8 Mid Cap & Small Cap Stocks

Yowie Group Ltd

YOW Details
 
Achieved record December quarter in the US market: Yowie Group Ltd (ASX: YOW) delivered outstanding performance in the US during December quarter with estimated sales of USD $6.2 million leading to a total retail sales of USD$15.1 million since the group’s launch in the US market. The group’s products were made available in more than 4400 Walmart stores.
 

Yowie penetration in the North American market (Source: Company Reports)
 
Meanwhile, the group also developed “a new Company owned capsule” design that would be used in manufacturing at the Madeleine Chocolate Company, with which Yowie made a long term manufacturing agreement. This capsule got FDA approval while US patents are pending. Meanwhile, Nielsen scan data also indicated a positive outlook for the group. In addition, Yowie also made a Licensing Agreement till September 2018 for manufacturing as well as distributing Angry Birds chocolate candy inclusion product. With the stock correcting over 23.44% (as of February 01, 2016) in the last four weeks, we believe that YOW stock is trading at very attractive levels given its solid growth track, despite facing competitive pressures. Based on the foregoing, we reiterate our “BUY” recommendation on the stock at the current price of  $0.785
 
 
YOW Daily Chart (Source: Thomson Reuters)
 

Asciano Ltd

AIO Details
 
Acquisition proposal from Qube consortium: Qube along with CIC Capital, CPPIB and GIP (Consortium) made a proposal to acquire the entire shares of Asciano Ltd (ASX: AIO) for $6.97 cash plus one Qube share for every AIO held share. Therefore, the shares of AIO surged over 10.49% in last three months (as of February 01, 2016). Meanwhile, Qube forecasts that they would derive around $30 to $50 million per annum of benefits in synergies and business improvement projects over two to three years from the acquisition of Ports, which would lead to a double digit EPS accretion on a pro forma basis.
 

Estimate Synergies from Qube consortium acquisition proposal (Source: Company Reports)
 
Nitro Corporation has also extended the offer period for its takeover bid for all the fully paid ordinary shares in AIO. On the other hand, we believe that the shares of AIO have entered into an overbought zone and are trading at a higher valuation with a high P/E. The group also has a very low dividend yield. Accordingly, we give an “Expensive” recommendation to the stock at the current price.
 

Challenger Ltd

CGF Dividend Details
 
Reiterated positive outlook: Challenger Ltd (ASX: CGF) stock corrected over 5.29% during this year to date (as of February 01, 2016) raising concerns among investors over its first half of 2016 performance. But, management recently reiterated that they would achieve a first half of 2016 normalized profit after tax in the range of $180 million to $185 million and a statutory profit after tax in the range of $225 million to $235 million (which includes Kapstream sale). Moreover, Standard & Poor’s Ratings Services (S&P) issued a stable outlook and an A rating for Challenger Life Company Limited, while Challenger Limited was assigned a BBB+ rating. CGF also reported that its FY16 Life COE is on track to achieve $585 million to $595 million guidance range. The recent correction in the stock placed CGF at attractive valuations which is trading at a reasonable P/E and has a decent dividend yield. We remain bullish on the stock and give a “HOLD” rating at the current price of  $7.53
 
 
CGF Daily Chart (Source: Thomson Reuters)
 

Medibank Private Ltd

MPL Dividend Details
 
Improving operational efficiency: Medibank Private Ltd (ASX: MPL) expects an Health Insurance operating profit at over $270 million (which includes $21 million pre-tax release benefit from June 2015 claims provision) on the back of a more than estimated claims expense outcome driven by the group’s payment integrity program and enhanced hospital contracting. However, the group’s revenue growth was impacted on the back of tough market conditions leading to 1H16 revenue rise of about 4.6%. Medibank estimates its FY16 Premium revenue increase in the range of 4.5% to 5.0%. MPL also expects its Management expense ratio to be over 8.5% against the earlier estimate of 8.3%. However, the group’s ongoing strategic health cost leadership initiatives would continue to generate value to the group and accordingly MPL expects an operating profit of more than $470 million in FY16 as compared to the earlier estimate of above $370 million. As a result, MPL stock rallied over 13.18% (as of February 01, 2016) in just last four weeks driven by its positive guidance update. MPL has plans to resubmit its 2016 Premium Rate Change Application to the Federal Government indicating Medibank’s members to benefit from its strong performance. We therefore recommend investors to “HOLD” the stock at the current price of  $2.46
 
 
MPL Daily Chart (Source: Thomson Reuters)
 

Platinum Investment Management Ltd

PTM Dividend Details
 
Launching new products to strengthen brand value: Platinum Investment (Asset) Management Ltd (ASX: PTM) stock plunged over 17.17% (as of February 01, 2016) in the last four weeks as the group’s Funds under Management for December 2015 decreased to $26,784.7 million, against $27,207.6 million in November 2015 on the back of challenging market conditions. However, PTM is seeking to boost its brand by launching several products in Australia and international markets. Platinum Asset Management launched Platinum Global Fund, an mFund product, to allow investors to invest directly through their broker or to invest directly in the product via Platinum. The group raised over $292.9 million by launching Platinum Asia Investments Limited, which could leverage the long term growth opportunities in Asia.
 

