2 Diverse Stocks under the Radar – REA and PGC

REA Group Limited (ASX: REA)

REA Details

Long Term Growth Opportunities: While Mr John McGrath stepped down from the Board in January 2018, REA has been able to move well on its revenue and EBITDA growth profile with 21% and 24% rise witnessed in first quarter of 2018 at the back of Australian residential business. This was continuation of the 2017 trends entailing revenue from its core operations increasing by 16% and amounting to $671 million, while Group EBITDA rose by 16% and amounted to $381 million. It also achieved an increase in net profit and earning per share by 12% that amounted to $228 million and 173.3 cents, respectively. REA’s total dividend for the year 2017 increased by 12% to 91 cents per share fully franked. It has been driven by its ongoing focus on implementation of strategy in a successful manner.
 

Financial Performance Trend (Source: Company Reports)
 
In December, REA entered into a strategic partnership with NAB and created an end-to end finance experience on realstate.com.au which offered its consumers an access to NAB and to realestate.com.au-branded home loans. To complete this, the Group acquired an 80.3% stake in Smartline which is one of the country’s premier mortgage broking franchise groups. Its investment in Move, Inc. continued to perform well. It also expanded its operations in India and invested in Elara Technologies.The stock price has decreased by 5.05% in the past six months, butlooking at the overall scenario, the stock has more potential to grow, and we recommend to “Hold” the stock at the current price of $71.51
 

REA Daily Chart (Source: Thomson Reuters)
 

Paragon Care Limited (ASX: PGC)

PGC Details

Impactful Acquisitions: Paragon Care Ltd had lately agreed to acquire Anaequip Medical for a total consideration of $2.3 million which comprised of $1.84 million in cash and $0.46 million through the issue of fully paid ordinary shares. This will be modestly EPS accretive for Paragon in FY 18. The acquisition of Anaequip is in continuation of Paragon’s strategy of expanding its presence in South Australia through highly targeted acquisitions. Underpinning the strategic rationale of this acquisition is Paragon’s new distribution warehouse located in Wingfield. This new warehouse provided crucial infrastructure to facilitate an increased distribution footprint for Paragon in this region and it was said to help reap benefits from January 2018. The group had earlier indicated about acquisition of Insight Surgical and Medtech Solutions for $5 million and $2.4 million, respectively.

On February 08, 2018, the group reported about undertaking a $69.8 million capital raising to fund a portfolio of acquisitions (including Insight Surgical, Medtech Solutions and Seqirus). This will include $26.6 million institutional placement and a 1 for 2.8 accelerated entitlement offer to raise around $43.2 million at a price of $0.725 per share.
 

Financial Impact of Acquisitions (Source: Company Reports)
 
At the back of these moves on acquisitions, Paragon anticipates FY18 pro-forma revenue forecast to be 71.2% higher to $222.6 million, pro-forma EBITDA to be up 85.9% to $34.4 million, and pro-forma NPAT to be up 97.7% to $20.9 million with enterprise value rising 55.2% to $243.5 million. The Company had earlier provided its standalone guidance for FY18 with revenue to be in the range of $125m-$135m, NAPT to be in the range of $10.5m-$11.5m and EBITDA to be in the range of $18m-$19m. On the other hand, the group’s half year ending December 2017 result entailed a 4% drop in revenue from continuing operations against 2016 corresponding period with profit after tax and earnings per share down 24% and 25%, respectively at the back of greater seasonality and one-off operating expenses considering investment in Services and Technology businesses, team restructuring and new warehouse establishment.

With the current performance and EPS accretive acquisitions, wegive a “Hold” recommendation on the stock at the current price of $0.76
 

PGC Daily Chart (Source: Thomson Reuters)

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