Are these six stocks in the sweet spot?

Greencross Ltd

GXL Dividend Details
 
TPG acquisition proposal rejected: Greencross Ltd (ASX: GXL) rejected the TPG capital’s proposal of acquiring its shares for $6.45 per share, boosting the investor’s sentiment on the stock which led to an increase of over 5.41% in the last five days alone (as of January 28, 2016). Management reported that the indicative proposal by TPG was fundamentally undervaluing the company. Moreover, management reiterated its confidence of delivering future performance via organic as well as inorganic growth opportunities.

 

Potential opportunity for GXL via cross selling (Source: Company Reports)
 
GXL is now targeting to offer an integrated pet care solution to leverage the rapidly booming pet sector in Australia. Accordingly, the group is heavily expanding its store size as well as seeking for cross selling opportunities from its existing stores. We have been bullish on “GXL” since the last few months, and the stock already generated a returns of 15.68% (as of January 28, 2016) in the last six months. We reiterate our “Buy” recommendation on GXL at the current price of  $7.15
 
 
GXL Daily Chart (Source: Thomson Reuters)
 

AWE Ltd

AWE Details
 
Quarterly Updates and enhanced cash flow: The shares of AWE Ltd (ASX: AWE) plunged over 58.33% (as of January 28, 2016) in the last six months like its peers on the back of volatile oil prices. However, the stock surged by 51.52% (as of January 28, 2016) in the last four weeks. The company released its Quarterly report to 31 December 2015 indicating a total production rise of 7% (1.5 million barrels of oil equivalent, i.e., mmboe) over the previous quarter with a 12% surge in year-to-date production over the previous corresponding six months. The revenue for the December quarter ($63 million) was up 7% over the previous quarter though the six month’s revenue dropped by 24% over the previous corresponding six months. The group recently entered into an agreement to sell its 10% working interest in the Sugarloaf Area of Mutual Interest (AMI) to Carrier Energy Partners II, LLC (CEP II), a Texas based private oil and Gas Company for USD 190 million. With this move, AWE intends to boost its capital position and use the funds from the above deal to pay off a debt. Moreover, the group got a Final Investment Decision (FID) for developing the first stage of its prestigious Waitsia gas project, and expects production from middle of this year. Accordingly, AWE is positioning itself to divest its non-core assets and focus on its major products like Waitsia, BassGas and Casino which are planned for production in the medium term.
 


Quarterly Highlights (Source: Company Reports)
 
AWE is also considering to develop its undeveloped assets like Ande Lumut oil project for long term depending on the oil prices. Investors seeking for a long term value opportunity could consider adding AWE in their portfolio. We believe the stock has the potential to rise in the coming months and hence put a “Buy” at the current price of  $0.515
 
 
AWE Daily Chart (Source: Thomson Reuters)
 

Retail Food Group Ltd

RFG Dividend Details
 
Aggressive expansion efforts: Retail Food Group Ltd (ASX: RFG) delivered a solid underlying NPAT rise of 49.3% year over year (yoy) to $55.1 million during fiscal year of 2015. Therefore, to keep up with its growth track, RFG is constantly exploring further revenue drivers to sustain its performance in the long term. The group also recently made an exclusive machinery and capsule supply agreement with Caffitaly for its Professional Program capsule delivery system. Moreover, the group’s efforts to expand in the International Coffee and allied beverage segment is ongoing and accordingly RFG intends to open three new international coffee roasting facilities and distribution hubs during this year. With the strong performance start during FY16, management reported that the group is on track to deliver an underlying NPAT growth of 25% on a yoy basis during first half of 2016, and a ‘like for like’ rise of 35% as compared to the prior corresponding period (pcp). RFG reiterated its underlying NPAT increase by 20% yoy by FY16. RFG stock rallied over 9.09% in the last five days (as of January 28, 2016) and we believe the positive momentum in the stock to continue in the coming months and hence reaffirm our “Buy” recommendation at the current price of  $4.52
 
 
RFG Daily Chart (Source: Thomson Reuters)
 

