Austbrokers Holdings Limited (ASX: AUB)

The company celebrated its 30 year anniversary in insurance recently, and generates most of its earnings from the insurance broking business but over the last couple of years it has steadily diversified from its traditional line of business. It is building its underwriting agency business as well as its insurance and risk services consultancy arm. An underwriting agent operates like a broker except that it can write policies, although neither is responsible for paying claims. It has announced that it has acquired a 60% interest in Allied Health Australia Pty Ltd, a provider of workplace rehabilitation services in New South Wales. The acquisition is in line with its strategy of diversifying into risk services and will cost an initial fee of $8.6 million paid in cash. Three smaller payments are due depending on the financials results of Allied Health for 2015, 2016 and 2017. Allied Health is expected to add 2 cents to the underlying earnings per share prior to funding and acquisition costs, which comes to roughly $1.2 million in incremental earnings. The owners of Allied Health, Kevin Garvey and Lance Morton will continue to run the business with a 40% stake. The deal is an example of the company “Owner-Driver” business model in which it does not buy the entire business and ensures that the previous owners who are usually also responsible for running the business continue to do so with the mindset of ownership.


Dividend over the Years (Source: Company Reports)

The company has been successful with the strategy for previous acquisitions. In FY15, the company’s revenue witnessed a surge of 9.4% to $217m over $199m of 2014 while dividend went up by 3.1% to 39.7 cents. Based on the comparatively cheap P/E ratio of 15.47x as opposed to some of the peers and dividend yield of 4.51% with the above backdrop, we rate the stock as a Buy at the current price of $8.84.
 

AUB Daily Chart (Source: Thomson Reuters)
 

Amaysim Australia Ltd (ASX: AYS)

Shares in the mobile phone services provider debuted in July 2015 at a small discount to their issue price as the stock market troubles in China affected the local stock exchanges and resulted in lower appetite for IPOs. The company which sells access to Singapore Telecommunications's Optus network without locking customers into contracts, traded at $1.78, compared to the price of A$1.80 despite the rise in the broader market. The company raised $207 million through its IPO, but faced market volatility on the exchange on account of the ongoing problems in Greece. The company has narrowly missed its FY 2015 earnings target but customer base and net profit are both moving upwards. In its maiden annual results since the IPO, the company has reported a net profit of $ 24 million and a 16% increase in the customer base to 718,000 subscribers. However, the net revenue at $ 212.6 million was marginally below the target of $ 213.1 million in its prospectus.


Mobile Subscriber Share (Source: Company Reports)

Amaysim has recently mentioned that it will be able to meet and outdo its target of 1 million mobile customers by 2019 in view of low-cost offerings and larger download allowances. We believe that the current price offers upside in terms of value and rates the stock as a Buy at $2.47.

 
AYS Daily Chart (Source: Thomson Reuters)
 

Incitec Pivot Ltd (ASX: IPL)

 
The fertiliser and chemical company share price slumped after a recent profit warning in which the company warned that up to $6 million could be reduced from its net profit for FY 2015 because of an unexpected reduction in gas supply to its ammonium nitrate plant at Moranbah in central Queensland. Gas is supplied by a joint venture company that is partly owned by AGL Energy Ltd (ASX: AGL) and the company has been informed that gas supply will fall 10% to 20% short of targets and the restricted supply will extend into 2016. This means that the company could see a further reduction of net profit to the tune of $ 22 million over the next year if the gas issue is not resolved.


Market Scenario and Advantages (Source: Company Reports)

However, we are clear that the loss of production will have no effect on the fundamentals of the ammonium nitrate market where there is an oversupply due to the declining demand for explosives from the mining industry. Moreover, the downgrade in profit will have an immaterial impact since it is less than 2% of the net profit the company is expected to report in FY 2015. We believe that the stock is now undervalued enough to warrant investing attention and recommend that you Buy at the current price of $3.87.
 
