WAM Research Limited

WAM Research looks strong on the back of its robust fundamentals: WAM Research Limited (ASX: WAX) has a diversified portfolio of growth companies which are undervalued. The company generally have small-to-medium sized industrial companies in its portfolio. WAM’s investment objective includes providing its clients with an increasing fully franked dividends and achieving a high real rate of return. The real return consists of both income and capital growth. Recently, the company is out with its investment update for November 2018, which includes its gross assets stood at $ 218.3 million, with a fully franked dividend of 9.5 cents. However, the dividend yield was 6.8% fully franked. As per the investment updates of November 2018, the investment portfolio decreased by 2.0% with the fall in gross assets from $223.0 Mn in October to $218.3 Mn in November. The overall index i.e., S&P/ASX All Ordinaries Accumulation Index had plunged by 2.2% during November making WAX outperform the market by +0.2%. The fall was on account of volatility in the Australian equity market.Since inception, WAM Research’s Investment Portfolio generated 16.2% returns per annum against the Index returns of 8.0% p.a., signifying solid return over the same period. Moreover, the Group posted Net Tangible Assets (NTA) per share before tax of 114.80 cents as on November 30, 2018 while NTA per share after tax amounted to 114.45 cents. 
Key Metrics: The company reported an operating profit after tax of $21.6 million for FY 2018 as compared to $15.6 million in FY 2017, up 38.5% on Y-o-Y basis. The investment portfolio increased by 14.5% and outperformed the S&P/ASX all ordinaries accumulation index which was achieved with an average cash weighting of 29.1%. The Net Asset Value of the company as of June 30, 2018 was $235.02 Mn as compared to $224.62 Mn in FY 2017, up by ~4.5% on a Y-o-Y basis. The cash flow from operations decreased significantly Y-O-Y on the back of increased purchase of investments.


 
WAM VS S&P/ASX Index – Outperforming the Index (Source: Company Reports)
On the analysis front, for FY18, the company has a ROE of 9.4%, which is commendable and has clocked a healthy net margin of 317.1%. Meanwhile, the share price has fallen 16.37 percent in the past three months (as of December 19, 2018) and trading close to lower level. The stock has PE multiple of 12.13x and P/BV multiple of 1.1x, signifying decent opportunity at the current juncture. On the other hand,the company has a conservative balance sheet with a high cash weightage. The company enjoys zero debt facility with a flexible investment approach. The company will look out for the opportunities irrespective of market conditions. The fundamental of the company looks good with a trend of maintaining past performances. Hence by looking its Consistent growth in dividends and decent fundamentals, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $1.390, considering current market scenarios.
 

Australian Vintage Limited

Trading at an attractive level:Australian Vintage Limited (ASX: AVG) is into the production of wine. The company is a leader in its segment. The extent of the company’s operations includes vineyards, boutique, and bulk wine production, packaging, marketing, and distribution. It contributes almost 7% of total annual wine production. The company recently announced a change of director’s interest. Mr. Jiang Yuan has acquired 8,31,032 shares at a value consideration of $0.50 per share.
Key highlights in 2018 AGM
 

• The PAT increased by 79% to $7.7 million.
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• The capex rose to $19.5 million driven by significant investments in winery equipment.
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• The company expects a cash outflow of further $19 million on capital projects over the next 12 months.
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• The CFO stood at $26.7 million as compared to $14.0 million in the prior period.
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• Net debt is $77.2 million as compared to $ 82.8 million as on June 30, 2018.
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• Dividends increased by 50%.
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• The company is focussing on the growth of export, increasing brand sales, and cost control.
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Sales by segments (Source: Company Reports)

Meanwhile, the stock has generated YTD return of 9.78% and is trading close to the lower level. The market cap of AVG has recorded at $141.76 Mn, with P/E of 18.04x, EV/Sales of 0.8x, and a beta below 1.0x as on November 20, 2018. It represents undervalued scenario at the current juncture. Moreover, the beverages sector is poised to grow with a significant increase in exports and production volumes in wines. With the strong fundamental and the positive outlook for sector growth, the overall performance of AVG is looking positive going forward, hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $0.490 (down 2.97% on December 20, 2018).
 

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