Contango Income Generator Limited

A Look at Investment Update:Contango Income Generator Limited (ASX: CIE) is an income-focused listed investment company, with a portfolio of companies largely outside of the ASX top 30. The market capitalisation of the company stood at ~A$85.12 Mn as on 12^th August 2019. Recently, the company released its investment update and net tangible asset statement as of 31 July 2019. As per the release, the company stated that its portfolio is characterized by a strong and diverse portfolio of companies that exhibit good cash flows and business models. Over the month of July 2019, the investment portfolio of the company has performed strongly with a return of 2.99% and the net tangible asset before tax of the portfolio stood at $0.96 per share. The company added that the portfolio moved higher over July 2019 as positive sentiment over the outcome of the Federal Election, upcoming tax cuts and interest rate reductions overrode a continuing slew of earnings downgrades. The top 10 holdings of the company’s portfolio primarily include Bank of Queensland and Tabcorp Holdings with weightage of 4.44% and 4.26%, respectively.


Overview of NTA return (Source: Company Reports)

What to Expect: With respect to the portfolio outlook, it was mentioned that the upcoming result season might be volatile. The company would pay close attention to the distinction between cyclical and structural concerns, with the market being more forgiving of cyclical issues. The company remains significantly exposed to those high-income generating securities.

Stock Recommendation: The company reported a gross margin and EBITDA margin of 76.7% and 61.9% in 1H FY19, reflecting YoY growth of 4.4% and 7.7%, respectively. It delivered asset to equity ratio of 1.00x in 1H FY19 as compared to 1.05x in 1H FY18. Coming to the stock’s performance, it provided returns of 3.82% and 1.87% in the time span of one month and three months, respectively. It is presently trading slightly below the average of 52 weeks high and 52 weeks low price of $0.950 and $0.725, respectively. Hence, considering the above-stated facts and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$0.820 per share (up 0.613% on 12^th August 2019).
 

WAM Research Limited

Decent Portfolio Returns Since Inception: WAM Research Limited (ASX: WAX) provides the investors with exposure to a diversified portfolio of undervalued growth companies. The market capitalisation of the company stood at A~$259.63 Mn as on 12^th Aug 2019. Recently, WAX has released its investment performance of July month wherein WAM Research Limited Portfolio delivered a -0.5% return in one month (as of 31 July 2019) and was down by 3.9% as compared to S&P/ASX All Ordinaries Accumulation Index return of 3.4%. It added that Vocus Group Limited has been a detractor to the portfolio performance in the month. The company added that Codan Limited has been a contributor to the investment portfolio. It reported pre-tax net tangible assets of $1.18 and gross assets of $226.2 Mn. Since inception, WAX Investment Portfolio generated 16.2% returns per annum against the S&P/ASX All Ordinaries Accumulation Index returns of 9.6% p.a. As at 31 July 2019, the company has a total gross asset of approximately A$226.2 Mn.


Overview of Investment Portfolio (Source: Company Reports)

What to Expect: WAX’s future performance primarily depends on the performance of its portfolio companies. Additionally, it can be said that the company’s performance would be sensitive to the global market conditions as well as to the overall health of the global economy.

Stock Recommendation: The gross margin and EBITDA margin of the WAX stood at 62.9% and 54.9% in 1H FY19, reflecting a rise of 6.0% and 7.0% on YoY basis, respectively. The company posted an asset to equity ratio of 1.00x in 1H FY19 in comparison to 1.03x in 1H FY18. With respect to the stock’s past performance, it provided a return of 10.12% in the time span of three months. However, in the time period of one month, the stock provided a negative return of 2.16%. Hence, considering the above-stated facts and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of A$1.340 per share (down 1.471% on 12^th Aug 2019).
 

Argo Investments Limited

Overview of Financial Results: Argo Investments Limited (ASX: ARG) is a major listed investment company (LIC) with assets of more than $6 billion. The market capitalisation of the company stood at ~A$5.92 Bn as on 12^th Aug 2019. Recently, the company with the help of a release published its full-year results for the year ended 30^th June 2019 wherein it witnessed a rise of 33.7% in full year profit to $292.7 Mn. The large increase in reported profit was significantly influenced by one-off, non-cash income item of $36.1 Mn because of the demerger of Coles Group from Wesfarmers.

In FY19, the company purchased long-term investments amounting to $343 Mn and it received proceeds of $256 Mn from sales and takeovers of long-term investments.The following picture provides an idea of the company’s financial results:


Summary of Financial Results (Source: Company Reports)

Future Prospects: The company’s investment team is focused on identifying companies with strong cashflows and dividend histories, as well as solid longer-term prospects, that would provide profit and dividend growth into the next phase of the economic cycle. With cash available, the company is well-placed going into the corporate profit reporting season. As high expectations are already built into many companies’ share prices, the company anticipates that there would be volatility following some result announcements which could create buying opportunities to further build the long-term investment portfolio.

Stock Recommendation: The company reported an EBITDA margin and net margin of 97.3% and 92.9% in FY19, reflecting YoY growth of 0.7% and 1.5%, respectively. The current ratio of the company stood at 12.01x in FY19, reflecting a rise of 22.5% on YoY basis. This implies that the company has improved its position to meet its short-term obligations. As per ASX, the stock is trading closer to its 52-week higher levels of $8.360 and, thus, it looks like that the stock price might witness some correction in the near-term. Hence, considering the above-stated facts and current trading levels, we give an “Expensive” rating on the stock at the current market price of A$8.310 per share (up 0.362% on 12^th Aug 2019). 

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