South32 Ltd

S32 Details
 
Improving performance and focus on capital expenditure: South32 Ltd (ASX: S32) reported for a material reduction in its net debt during the December 2015 half year with an estimate at US$115M at 31 December 2015. 13% increase in Cannington zinc production to 41.8kt has been recorded while the concentrator performance at Australia Manganese contributed to a 6% increase in ore production to 1.6Mt. The company also reported for 2% increase in saleable alumina production at the back of robust hydrate production at Worsley Alumina. However, temporary suspension of operations affected the ore production at South Africa Manganese. The Appin Area 9 project is said to be 95% complete and commissioning may be achieved in the March 2016 quarter. S32 has reaffirmed its FY16 production guidance but downgraded its estimate for Illawarra Metallurgical Coal production by 7% to 8.3Mt given the challenging geological conditions. S32 stock price has plummeted about 44.25% in the last six months and has risen 1.04% in the last five days (as at January 28, 2016).
 


Production Highlights (Source: Company Reports)
 
Improved aluminum premiums in the Japanese markets might support South32 as the group is one of the miners to have successfully negotiated a higher premium with the Japanese buyers. The spun-off company has a strong mineral asset portfolio and remains a good acquisition target for other players in the industry. The current price is a good opportunity for interested investors to move in and invest in S32 stock. Hence, we put a “Buy” recommendation on S32 at the current price of  $0.975
 
 
S32 Daily Chart (Source: Thomson Reuters)
 

Oil Search Ltd

OSH Dividend Details
 
Strong performance: Oil Search Ltd (ASX: OSH) stock has witnessed significant fluctuations in the past six months. However, OSH’s quarterly results to December 31, 2015 give an indication of strong operation and financial foundation. The results revealed production in the fourth quarter of 2015 of 7.51 mmboe and a record 52% rise in 2015 full year production to 29.25 mmboe than production in 2014 which even exceeds the upper end of guidance range. A surge of 62% in total sales for the 2015 full year at 28.76 mmboe was noted against 2014. OSH reported that its fourth quarter production net to Oil Search from the PNG LNG Project was 5.73 mmboe and the base PNG oil and gas business contributed 1.79 mmboe. The PNG LNG Project witnessed an annualised production rate of 7.6 MTPA during the quarter as opposed to 7.4 MTPA in the previous quarter and 7.4 MTPA for the 2015 full year. However, the company reported for lower product sales than production due to timing of liftings. Total revenue for the quarter was 10% lower at US$342.9 million than the third quarter given the lower global oil and gas prices. OSH also refinanced its two existing US$125 million bilateral revolving credit facilities. Overall, the company’s performance appears to be robust. The company with major part of its operations located in Papua New Guinea has successfully quadrupled its production in the last two years. Based on a solid operation and financial foundation, we expect the current stock prices to improve in long term and hence put a “Buy” recommendation on OSH at the current price of  $6.50
 
 
OSH Daily Chart (Source: Thomson Reuters)
 

Chorus Ltd

Updated Guidance: Chorus Ltd (ASX: CNU) stock surged over 26.30% in the last three months (as of January 28, 2016), driven by the New Zealand Commerce Commission (NZCC) announcement of the Final Pricing Principles (FPP) and as a result the group’s annualised EBITDA increase is about $120 million relative to the benchmark pricing, as per September 2015 volumes. NZCC proposed a final UCLL price of $29.75 in year one, leading to a $31.68 in year five against the current price of $23.52. Moreover, NZCC also proposed a final UBA price of $11.44 in year one leading to a $10.67 in year five against the present price of $10.92. Accordingly, the group has improved its EBITDA guidance in the range of $580 - $600 million for fiscal year of 2016. Meanwhile, the ratings service, Standard & Poor also reiterated CNU’s BBB rating and gave a stable outlook after the update while Moody’s Investors Service is reviewing to upgrade the group’s credit ratings. The company recently confirmed that it will not initiate legal appeals on the final FPP pricing of copper services. With the stock trading at a reasonable valuation, we expect the stock’s positive performance to continue in the coming months. Based on the foregoing, we give a “Speculative Buy” to Chorus at the current price of  $3.44
 
 
CNU Daily Chart (Source: Thomson Reuters)

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