Equities Commentary

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.

Growth Focus: SpeedCast International Ltd (SDA)

by Patrick Taylor




Date of Data Capture: 25/2/2017

Name: SPEEDCAST INTERNATIONAL LTD (SDA)

Classification: Satellite Telecommunications

Current Price: $3.89

Market Capitalisation: $929M

Forecast EPS Growth: 87.13%

Gross Yield: 2.08%

Consensus Price Target: $4.87

# Covering Analysts: 6

Discount at Current Price: 25.19%

Price Target Trend: Increasing Flat

Signal Time Frame: Monthly-Weekly-Daily

Trend Bias: Up Flat ; Long-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• After an initial aggressive growth phase saw gains of 125%+ from 2014-2015 SCA then consolidated down 30%+ over most of 2016, there are signs that this longer-term downtrend is now easing and is beginning to reverse.
• Strong fundamental performance and forecasts back up the positive technical view with good discounts to consensus targets and further earnings growth expected.
• Technical signalling is turning positive across multiple timeframes and while some overhead resistance remains at $4.00 – linear resistance broke recently and in-line with shorter-term indicators, support lies $3.50-$3.80.


Growth Focus: SpeedCast International Ltd (SDA)

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

Normally the last thing you want to hear about a satellite company is that it has fallen, but indeed that is why we are buying SpeedCast International Ltd (SDA). After a stellar first year - where this global communications company rose by 150% to reach a zenith of $4.75 by late 2015 - things soon fell back to earth and prices cratered by 30% to hit a low of $3.02 only a year later. With strong performance and forecasts, backed by robust organic and acquisitive growth, we believe their star may be on the rise again.

SDA provides satellite communications and internet services to remote or unique clients unable to connect to more standard service models, including mining outposts, oil rigs and cruise ships. Their recent buyouts of other players in the field like WINS Ltd and Harris Caprock Ltd have been mixed blessings as capital raisings and share issues have taken their toll on the share price in the short-term. What we haven’t seen yet is the true extent of the benefit of these purchases in expanding overall market share and diversity - these should be significant but might yet prove to be meteoric.

SpeedCast does pay a small dividend but it is their prospects for future growth that brings this stock into our orbit, coming off a launching pad of increasing sales, earnings margins and profits that is forecast to continue to rise and fuel future growth. Feeling this same gravitational pull of positive forecasting the six analysts covering SDA have aligned for a consensus price target of $4.87 carrying only positive outlooks for the company. These predictions carry them above their previous highs and represent a current discount of 25% to today’s pricing, leaving them plenty of space to fill.

On the technical view we see a strong rally lift them over twelve months, after an initial stumble on entry to the market, before entering into a year-long consolidation they are only emerging from now. The longer-term signal carries good correlation and turned positive just as linear resistance broke around $3.80, which decent signal carriage from smaller timeframes adding to momentum and potential under resistance at $4.00. That ceiling didn’t pose a strong barrier the first time it broken and with clear signs that strength is returning to SDA and we might just be seeing their uptrend attempting a re-entry here.

With excellent fundamental performance behind them, coupled with global potential and an exciting technical outlook, SpeedCast might be ready to once again eclipse market expectations.

** Edit: 28-2-2017 H1 FY17 Results were released before the publication of this article **
SDA has reported strong EBITDA growth of 42% and NPAT growth of 30% - this is slightly under expectations but still very strong. The stock has been discounted by 10% in the market today and we are using that as an opportunistic entry. We are happy with our analysis and accordingly this article has been published in original format.

Growth Focus: MNF Group Ltd (MNF)

by Patrick Taylor



Date of Data Capture: 10/2/2017

Name: MNF GROUP LTD (MNF)

Classification: Telecommunications Services

Current Price: $4.86

Market Capitalisation: $327M

Forecast EBITDA Growth: 31.46%

Gross Yield: 1.75%

Consensus Price Target: $5.75

# Covering Analysts: 4

Discount at Current Price: 18.31%

Price Target Trend: Increasing

Signal Time Frame: Quarterly- Weekly-Daily

Trend Bias: Up-Flat ; Long-Medium-Short

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

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• MNF is riding a strong long-term uptrend interspersed with occasional (mostly sideways) consolidations – the current compression seems to be ending with signs indicating the price may be ready to proceed again.
• With good fundamental performance and forward forecasting backing them, we are given additional confidence from recent aggressive upgrades to target pricing.
• There is some weak negativity in the monthly timeframe but this is outweighed by positive momentum seen in the daily, weekly and quarterly timeframes.
• Resistance remains overhead at $5.00 with good support around $4.50, $4.25 and $4.00.


Growth Focus: MNF Group Ltd (MNF)

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

While the idea of buying a great stock at rock bottom prices can be an attractive dream, the reality is that growth is often built most firmly on previous growth. Strong historical performance also comes with a price but all good big companies were once small companies whose price kept going up. Such is the case here where we need to crane our necks back to focus on MNF Group Ltd (MNF) as the erstwhile My Net Phone continue to increase their net sales, earnings, profits and potential.

