which should add to the current silver-lining.

 

Growth Focus: MACA Ltd (MLD)

by Patrick Taylor



Date of Data Capture: 2/5/2019
 
Name: MACA LTD (MLD)
      
Classification: Mining Support Services
 
Current Price: $1.05
 
Market Capitalisation: $276 M
 
Forecast EBITDA Growth: 38.16%
 
Yield Estimate: 4.27%
 
Consensus Price Target: $1.39
 
# Covering Analysts: 3
 
Discount at Current Price: 32.38%
 
Price Target Trend (3-Month): Up +12.5%
 
Signal Timeframe: Quarterly-Monthly-Weekly
 
TrendBias: Up-Down / Long-Medium

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

Recommendation: Buy
 
Focus: (Dividend Income) & Capital Growth
 
Set up Notes:
·    MACA is prone to huge price swings played out over multi-year cycles and here it looks like it could be entering into a major uptrend with price breaking through major resistance structures and forecasting showing good growth potential.
·    Performance has been mixed with steady sales growth since 2016 at odds with earnings declines in 2018 (and expected for 2019) before strong profit and margin growth returns next year, with this recovery continuing out to 2021.
·    Pricing and timing needs to be followed closely with MLD due to its extreme volatility, but here we see excellent signal correlation in the long-term showing a high probability for further gains as the stock breaks through linear and dynamic resistance after breaking back above $1 in April.
  • Support ($): 1.00, 0.95, 0.90 & 0.80.
  • Resistance ($): 1.10, 1.20, 1.50 & 1.90.


Growth Focus: MACA LTD (MLD)

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

Steep falls don’t always mean deep value but after declining for most of 2018, we see value in mining support services company MACA Ltd as it firms up, with fresh strength being shown since the start of 2019. This price resurgence combines well with excellent forecasting and an exciting technical setup, and we think the recovery has further to run as they continue digging themselves out of a hole.

Listing on the ASX late in 2010, mining support services contractor MACA operates primarily in Australia with some secondary operations in Brazil, providing mining and civil infrastructure services. With operations ranging from mining, crushing and construction services and covering a range of commodities, MACA works with large and small clients, ranging in size from corporate giants like BHP to developing growth prospects like Pilbara Minerals. While MACA has been successful in extending long-term contracts, it is also winning new business and should benefit from the broader market recovery in the mining sector generally and we expect this growth/recovery trend to continue.

The key metric in recovery plays is improving earnings and we like forecasts showing a strong expected increase in revenue and profits in 2020 and out to 2021. Context is important and there remains good potential for a strong return to earnings growth after a softer 2018 saw earnings slide on weaker margins and profits. There are definite signs of strength with consistent sales growth since 2016 set to continue higher and should be a main driver of recovery as margins are expected to begin recovering this year and continue higher into 2021 - setting up a significant bounce in EPS from the lows expected from 2018 and 2019.

The market tends to be forward looking and we can see these more positive expectations beginning to be revealed in fresh share price strength with pricing breaking through important linear and dynamic resistance barriers over the last few months. This sets up higher historical price targets and we see excellent long-term correlation and while we expect some volatility we do see positive momentum signalling also coming through here in the short to medium timeframes and we believe MACA should continue to unearth good value from here.

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.