Bellamy's Australia Ltd
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BAL Details
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Huge market potential: The shares of Bellamy's Australia Ltd (ASX: BAL) recovered over 2.4% on June 03, 2016 after the group fell over 6.53% in the last five days on investors’ concerns of the group’s execution for complying with the new rules of imported products into China. The impact of these regulations on the group’s performance is still not clear which led to the stock correction in the last six months. On the other hand, BAL stock more than tripled in the last one year and generated over 209.5% returns (as of June 02, 2016) driven by its outstanding performance in Australia as well as in China. The group also reported its huge opportunity in the whole baby industry which grew 11% with non-food categories growing over 17%. As per the Nielsen Retail Index, China Infant Milk Formula is a unique market with around US$20 billion annually and accordingly BAL is positioning its premium products which has better seller margins.
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Recommendation: We maintain our bullish stance on BAL and give a “Speculative Buy” on the stock at the current price of $11.00
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Market size and premium pricing result in unique economics in China (Source: Company Reports)
G8 Education Ltd
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GEM Details
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Positive update supported the stock momentum: G8 Education Ltd (ASX: GEM) stock surged over 4.6% on June 03, 2016 driven by news of the group’s hedging efforts. The group totally redeemed its Series 001 Notes worth Singapore Dollars 260 million and replaced the same by the Series 003 Notes worth Singapore Dollars of 270 million with maturity in May 2019. The group indicated that its Series 003 Notes have hedged till May 2019 via an interest rate swap and has no foreign exchange exposure to the Series 003 Notes. The group forecasts its net debt to EBITDA of over 2.1 times as at 31 December 2016. GEM expanded by 44 new centers and 13,697 licensed places during 2015 and continues to focus on high demand areas. The Group has 471 centers in Australia and 18 centers in Singapore leading to a total of 35,221 licensed places. GEM stock rallied over 12.9% (as of June 02, 2016) in the last three months and has a strong dividend yield.
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Recommendation: We maintain our positive view on the stock and reiterate our “Buy” recommendation at the current price of $4.12
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Cash conversion (Source: Company Reports)
Genworth Mortgage Insurance Australia Ltd
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GMA Details
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Share consolidation and capital cut: Genworth Mortgage Insurance Australia (ASX: GMA) stock rose 4.9% on June 03, 2016 on the back of the group’s Capital Reduction and Share Consolidation efforts. The group paid delivered a total of $202.4 million capital to shareholders while every shareholder got paid over 34 cents per share held in pre-consolidation as of 25 May 2016. Each ordinary share recorded at 25 May 2016 was converted to 0.8555 of a share (having a fractional entitlements rounded to the nearest whole number). Post the consolidation, the overall Genworth shares were 509.365 million of ordinary shares. On the other hand, we maintain our bullish stance on GMA while the stock has an outstanding dividend yield and trading at an attractive P/E.
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Recommendation: We give a “Buy” recommendation on GMA at the current price of $2.80
Japara Healthcare Ltd
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JHC Details
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BAML downgrade impacted the stock: Japara Healthcare Ltd (ASX: JHC) stock rose about 1.24% on June 03, 2016 after plunging about 9% on June 02, 2016 impacted by the BAML analysts’ comments on the stock based on Australian Financial Review (AFR). The analysts reported that JHC would deliver zero earnings growth from the recent Australian government’s revision to aged-care funding in the May budget. Based on the detailed analysis conducted by the analysts, the listed aged-care companies would not be able to deliver any growth from fiscal 2017 through to fiscal 2019. On the other hand, we believe that there is potential in the stock while the group was able to deliver solid growth even in first half of 2016. JHC revenue rose by 13.4% to $155.9 million while EBITDA enhanced by 10.6% to $28.2 million during the period. The group is making solid strategic investment for new capacities driven by growing ageing population and its Greenfield and brownfield development programs are on track.
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Recommendation: We recommend a “Buy” on the stock at the current price of $2.46
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Strategic Priorities (Source: Company Reports)
Alumina Limited
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AWC Details
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Impact from Alcoa’s demerger plans: Alumina Limited (ASX: AWC) rose over 2.6% on June 03, 2016 following the fall of about 2.5% on June 02, 2016. The group has 40% interest in the Alcoa World Alumina and Chemicals, or AWAC, business which is managed by 60%-owner Alcoa. Alcoa is among major aluminum producer by value and reported that they would spin off its faster-growing business units into a separate entity. On the other side, based on the recent report, the group expressed their major concerns regarding the demerger proposal given by Alcoa and expects that this would lead to a major impact in the nature, size, scope and financial ability of Alumina's partner in AWAC. The group is also considering Alcoa's demerger proposal and its eligibility for 'first offer' rights under the AWAC arrangements.
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Recommendation: AWC has the capacity to recover in the coming months despite the recent fall. The stock delivered over 18.94% during this year to date (as of June 02, 2016) driven by its better than estimated performance coupled with recovering commodity prices. We maintain our “Buy” recommendation on AWC at the current price of $1.385
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