This voice over internet protocol specialist and integrated voice services company began business in 2004, listed on to the ASX in 2006 and is headquartered in Sydney. MNF is fast growing, cash accretive and actively acquisitive, having absorbed wholesale voice carrier TNZI in April 2015 and also CCI at the start of this month. While these deals pave the way to future growth the full benefits and synergies tend to take a little while to kick in. This seems to be under full swing with TNZI, though the CCI deal, while having some immediate benefits, will take some time to mature.

Luckily MNF is able to stand on its own two feet when it comes to organic growth with deals struck with Telstra in October of 2016 and the Victorian government earlier this month also. This adds to a now familiar tune of strong fundamental growth that is set to keep on going, with EBITDA up 46 last year and significant growth forecasts ahead. While they do pay a small dividend it is really their growth prospects that bring us to the yard and with 4 analysts giving an aggregate target price of $5.75, some 18.3% higher than here, we are happy to take the line.

If we had one hang up it would be hat they haven’t really had a real drop in the market since the GFC and really the best entries to be found over the last few years have been by elbowing into positions during occasional, mostly sideways, consolidations. They seem to be coming out of a medium-term pullback right now as they crouch beneath their all-time highs and structural resistance at $5.00. We see good short-term momentum looking to connect to longer-term strength here as we dial in clear positive signalling and confirming price action.

We like MNF Group because of its exciting technology combined with strong (founder-led) management. When you add their robust fundamental performance, formidable forecasting and well-correlated technical signals, it becomes difficult to ignore the call to pick up MNF.

** Edit: 14-2-2017 H1 FY17 Results were released before the publication of this article **
MNF has reported strong EBITDA growth of 22% and NPAT growth of 21% - this is slightly under expectations but still very strong. Nevertheless they are currently under pricing pressure so hold off short-term buying until this dip completes and use this as an opportunistic entry. We are happy with our analysis and accordingly this article has been published in original format.

Growth Focus: A2 Milk Company Ltd (A2M)

by Patrick Taylor



Date of Data Capture: 30/1/2017

Name: A2 MILK COMPANY LTD (A2M)

Classification: Food/Dairy Processing

Current Price: $2.11

Market Capitalisation: $1.51 B

Forecast EBITDA Growth: 75.82%

Gross Yield: 0%

Consensus Price Target: $2.42

# Covering Analysts: 4

Discount at Current Price: 14.68%

Price Target Trend: Increasing

Signal Time Frame: 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:
• A2M looks to be coming out of a long-term sideways consolidation around $2.00 structural resistance over the last 12 months.
• Medium-term signalling has been well-correlated and is turning positive just as they test support at $2.00, established in the break of Nov 2016.
• Fundamental growth forecasts and price targets are strong and their sector has stayed in the spotlight with plenty of attention remaining.
• We are looking to follow early short-term buy signals here with a view to seeing these link-up with positive momentum in the medium and long-term timeframes.


Growth Focus: A2 Milk Company Ltd (A2M)

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

Sometimes it is okay to smile about spilled milk. Such a time was just 2 months ago when a competitor’s curdled results knocked the froth off the dairy sector, dropping a fifth of the share price of the A2 Milk Company Ltd (A2M) into the pale. Since those sour events we have seen them rally from the lows and look to be targeting old highs with potentially more cream on top.

A2 Milk is a vertically integrated dairy goods producer of fresh milk and infant formula with a unique nutritional process and profile based solely on the ‘a2’ milk (beta-casein) protein purported to impart superior health qualities with some early-stage research and good anecdotal evidence to back it up. While these findings are still somewhat contested, their performance needs little in-depth study to understand and since listing early in 2015 at 50c their share price has gained an udderly impressive 500% within two years to peak just shy of $2.50 by late 2016.

Within that period, at the end of 2015 we saw A2 Milk’s share price stampede ahead, running up capital gains of over 300% in 6 weeks after which the share price has been effectively been put out to pasture as the stock works its way through a longer-term consolidation to bed down that extra weight. That has seen the price wedging sideways under resistance set around $2.00 throughout 2016, with A2M breaking through this barrier cleanly in November. After reaching a new all-time high of $2.48 they returned to successfully test support at $2.00 and now with momentum indicators turning positive in good correlation with price action they look ready to lead the field again.

Separating A2M from the herd, and key driver of the price gains, is strong domestic growth throughout Australia and New Zealand as well as good progress being made into huge markets like China, US and the UK. While this offers great and as yet untapped potential, concerns about China were still sloshing through the industry, yet A2 Milk’s management has shrugged off concerns of Chinese regulation changes and so too has the price. With a robust financial standing and very strong growth forecast in sales, earnings, profits and margins we could see the A2M grow into a much larger cash cow.

With good fundamentals and a strong technical outlook we are looking for things to firm and set up from here. This behoves us to believe that A2 Milk are not about to lose their whey but are ready to kick higher. A2M is managing to steer themselves forward with a formula for success and a bullish outlook that investors should find easy to swallow.

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.