Programmed Maintenance Services Limited

PRG Details
Robust Growth with debt reduction: Programmed Maintenance Services Limited (ASX: PRG) witnessed a stock price surge of 2% on May 24, 2017 with the release of FY17 results that entailed robust financials across segments boosted by improved diversity across all measures. The group reported an after-tax profit of $41.3 million before amortisation and non-trading items for the year to 31 March 2017 against FY16 figure of $38.8 million. After-tax profit was $12.3 million (FY16: after-tax loss of $98.0 million) post amortisation and non-trading items. Further, there was a 19.7% surge in earnings before interest, tax, depreciation, amortisation (EBITDA) and non-trading items to $96.5 million. Group revenue was up 21.8% to $2,691.4 million at the back of the full year contribution by Skilled which was acquired in October 2015. On the other hand, gross operating cash flow slipped by 6% to $85.8 million while net operating cash flow was $61.5 million, 5% higher than FY16. The group’s efforts on capital management helped reduce the net debt to $200 million at 31 March 2017, compared with $239 million at 31 March 2016. Despite difficult trading conditions, integration of Skilled has been completed on track generating strong cash flow. Even Maintenance division experienced an impact from the Marine business due to the lower oil and gas prices and completion of major offshore construction contracts, growth in revenue and earnings by the non-marine businesses helped balance the scenario. PRG has declared a fully franked dividend of 3.5 cps for the period of six months ending 31 March 2017, and the same will be paid in July 2017. 

Revenue by Division (Source: Company Reports)
 
Given the fact that there are growing opportunities in the public infrastructure, tourism, education, health and aged care sectors, along with a revival in the resources sector post a period of downsizing and staff reductions, PRG is poised for growth in the next 12 months. We give a “Speculative Buy” on the stock at the current price of $ 1.82


PRG Daily Chart (Source: Thomson Reuters) 

Rural Funds Group

RFF Details
Conservative AFFO but steady distributions:  Rural Funds Group (ASX: RFF), an agricultural REIT which aims to generate stable rental income and capital growth, has signalled for significant expansion potential due to a low level of institutional ownership of agricultural assets when compared to traditional property sectors. The group has a conservative AFFO (Adjusted funds from operations) payout ratio that supports investment into growth assets, and has also maintained the DPU (Distributions per unit) growth target of 4% per annum. Further, developments and capex management have attracted additional lease income through to FY20 with Tocabil and Kerarbury almond developments already contributing to AFFO growth. Development activities (including, completing of 600 ha planting in CY16 and tree development exceeding expectations at Tocabil) seem to drive momentum. The group is strategizing well with regards to capex, for example, capex of about $1.5m is expected to be deployed for watering infrastructure and pasture improvements for Cattle property. For HY17, revenue surge at the back of acquisitions, planned capital expenditure and rent indexation led to rise in total comprehensive income to $19.8m from $4.9m (at 31 Dec 15). While there is some level of volatility prevailing in the real estate sector, but the fundamentals and growth from various catalysts including climate diversification strategies look encouraging. We maintain a “Hold” recommendation at the current price of $ 1.81


RFF Daily Chart (Source: Thomson Reuters) 

MyState Ltd

MYS Details
Simplifying banking systems under a key milestone:MyState Ltd (ASX: MYS) has recently consolidated its banking platforms into a single, contemporary core banking system that now serves MyState and The Rock. This step is expected to improve performance and have a better risk management across all the banking operations, while achieving faster multi-brand banking from a single platform. The platform will also provide further support through initiatives such as online origination, a modern contact centre solution, and growth in customer relationship management. MYS has also launched a new internet and mobile banking services for The Rock’s customers in central Queensland. For H1 17, the group could achieve NPAT growth (0.7% over H1 16) and maintained EPS despite various sectoral headwinds. However, the group has been witnessing NIM pressure and aims to manage margin in the future. Nonetheless, the group has continued its above system growth with housing loan growth at 2.4x system, and has a loan book growth above all peers. On the other hand, subdued conditions prevail in the sector while Australian economy continues to experience low inflation and subdued growth with uncertainties at international level. We maintain a “Speculative Buy” recommendation at the current price of $ 4.65


MYS Daily Chart (Source: Thomson Reuters) 

Lovisa Holdings Ltd

LOV Details
 
Upgrade in FY17 earnings:Lovisa Holdings Ltd.’s (ASX: LOV) stock has risen about 15% in last one month (as at May 23, 2017) while the group reported that a strong trading scenario is being witnessed in the second-half. Given the 6.7% growth in same store sales in March quarter with 10.9% growth in year to date same store sales, the group is positive on the full year results.The management now expects full-year EBIT to be between $38.5 million and $39.5 million (higher than the market expectations of $35.5 million). 

Growth in Stores (Source: Company Reports)
 
LOV has also acquired 17 fashion accessory stores in South Africa without any material impact expected on FY17 earnings. Similarly, UK roll out is progressing well and LOV now expects 13 stores to be trading by late August. As the stock is trading at high levels and still seems to have momentum going forward, we maintain a “Hold” recommendation on the stock at the current price of $ 4.09


LOV Daily Chart (Source: Thomson Reuters)

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