WAM Research Limited

WAX Details

Decent Performance by WAX Investment Portfolio:WAM Research Limited (ASX: WAX) is an asset management company that invests in a diversified portfolio of undervalued growth companies to provide a rising stream of fully franked dividends to shareholders and achieve a high real rate of return. The company currently has a market cap of around $288.19 million. Through its continued focus on undervalued growth opportunities, the company has outperformed the S&P/ASX All Ordinaries Accumulation Index by 3.7%, increasing 9.3% in the financial year to 30 November 2019. Notably, in the last one year till 30 November 2019, the company’s investment portfolio increased by 18.7%. At the end of November 2019, the company had NTA before tax of 119.54 cents and gross assets of $231.9 million. 

Dividend Growth:In FY19 (year-end 30 June 2019), WAM Research Limited recorded operating profit before tax of $0.4 million and operating profit after tax of $1.6 million, significantly lower than the last year numbers, due to the heightened volatility in the Australian equity market. Despite this, the company’s Board continued to enhance shareholder returns through the payment of fully franked dividends of 9.7 cents per share in FY19. Ever since the company formed, WAM Research has paid 104.30 cents per share in fully franked dividends to its shareholders. The company currently has an annual dividend yield of 6.47%.


Dividend Growth History (Source: Company Reports)

Change in Substantial Holding:The company recently notified that Wilson Asset Management Group increased its holding in Generation Development Group Ltd (ASX: GDG) from 6.44% to 8.14%. The company now holds around 10.2 million shares of Generation Development.

Outlook and Stock Recommendation: As per the Chairman and Chief Investment Officer, Geoff Wilson AO, the current environment of LICs provides significant opportunities.Emeco (ASX: EHL), one of the major contributors to the company’s portfolio expects to witness an increase of 15-17% in its first half operating earnings (before tax) of FY2020, relative to the previous corresponding period (pcp). Emeco expects further growth in second half. WAM Research continues to hold EHL as demand for mining equipment is continuing to grow. In the last six months, WAX’s stock has provided a return of 7.53% to its shareholders. Considering, the company’s solid start to FY2020, history of paying fully franked dividends, Emeco’s positive outlook and decent stock performance, we give a ‘Hold’ rating on the stock at the current market price of $1.500 as on 06 January 2020. 

 
WAX Daily Technical Chart (Source: Thomson Reuters)
 

NAOS Small Cap Opportunities Company Limited

NSC Details

Managing Capital through Buy-Back Program: NAOS Small Cap Opportunities Company Limited (ASX: NSC) is a specialist fund manager who manages three Listed Investment Companies (LIC’s): the NAOS Emerging Opportunities Company Limited (NCC); the NAOS Ex- 50 Opportunities Company Limited (NAC); and the NAOS Small Cap Opportunities Company Limited (NSC). Each of the LICs target a concentrated portfolio of 10-20 companies.  In order to effectively use the company’s capital and deliver additional shareholder value, NAOS announced an on-market share Buy-Back Program (Buy-Back Program) during March 2019. Till now, the company has bought back 7,705,947 shares under the Buy-Back Program for a total consideration of around $5 million. As at 30 November 2019, NAOS had Pre-Tax NTA of $0.86.

Regular Stream of fully franked dividends: For the financial year ended 30 June 2019, the company paid a dividend of 4.00 cents per share (100% franked). For the three-month period ending 30 September 2019 or Q1 FY20, the company paid a fully franked dividend 1.00 cents per share, demonstrating regular stream of fully franked dividends paid by the company to its shareholders. The company currently has an annual dividend yield of 4.87%.

Successful completion of Bookbuild: On 28 November 2019, the company announced the successful completion of bookbuild for its unsecured wholesale note offering and issue of an Optional Redemption Notice for the $26.5 million of Contango Convertible Notes which will enable the early refinancing of the company’s existing Contango Convertible Notes which are scheduled to mature in March 2020.


Key Terms for New Wholesale Notes (Source: Company Reports)

Outlook and Stock Recommendation: The company is of the view that its strategy of focusing on a concentrated investment portfolio, providing a regular stream of fully franked dividends, transparent communications plus aligning the Investment Manager and Board with all shareholders of the Company will provide satisfactory returns plus NTA growth over the long term. Notably, in the past six months, NSC’s stock provided a return of 23.97% to its shareholders. Considering, the company’s recent Buy-Back Program, completion of Bookbuild, decent outlook and stock performance, we give a “Hold” rating on the stock at the current market price of $0.755, up by 0.667% on 06 January 2020.  
 
NSC Daily Technical Chart (Source: Thomson Reuters)

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