 
IPL Daily Chart (Source: Thomson Reuters)
 

Corporate Travel Management (ASX: CTD)

 
The group has transformed its strategy and is now focusing heavily on travel markets and North America and Asia. Revenues have grown by 80% this year and we expect a double-digit growth rate in the current year. We also expect to see significant free cash flow generation because the company is expanding into markets which are very much larger than its current Australian prospects. In FY 2015, the group reported total revenues of $ 197 million which, as noted, represent about 80% increase over the previous year. The increase led to an increase in operating expenses which is only to be expected but operating margins were protected and pre-tax profits increased by 71% to nearly $ 40 million while net income attributable to shareholders grew to $ 26.4 million compared to $ 19.5 million in the previous year. The operating cash flow more than doubled to $ 24.4 million and with capex remaining unchanged while the free cash flow came to $ 23 million. The conservative approach of the company remains unchanged and it chose to issue new shares to finance its latest acquisition instead of relying on increased leverage.


EPS Growth (Source: Company Reports)

While the company has a substantial part of the Australian and New Zealand markets, the potential for growth in the larger markets of North America and Asia is good because it has a relatively small market share. All these factors lead us to believe that this is a genuine growth stock and we have accordingly rated it as a Buy at the current price of $10.94.
 

CTD Daily Chart (Source: Thomson Reuters)
 

Lovisa Holdings Ltd (ASX: LOV)

 
The jewellery retailer posted good results for FY 2015 with revenues growing by 27.1% to $ 134.3 million and in line with the IPO prospectus forecast of $ 134.7 million. This has been achieved because of strong like-for-like growth of 8.2%, new store openings and the full impact of stores that were opened in FY 2014. Company owned store numbers have increased in Singapore, Malaysia and South Africa as well as the franchise for the Arabian Gulf. 20 stores which were a legacy from the previous acquisition were closed in Australia and the closure will result in increased profitability. As of the end of FY 2015, there were 80 company-owned stores outside Australia and 11 of the top 20 stores ranked by contribution were outside Australia. Gross profit of $ 103.5 million indicated an increase of 29% over the previous year and gross margin percentage was up from 76.1% in the previous year to 77.1%. The final dividend was 4.07 cents per share fully franked in line with the dividend projected in the final prospectus.


FY15 Highlights (Source: Company Reports)

FY 2016 is expected to be a year of further growth with the opening of new stores and negotiations on a number of new territories. Despite this share trading above its issue price of $ 2 per share, we see prospects to further share price growth and recommend that you buy the share at the current price of $3.110.
 
 
LOV Daily Chart (Source: Thomson Reuters)
 

Cedar Woods Properties Limited (ASX: CWP)

 
With the first quarter FY16 operational updates, the company has been able to exhibit strong potential with the increase in its pre-sales to $184 million from $153 million reported in its FY15 results. The profit in FY16 is now expected to be in consensus with the FY15 record NPAT of $42.6 million given the market conditions. The company reported the record net profit after tax of $ 42.6 million for FY 2015 which was an increase of 5.6% over the previous year. As per the recent updates, CWP has also been able to seek an approval from Queensland Government for the initial stages (480 lots) of Upper Kedron Development. The company has witnessed solid quarter in Victoria. Another positive news entails the acquisition of 51 hectares at North Baldivis. Further, South Australian government agency, Renewal SA, has selected CWP as a favoured proponent for the Glenside hospital site. The balance sheet remains strong with net debt/equity at about 25% (lower end of target of 20-75%).


NPAT and EPS/Total Dividend (Source: Company Reports)

As per the FY15 reports, the board declared a fully franked final dividend of 16 cents per share making a record total of 28 cents per share for the financial year. This is also consistent with the policy of the Board of Directors of distributing approximately 50% of the full year profit to shareholders. These record numbers were because of solid contributions from the company's property portfolio in Western Australia and Victoria. Overall, the company is well positioned for the current financial year with a high level of pre-sales. Despite the macroeconomic conditions, we believe that the company is on track to maintain its performance and, because we view it as a growth stock, we recommend a Buy at the current price of $4.20.
 

CWP Daily Chart (Source: Thomson Reuters)