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Four Stocks to Buy

Oct 19, 2015 | Team Kalkine
Four Stocks to Buy

Ainsworth Game Technology Limited



Expanding international presence and launching new products: Ainsworth Game Technology Limited (ASX: AGI) revenues fell 1% yoy to $240.6 million in the fiscal year of 2015, but the company reported a solid 14% year on year (yoy) rise in audited profit after tax of $70.4 million during the period. Foreign currency gains of $25.6 million ($17.9 million after tax) partly contributed to this rise, driven by falling Australian dollar. AGI delivered an earnings per share (EPS) increase of 16% yoy to 22 cents per share during the period.  Meanwhile, Ainsworth Game Technology international business delivered solid performance during the period with revenues rising 46% yoy to $147.6 million, leading to better segment’s share in overall revenues to 61% in FY15 from 41% in FY14. The key market of Americas contributed 90% of total international revenue. North America’s growing market share coupled with new markets contribution led to 42% yoy revenue rise to $82.8 million during the period. Management reported that its A560SL™ release with game brands like Sweet Zone and Whopper Reels performed better than expected.
 
 
Growing international performance (Source: Company Reports)
 
Stock Outlook: AGI targets growth from its product launches like A600™ along with growth from solid organic sales in next fiscal year. Americas region would continue to enhance its performance in the coming periods. Moreover, the group’s new facility opening in 2016 at Las Vegas would also boost the regions performance. AGI estimates that its August release A600™ would drive its domestic business during FY16. Ainsworth stock delivered a year to date returns of around 21.4% this year (as of Oct 19, 2015). Still, the stock is trading at an attractive valuation and has a relatively cheaper P/E of 13.41x with a decent dividend yield of 3.39%. We remain bullish on the stock and accordingly give “BUY” recommendation on AGI at the current stock price of $2.93.


AGI Daily Chart (Source: Thomson Reuters)

Nearmap Ltd.


Targeting US market for growth and patent wins: Nearmap Ltd.’s (ASX: NEA) US segment contributed to the revenues for the first time during the year and the group already signed over $100k worth of total contracts. NEA continues to build a solid pipeline with trial subscriptions improving daily. The group is targeting government, construction and engineering, commercial enterprise and utilities industries and added two US patents for its next generation aerial camera systems. NEA reported a revenue of $23.6 million during the FY2015, higher by 32% yoy driven by subscription revenues and higher renewals. Gross Profit improved by 36% yoy to $20.7 million during the period, while gross margin rose to 88%, as compared to 85% in pcp.But, the group’s profit before tax plunged 82% yoy to $0.6 million, impacted by the US setup costs. On the other hand, NEA got two US patent approvals for its new multi-directional oblique views, high-resolution digital elevation models - HyperCamera and HyperCamera 2. NEA is planning to launch HyperaCamera2 in the first half of 2016 in the US market.
 

Market Opportunity (Source: Company Reports)
 
Stock Outlook: The group is targeting the global aerial imaging market opportunity, which is projected to grow to USD 2,288 million by 2020, from USD 966 million in 2013, witnessing a CAGR of 13.4% during 2014 to 2020. As a result, NEA integrated MapBrowser with ESRI ArcGIS platform ESRI software, which is used by >350k organizations worldwide. The group estimates a revenue forecast in the range of $30 million to $50 million in the US by December 2017. NEA shares have fallen about 40% year to date (as of Oct 19, 2015 close), due to its earnings pressure at the back of heavy US setup costs and tough market conditions. But, we view this as an investment opportunity and give a “BUY” recommendation to the stock at the current levels of $0.36.


NEA Daily Chart (Source: Thomson Reuters)
 

Capitol Health Ltd.



Driving growth via Acquisitionsas well as leverage MRI Market shift:  Capitol Health Ltd (ASX: CAJ) finished Southern radiology and Eastern Radiology acquisitions during April and July months respectively. The acquisition of operations of Liverpool Diagnostics has been completed as advised on 19 October 2015. The group generated outstanding revenues increase by 23% yoy to $111.2 million for the fiscal year of 2015. Synergies from Sydney radiology (based in Cremone), Imaging Olympic park acquisitions, improving market penetration coupled with organic growth drive the performance. CAJ’s underlying net profit before tax also climbed 59% yoy to $16.2 million, driven by the better operational efficiencies and enhanced business scalability. The group recently expanded its NSW radiology in Sydney through Liverpool diagnostics acquisition. The enterprise value of the acquisition is over $4.5 billion and $1.5 million of earn out subject to revenue accretion in CY2016. On one hand, the Medical Benefits Review Scheme commenced earlier this year may seem to impact but we believe that the Government’s favor for MRI market players would continue to benefit Capitol Health. Moreover, rising ageing population, acquisition synergies and CAJ’s focus on sub specialty radiology would boost its earnings further in the coming periods.
 

Maintaining a solid growth track (Source: Company Reports)

Stock Outlook: CAJ stock corrected over 44.62% in the last six months (as of Oct 19, 2015) and given the stock potential we view this correction as an investment opportunity and give a “BUY” recommendation to the stock at the current levels of $0.525.


CAJ Daily Chart (Source: Thomson Reuters)
 

Cash Converters International Ltd.



Efforts to recover the growth track: Cash Converters International Ltd (ASX: CCV) generated revenue increase of 13.0% on a year over year basis to $374.9 million in the fiscal year of 2015, boosted by the improving  personal loan interest of $14.6 million, establishment fees of $7.8 million and corporate store revenue of $18.3 million. The group recently underwent management changes with Stuart Grimshaw appointed as acting Non-Executive chairman as Chairman Reginald Webb is retiring by 2016 financial year.  On the other hand, the shares of CCV have been under pressure, falling over 49.02% during this year to date (as of Oct 19, 2015) as the company faced a class action claim on behalf of borrowers resident in Queensland who took out personal loans from the Company’s subsidiaries during the period from 30 July 2009 to 30 June 2013. Meanwhile, the court recently approved the NSW class action settlement. On the other hand, Cash Converters has a solid online business and built a wide product range to scale up the business in future. The group recently appointed CACE Partners to design its strategy to address the rapidly changing market. Emerchants signed a multiyear contract with CCV, wherein Cash Converters would use Emerchants customized prepaid debit cards to disburse cash advance load funds for in store as well as online customers.

Stock Outlook: Having an outstanding dividend yield of 7.69% and attractive P/E of 9.17x, we give a “BUY” at the current price of $0.535.


CCV Daily Chart (Source: Thomson Reuters)
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