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Emerging Stocks to Buy - iSelect Limited + Capitol Health

Sep 17, 2015 | Team Kalkine
Emerging Stocks to Buy - iSelect Limited + Capitol Health

iSelect Ltd

Diversified business boosted FY15 performance:
iSelect Ltd (ASX:ISU) reported a normalized basis revenue increase by 15% yoy to $157.2 million in fiscal year of 2015, while the earnings before interest and tax (EBIT) rose 10% yoy to $25.1 million, partly boosted by the outstanding performance of the group’s energy business. Although the group’s core health and car insurance segment revenues fell by 3% yoy to $101 million (with the segment now accounting 59% of the overall revenue from 70% in prior corresponding period), ISU’s efforts in the Energy sector paid off as this segment’s revenues surged by 147% yoy leading to the overall household utilities and financial segment improvement by 74% yoy to $56.2 million during the period.



Meanwhile, ISU continued to improve its market share in health insurance sector, while it achieved an EBITDA increase of 625% in the household utilities and financial segment leading to a 13 percentage point’s improvement of the segment’s margins to 17%. Accordingly, the group’s earnings before interest and tax (EBIT) rose 10% yoy to $25.1 million during the period, while the net profit after tax as well as earnings per share enhanced by 17% yoy to $21.4 million and 8.2 cents, respectively. As per the operational performance highlights, sales units surged 45% yoy during the period while the lead conversions improved by 3.1 percentage points to 9.7%. However, leads fell by 1% yoy to $3.8 million and revenue per sale also decreased by 17% yoy to $457.


Growth Profile (Source: Company Reports)
 
Stock Performance:
The shares of iSelect Ltd have surged over 19% year to date (as of Sep 15 close) even though the broader S&P/ASX 200 index performance had been under pressure which declined by 7.3%. The stock witnessed a correction in last four weeks despite positive fiscal year of 2015 performance due to its conservative outlook. Management gave a fiscal year of 2016 EBIT forecast in the range of $26 million and $28 million. However, it is prudent to note that the management is also pursuing a share buy-back for up to 5% of shares outstanding as well as might make the payment of a fully franked dividend, which is expected to boost the stock in the coming months.


ISU Daily Chart (Source: Thomson Reuters)

We remain bullish on iSelect Ltd and accordingly recommend a “BUY” on the stock at the current price of $1.57.

Capitol health 

MRI Market focus and acquisitions to drive growth:
Capitol Health Ltd (ASX: CAJ) delivered outstanding result with revenue increase by 23% year-on-year (yoy) to $111.2 million for the fiscal year of 2015, driven by better market share, organic growth, and synergies from Sydney radiology (based in Cremone) and Imaging Olympic park acquisitions. CAJ also finished Southern radiology and Eastern Radiology acquisitions during April and July months respectively. Accordingly, CAJ’s underlying net profit before tax soared 59% yoy to $16.2 million, driven by the better operational efficiencies and enhanced business scalability. Consequently, the group’s NPBT margin surged by 325 basis points to 14.5% in FY15, from 11.3% in FY14, indicating the group’s operating leverage.



The group improved its dividend per shares by 39% to 1.25 cents in FY15, from 0.9 cents in FY14. The growing ageing population, and the group’s focus on sub specialty radiology would underpin the group’s growth in the coming years. Moreover, the government policy changes would also favor players investing towards MRI shift, and CAJ is well placed to capture this opportunity and is also adding one more NSW firm which would add another $7 million of revenue while the group purchased it for less than 5x EBITDA. This relates to the recent announcement of expansion of the NSW radiology presence through the acquisition of Liverpool diagnostics.


Maintaining a solid growth track (Source: Company Reports)

Stock Performance:
Capitol Health shares have been under pressure this year falling around 38% in the last six months (as of Sep 15 close), against the broader S&P/ ASX 200 decline of 13.5% for the same period. CAJ corrected in the last four weeks alone (as of Sep 15 close) as compared to the broader S&P/ ASX 200 fall of over 6%. But, we believe that the decline opened an attractive investment opportunity to investors to enter the stock given its solid growth potential. CAJ also has a modest dividend yield of about 2%.


CAJ Daily Report (Source: Thomson Reuters)

Accordingly, we suggest a “BUY” on CAJ at the current stock price of $0.655.
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