WAM Research Limited

WAX Details

Expecting Higher Return from Investment: WAM Research Limited (ASX: WAX) is a closed-end mutual fund company which is managed by Wilson Asset Management. The objective of the investment is to achieve a high real rate of return, comprising both income and capital growth within risk parameters and acceptable to the management. The group has been performing well since inception while the monthly NTA and investment update for June 2018 was somewhat below expectations. The group makes investments in undervalued growth companies and has $242.1 Mn of gross assets. The NTA before tax as on June 2018 was recorded at 128.10c, an increase of 1.2% in NTA before tax from 126.52c as on May 2018. The investment portfolio returns increased by 4.2% in the six months to 30 June 2018, outperforming the S&P/ASX all ordinaries accumulation index which rose by 0.2%. However, the investment portfolio returns for one month as at June 2018 edged up to 1.1% but did not outperform the S&P/ASX all ordinaries accumulation index that rose by 2.9%.


Investment Performance (Source: Company Reports)
 
The group outperformed the index by 8.7 per cent since the change in investment strategy as on June 2018. Therefore, we expect that the group will continue to strive towards better performance during the upcoming periods despite short-term headwinds. Meanwhile, the share price climbed up 3.96 per cent in the past three months and traded relatively at a lower PE level (19.21x) as compared to the peer group. Hence, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $ 1.575, considering higher returns expected from undervalued growth companies in the upcoming period.
 

WAX Daily Chart (Source: Thomson Reuters)
 

Rural Funds Group

RFF Details

Mixed Update: Rural Funds Group (ASX: RFF) has recently issued a retail offer booklet in which it offered a fully underwritten 3 for 10 accelerated non-renounceable entitlement offer of new units in the Company (New Units) at an offer price of $1.95 per New Unit in RFF and will equally rank existing units from the allotment. The group intends to raise $108 Mn through Retail Entitlement Offer. The retail entitlement offer was open on 18 July 2018 and was to close around August 01, 2018. On the other hand, the Group has entered into conditional agreements with JBS Australia. As per the deal, the company will pay $52.7 Mn to acquire JBS-owned Australian feedlots (Feedlots). The facilities have a combined capacity of 150,000 Standard Cattle Units which represents 15% of Australia's lot fed cattle capability. Simultaneously, the company will enter also into a finance lease with JBS for the 10 years wherein the lease contains a call option for JBS to buy the feedlots back, and a put option for the Company to sell the feedlots to JBS, at year 10.


Key Dates (Source: Company Reports)

In addition to the finance lease, the Company will provide a limited guarantee of $75 Mn to an existing entity called J&F Australia that currently acquires cattle for JBS Feedlots. Meanwhile, the stock has fallen 4.83 per cent in the past three months as at August 01, 2018. Based on the mixed updates, we continue to maintain our “Hold” recommendation on the stock at the current market price of $ 1.99.
 

RFF Daily Chart (Source: Thomson Reuters)

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