SEEK – Waiting For Value

Posted on | by Leon Hinde

SEEK has yet again pushed out the timing of its earnings growth, committing to another huge uplift in operational and capex spending to grow market share in China, South East Asia and Australia.

The market has downgraded earnings forecasts to reflect the FY18 result and the guidance for FY19.  This now leaves FY20 and 21 as the growth opportunity with forecast EPS set to accelerate to 20%+ p/a.

With the stock now on 2% dividend yield and questions over short-term growth and large capital expenditure, we feel investors should be patient and wait for our next ALGO buy signal.

SEEK offers investors exposure to the global hiring cycle and increasing migration of employment advertising to the online market.

SEEK

Buy Star Entertainment

Posted on | by Leon Hinde

Star Entertainment reports FY18 earnings on the 24th of August and consensus forecasts are expecting underlying NPAT of $255 million, up 15% on the same time last year.

The  1 to 3 year outlook for SGR supports ongoing EPS growth of 10% +, placing the stock on a forward FY19 dividend yield of 4.5%.

SGR is a current holding within our ASX 100 Model portfolio.

Star Entertainment Group

 

RIO – Sell A Call Option To Deliver 10% Cash Flow

Posted on | by Leon Hinde

RIO’s 1H 2018 earnings result was slightly below the consensus forecast with underlying EBITDA of US$9.2 billion.

If we assume flat earnings and dividend growth over the next 12 months, it places RIO on forward yield of 4.5%.

Returning cash to share holders through an increased share buy back program, (largely proceeds from asset sales), will help to underpin RIO’s current share price.

We recommend investors add a covered call option to enhance the income returns.

RIO goes ex-dividend US$1.70 on the 9th August.

Rio Tinto

 

Sell Signal In Bank Shares

Posted on | by Leon Hinde

All four major banks, and the regional names, are now displaying Algo Engine sell signals. Currently we have no bank long holdings within our model portfolio.

Within the financial sector our preference remains for ASX and IAG. Both offer a fully franked dividend yield, and when combined with a covered call, we’re generating 10 – 12% annualized cash flow.

Our concern about the low ROE for the domestic banks is driven by weak housing loan growth and the rising cost of funds. These conditions keep us cautious on the banks, especially when combined with the present group of ALGO sell signals.

 

EVN – Moving Into Our Target Retracement Zone

Posted on | by Leon Hinde

EVN has been on our watch list with a target retracement zone within the $2.50 – $2.75 range.

The share price has now traded at the upper band of our target and investors can now consider a partial allocation in EVN.

Should the stock trade down to the $2.50 – $2.60 area, it will then make it onto our high conviction list.

Evolution Mining

 

 

ORG – 4Q Production Beats Consenus

Posted on | by Leon Hinde

Origin continues to form “higher high and higher low” price structures and remains one of the best performing stocks in our model portfolio.

The recent 4Q production report helps support the earnings recovery and we feel the share price trades within the $9.50 – $10.50 range.

4Q18 revenue of A$570 million was ahead of consensus with higher volumes and higher realized domestic LNG prices.

FY18 revenue is forecast at $15 billion, EBITDA $3 billion, EBIT $1.5 billion generating EPS of $0.55 per share.

In FY19 we expect earnings to grow by 20% and the company to payout 50% in dividends, placing the stock on a 3% forward yield.

In FY20, both increasing profit and payout ratio will then lift the dividend to $0.60 per share placing ORG on a FY20 yield of 5.5%.

Origin Energy

Buy Healthscope 

Posted on | by Leon Hinde

Our Algo Engine triggered a buy signal recently in Healthscope and we continue to see upside potential.

HSO has announced the sale of its Asian Pathology business to TPG Capital Asia for A$279 million. The transaction is expected to be completed by the end of August 2018.

Cash proceeds from the sale will be used to pay down debt and fund new domestic development plans.

The potential for M&A activity, along with the retracement in share price, makes HSO an attractive consideration supported by 3% dividend yield.

Healthscope

AMP – 1H18 warning

Posted on | by Leon Hinde

AMP will need to address a wide range of issues including the Royal Commission responses, grandfathering and impact of Budget proposals in order for investors to understand AMP’s sustainable level of profitability. 

Investors are also looking for the CEO to outline  the longer-term group strategy. With many anticapiting some sort of restructure and the separation of the funds management business away from the advice model. 

1H18E profit guidance came in lower than consensus expectations at  $490-$500 million.

AMP is the worst performing stock in the ASX 50 model.

We have two under performing stocks, AMP and FMG. Both businesses face unique structural issues that have weighed on their respective share prices.

We feel investors will be rewarded for slowly accumulating AMP shares at discounted levels but it is very difficult to see when the inflection point occurs.

AMP goes ex div $0.145 on 23rd August and we have the stock trading on a  forward yield of 7%.

AMP

 

Woolworths – Buying Opportunity Ahead

Posted on | by Leon Hinde

Consensus expectations for the upcoming Woolworths’ earnings result, is for underlying profit to grow by 8 – 10%. This is well above competitors, but hardly supports the current 24 x multiple.

If the sell-off in WOW extends to the downside, we would encourage investors to “load up” on Woolworths. Our target buy range is $28 to $29.

Based on forward earnings WOW trades on 3.2% dividend yield. We’d like to see that increase to 3.6% as the share price retraces. Keep this one on the radar and watch for the next ALGO buy signal.

Woolworths

Downer EDI – High Conviction Update

Posted on | by Leon Hinde

Our Algo Engine generated a buy signal in Downer EDI at $6.75.

With the stock now trading at $7.50 we recommend locking in gains, as the stock is now trading at our initial “sell” price target.

We continue to like the long-term fundamentals for Downer and CIM and will revisit these names on the next retracement & algo buy signal.

Downer EDI