Are Karoon Gas and Mortgage Choice up for big returns?

Karoon Gas Australia Ltd

               KAR Details
 
Brazilian discoveries progressing well from exploration to appraisal and development: Karoon Gas Australia Limited (ASX: KAR) reported $ 560 million cash in the bank as at 30 September 2015. The company’s forward program for calendar year 2016 is focused on the appraisal of Kangaroo and Echidna as the company aims to capitalise on the declining drilling and development costs. There is also a phased development plan with an appraisal program followed by an early production system followed by full field development which is manageable and appropriate for the size of the company. The exploration exposure is high impact with multi-billion barrel prospective resources in Brazil, Peru and Australia.
 

Karoon as per Market Capitalisation (Source: Company Reports)
 
The quarterly report for September 2015 contains some operational highlights with the Santos Basin Echidna light oil discovery having net unrisked 2C contingent resource volume of 49 mmbbls (75 mmbbls gross). The Santos Basin updated Kangaroo light oil discovery has net unrisked 2C contingent resource volume of 35 mmbbls (54 mmbbls gross). The Santos Basin forward appraisal plan outlining the firm work program commitments to be over by 31 December 2018 was approved by the government agency. A highly experienced South American project management team has been established to oversee the appraisal and development of the Echidna and Kangaroo discoveries. The Levitt 1 exploration well in the Carnarvon Basin Australia reached final total depth in August 2015 with reservoirs of the target formations interpreted to be water bearing and the cores showing the presence of some migrated oil. The corporate highlights for the quarter included the decision of the board to continue the on market buyback program for another 12 months. Subsequent to the end of the quarter, all resolutions were voted in accordance with board recommendations at the annual general meeting.
 

Echidna Discovery (Source: Company Reports)
 
For the quarter, net operating cash flows amounted to ($ 34.46 million) primarily on account of payments for exploration totalling ($ 30.27 million). Cash flows relating to investment activities were ($ 90,000) on account of fixed asset acquisition of ($ 107,000). The net decrease in cash held was ($ 34.55 million) and taking into account exchange-rate adjustments of $ 44.22 million, the cash at the end of the quarter was $ 562.76 million. The estimated cash outflow for the next quarter is $ 18.87 million. The stock has corrected over 13.22% in the last one month (as at November 09, 2015) and is trading at a price to earnings ratio of 1.9x. The September quarter reinforces our confidence in the future prospects of the company and we recommend a BUY for the stock at the current price of $1.855
 
 
KAR Daily Chart (Source: Thomson Reuters)
 

Mortgage Choice Ltd

         MOC Dividend Details
 
Closure of Help Me Choose and Momentum in Settlements: In its latest announcement, Mortgage Choice Limited (ASX: MOC) announced that as a result of a comprehensive review of strategy and operations, it has decided to close down its Help Me Choose business unit. At the presentation of the FY 2015 financial results in August, CEO John Flavell made it clear that the financial results of the unit needed to be addressed and the result of the comprehensive review that followed indicated that the business had to be closed in its current form. The company said that the significant opportunities that lie ahead require focus and continuing investment in a business that is unlikely to be profitable in the foreseeable future does not make any sense.
 
Meanwhile, the company has announced its results for FY 2015 which leave it with good platform for future growth to take advantage of favourable tailwinds and growing its core business while continuing its transformation into a full-fledged financial services company. The core broking business reported record volumes for settlements at $ 11.5 billion up 10.6% from the previous year. The loan book also created new records at $ 49.5 billion up 4.6% from the previous year. More than $ 13.4 billion worth of housing approvals were written by the company compared to $ 12.2 billion in the previous year. Net profit after tax on a cash basis was $ 18.6 million roughly in line with the previous year’s performance. A fully franked final dividend of 8 cents per share was declared taking the total dividend for the year to 15.5 cents per share in line with the previous year. The IFRS highlights for the year included net profit after tax of $ 18.9 million up 1.7% of the previous year.
 

Home Loan Settlements and Loan Book (Source: Company Reports)
 
The impressive results were achieved because of growth in the numbers of writers and franchises and during FY 2015, 41 loan writers were appointed taking the total to 575. In addition, 23 greenfield franchises were sold as well as 14 existing franchises to reach a footprint of 422. In addition, the number of financial advisers grew to 45 and Mortgage Choice Financial Planning franchises to 34. The company has a positive outlook for FY 2016 and the value of the home loan market and the number of approvals written each month continue to increase. Heading into FY 2016, recruitment would be a focus by MOC because the more feet they had on the ground, the better placed they would be to help Australians make informed financial decisions.
 

Results for Q1 FY16 (Source: Company Reports)
 
Mortgage Choice Financial Planning is expected to break even from the second half of FY 2016 and as the business gets stronger and delivers, the group as a whole will benefit. We believe that the property markets will remain strong with increasing values and that auction clearance rates will continue to be robust. The annual dividend yield is 8.33%. The stock has corrected about 32.12% in the last six months and rose 4.79% in the last one month (as at November 09, 2015). We give a BUY recommendation for the stock at the current price of $1.91
 
 
MOC Daily Chart (Source: Thomson Reuters)
 
 

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