Strong Platinum International Fund returns against MSCI world index returns (Source: Company Reports)
 
PTM also announced about launch of three new UCITS (Undertaking for Collective Investment in Transferable Securities) Funds, which enable the group to enhance its offshore brand value as well. Given the solid track record of delivering strong returns for its funds, we view the recent correction as an attractive opportunity for investment. The group has a reasonable dividend yield and P/E. Based on the foregoing, we recommend a “BUY” on PTM at the current price of  $6.45
 
 
PTM Daily Chart (Source: Thomson Reuters)
 

Select Harvests Ltd

SHV Dividend Details
 
Pricing pressure impacted the performance: The shares of Select Harvests Ltd (ASX: SHV) plunged 35.93% in just last four weeks (as of February 01, 2016) as the group’s US Monthly Shipments for the six months ended on December 2015 fell 12%, with US Domestic Shipments and US Export Shipments falling by 6% and 15%, respectively. Decrease in demand coupled with customer defaults (which impacted market pricing) contributed to the decline of shipments. The group’s pool price for fiscal year of 2015 is at $11.45/kg, but the current almond price is down by over 10%-15%. However, management reported an improving demand since December led to a total Forward Commitments increase by 11% against the corresponding months of last year. The group is also focusing on decreasing costs. SHV has enhanced its productivity as well as is emphasizing on major efforts related to Parboil (almond value added facility) and is focusing on installation of new orchards and H2E (biomass electricity cogeneration). Despite having an outstanding dividend yield, we estimate that the ongoing tough market conditions and pricing pressure would continue to hurt the group’s performance in the coming months. More is expected to be revealed during the result announcement due on February 25, 2016. Therefore, we give an “Expensive” recommendation on the stock at the current price.
 

Empired Ltd

EPD Details
 
Incurring charges as part of its restructuring efforts: Empired Ltd (ASX: EPD) management reported that they would be incurring around $4.1 million (a one-time impact) for its restructuring activities as a part of its effort to boost the group’s sales in its services as well as client engagement. Accordingly, EPT stock plunged over 59.76% in the last four weeks (as of February 01, 2016) alone. On the other hand, management also reported that they witnessed a solid first half of 2016 against the prior corresponding period (pcp), and forecasts a revenue of over $79 million and reported EBITDA of 1% to 2% of revenue during the period. The group forecasts a revenue of $80 million to $90 million during second half of 2016 while EBITDA margins are expected to be over 8% to 10% of revenue.
 
 
Revenue mix from the past few years (Source: Company Reports)
 
EPD narrowed its guidance in the range of $159 million and $169 million for fiscal year of 2016, as compared to its earlier guidance of $155m and $175m. The group also had a strong contract win worth of over $97 million in 2015, with $32 million contract worth wins during first half of FY16. However, we believe that the stock is “Expensive” at the current price.
 

1-Page Ltd

1PG Details
 
Strong new bookings: 1-Page Ltd (ASX: 1PG) had achieved $1.39 million in New Bookings and the group continued to penetrate among its current clients and delivered >250% of pools requested during November, 2015 till December 22, 2015. The group was also on track to reach 30 annual enterprise contracts by fourth quarter of 2015, while management reported earlier that they had further 50 prospects having a high probability to shift into procurement in the coming weeks. 1-Page also acquired Marianas Labs to strengthen its data-driven capabilities across its products, which would drive its revenues further.
 

Contract pricing illustration (Source: Company Reports)
 
1-Page management expects that the Marianas Labs Capabilities would decrease its data processing and analysis costs. Meanwhile, 1-Page stock surged around 230.73% in the last fifty two weeks (as of February 01, 2016) driven by its strong performance. On the other hand, the shares corrected over 24.67% (as of February 01, 2016) in the last three months and we believe that the stock is still trading at overbought zone. Therefore, we give an “Expensive” recommendation on the stock at the current price.

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