Three Bargain Stocks - Cedar Woods Properties + Beach Energy + Sims Metal Management
Oct 11, 2015 | Team Kalkine
Cedar Woods Properties Limited (ASX: CWP)
The company announced a record net profit after tax of $ 42.6 million for FY 2015 which is an increase of 5.6% over the previous year. The board has declared a fully franked final dividend of 16 cents per share bringing total dividends for the year to a record 28 cents per share and this is in line with the policy of distributing approximately 50% of the full-year net profit to shareholders. The record profit figure was underpinned by solid contributions from sales across the property portfolios of the company in Western Australia and Victoria and the increase in revenues was 17% to $ 178.6 million and combined with the $ 36 million proceeds from the sale of Masters Home Improvement Stores came to a total of $ 214.6 million which is just about the figure for the previous year. The balance sheet continues to be strong with net bank debt of $ 27.9 million and a debt/ equity ratio of 9.8% as on 30 June 2015. Managing director Paul Sadleir said that the company had benefited from having a portfolio with a good spread of products in a number of favourable locations. The position for the current year continues to look good with a high level of pre-sales and satisfactory progress on a number of projects in Western Australia, Victoria and Queensland which are progressing well and will be major future contributors. Pre-sales at $ 153 million were 10% higher than the same period of the previous year.
Population Statistics (Source: Company Reports)
Ariella, a master planned community of 480 lots at Brabham 22 km north-east of the Perth CBD commenced construction in May 2015 and has received interest from customers and builder partners. The first sales releases were well received with the first settlements expected to happen in FY 2016. A number of significant milestones were also achieved during the year in Williams Landing in Victoria and the master planned community which became a suburb in 2008 has 4 residential areas surrounding the town centre.
Apartment and Houses Statistics (Source: Company Reports)
The market outlook is expected to be good with population growth, a key driver, expected to be supportive for FY 2016. There are excellent growth prospects for the states in which the company operates and the outlook is expected to continue to be good particularly for residential property. We believe that the stock offers attractive income prospects over a long term. The near term outlook may look flat (with earnings results expected to be same as that of FY15) but owing to consistent dividend track record along with efforts such as launch of seven projects across three states of operation in FY17, we expect a good scale-up over long term. There is a scope for price growth and would rate the stock a Buy at the current price of $4.36.
CWP Daily Chart (Source: Thomson Reuters)
Sims Metal Management Ltd
With around 270 facilities spread across five continents, this is the world’s largest publicly traded scrap metal recycling company. Although two thirds of its revenue stems from the sale of ferrous scrap metal, the company also deals in nonferrous scrap metal, which includes aluminium, lead, copper, zinc, and nickel, and recycles discarded consumer electronics such as televisions, radios, and computers. It operates in three distinct geographic divisions: North America, Australasia, and Europe. The majority of the shipment volume is associated with the sale of scrap collected in the U.S. Through the North American recycling operations, the company generates 20% of its revenue from sales within the United States. Important export markets include Turkey and China which account for 10% and 15%, respectively, of total sales over the past few years. Overall, the earning potential of the company is determined by US scrap availability and scrap demand in China and Turkey.
EBIT and Return on Capital (Source: Company Reports)
The results so far have been encouraging with the company on track for two years into the five-year FY 18 targets with much more to be accomplished. Further, earnings growth is expected from additional reductions in fixed and operating expenses, the complete global rollout of the supplier analysis platform, the optimisation of logistics and the consequent reduction in freight expenses, the continued sharing of best practices in all locations and growth in market share, and market position.
Growth Strategy (Source: Company Reports)
The results for FY 2015 show a decline of 10.1% in sales revenue to $ 6.31 billion, an increase of 19.4% in EBITDA to $ 265.6 million and a net profit after tax of $ 109.9 million compared to a loss of $ 88.9 million in the previous year. The diluted EPS was 53.3 cents per share. The lower sales volume was offset by initiatives to improve gross margins and lower operating costs. The final fully franked dividend worked out to 13 cents per share in the second half and 29 cents per share for the full year. The net cash position as on 30 June 2015 was $ 314 million compared to $ 42 million in the previous year. We think that the company has done a good job in overcoming the losses and strengthening its balance sheet and also offers a decent dividend yield of 2.8%. There are some speculations about SGM considering an acquisition, which may add shareholder value. With a reaffirmed FY18 EBIT target of $321 million that may help outweigh the softness in the underlying scrap market, the future prospects look bright and we would rate the stock as a Buy at the current price of $10.34.
SGM Daily Chart (Source: Thomson Reuters)
Beach Energy Limited
An overview of the results for FY 2015 shows the ongoing focus on safety with a 60% reduction lost time injuries. The year was dominated by macro issues particularly the price of oil resulting in lower revenues, cash flows and NPAT. The balance sheet as at 30 June 2015 was strong with cash of $ 170 million and available funding of $ 150 million. The sales and production volumes of 10.51 and 9.15 MMboe were broadly in line with the record levels of FY 2014 and success rates in drilling were high. The company has reduced its exposure to international operations and has completed a strategy review to clearly define its ambitions and chalk out its growth plans. Sales revenue was $ 728 million, the underlying NPAT was $ 91 million and cash flow from operations amounted to $ 229 million. The full year dividends were 1.5 cents per share.
The latest updates included development such as six-well development campaign at Tirrawarra and Gooranie fields is underway with regards to the fixed factor area joint venture for South Australian gas; a five-well campaign completed in the greater Limestone Creek area for the South Australian oil.
Bauer Field (Source: Company Reports)
Other recent updates include the commencement of the Origin oil linked gas contract with other parameters delivering price increases on legacy contracts. Beach Egypt has been sold to Rockhopper for up to $ 22 million and a 40% interest has been acquired in ATP 1056 on the south-eastern flank of the Cooper Basin. Second-half impairment of $ 449 million after-tax relate to Delhi reserves downgrade, Nappameri Trough Natural Gas Project and the sale of the Egyptian interests. Company strategy continues to be the optimisation of the core business in the Cooper Basin, establish the gas business in East Coast basins to benefit from increasing demand in those markets, pursue compatible growth opportunities in Australia and other nearby areas, maintain a disciplined approach to current opportunities and maintain financial strength.
Actual and Forecast Production (Source: Company Reports)
We believe that the company has done a creditable job in a low oil price environment while taking the necessary steps to build the financial strength which can be used to survive the present low oil price environment and benefit from any upswing in oil prices. We believe that there is an upside to the stock price and have no hesitation in rating the stock as a Buy at the current price of 0.61.
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