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Two small-cap income stocks

Oct 14, 2015 | Team Kalkine
Two small-cap income stocks

Japara Healthcare



Driving growth through acquisitions and Greenfield developments: Japara Healthcare Ltd (ASX: JHC) recently acquiredProfke residential aged care for $79.5 million. With this acquisition, the group added four aged care facilities and 587 beds in Queensland and New South Wales. Japara estimates this acquisition earnings to be accretive from fiscal year of 2016, and will enhance its overall portfolio to 43 residential aged care facilities, with 3,976 beds and 180 independent living units. Japara has over 465 bed places to boost its brownfield and Greenfield development strategies. The group also delivered an outstanding revenue in fiscal year of 2015, rising by 14.8% yoy to $281.3 million against pro forma FY14 revenue. Average occupancy improved to 94.6%, an increase of 0.7% from pro forma FY14, while the Average ACFI (aged care funding instrument) revenue rose to $175.10 per resident per day from $166.30 in FY14. The group also achieved an EBITDA of $50.6 million, which is an increase by 26.5% on pro forma FY14. Meanwhile, Japara Healthcare also finished the Whelan Care Business integration, adding 258 beds and consequently enhancing penetration in Adelaide. The group won 465 bed licenses under Aged Care Approvals Round and made three brownfield developments completed during FY15.


Fiscal year of 2015 performance (Source: Company Reports)

Stock Performance: Japara Healthcare stock delivered an outstanding year to date returns of 49.04% (as of Oct 14, 2015) despite the broader index S&P/ASX 200 decline of 4% (as of Oct 14, 2015) during the same period. The group added over 1000 beds to its portfolio by acquiring over 16 projects. The firm is building six Greenfield developments leading to 220 additional beds by FY17. Japara estimates to add 805 beds by fiscal year of 2019. The group is positioning itself to target the huge market opportunity, with a demand of over 74,000 beds by 2022.


JHC Daily Chart (Source: Thomson Reuters)

To enhance its dementia patient’s care, the group partnered with Alzheimer’s Australia. With the growing dementia patients and ageing population in Australia, Japara business would further grow in the coming years. JHC also has a decent annual dividend yield of 3.55%. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $3.09.

Kathmandu holdings



Bottom Line Pressure:Kathmandu Holdings Ltd (ASX: KMD) reported a modest revenue increase of 4.2% to NZ$409.4 million during fiscal year of 2015, but earnings before interest and tax (EBIT) plunged by 48.4% yoy to NZ$33.2 million. Consequently, Net profit after tax fell to NZ$20.4 million against NZ$42.2 million during FY15. Rise in inventories during FY2015 due to heavy clearance activity in first quarter of 2015 hurt the group’s margins. Moreover, aggressive pricing and promotional activity led to clearance activity but the revenue growth was not as expected due to passive consumer sentiment at the back of tough Australian retail conditions. On the other hand, the group delivered a solid online sales growth of 28% yoy (which now accounts over 6.2% of overall sales) across all its regions, driven by outstanding online growth by 79% yoy in UK. The group’s winter promotion drove same store sales and gross margin against the Christmas and Easter promotions outcome. Primarily, the gross margin rose by 0.7% in the second half of FY15 against the 1.6% dip in 1H FY15 in view of less discounting and winter sales promotion success at the back of new products. KMD’s Summit Club members showed better response to KMD’s promotional strategy focused on new products benefits than the price and discount data.
 

Same stores performance (Source: Company Reports)

Stock Performance: Kathmandu Holdings shares fell over 7.74% in the last three months (as of Oct 14, 2015) partly due to Briscoe Group takeover battle, wherein KMD urged its shareholders not to accept the takeover bid from Briscoe Group. KMD primarily rejected Briscoe’s takeover offer while Briscoe commented that it would not be possible to raise the offer to exchange five of its shares for every nine KMD shares while paying NZ20 cent a share cash consideration. On the other hand, the group is optimizing its pricing strategy as well as promotional model to enhance its same store sales growth and profitability in the current stores. KMD intends to achieve 180 stores across Australasia. The group is opening three new stores and relocating its flagship stores in Melbourne and Adelaide CBD’s. Management is also quitting the UK store network during fiscal year of 2016 and targeting the online international brand equity expansion by adopting capital light model. Meanwhile, KMD shares plunged over 31.5% during this year to date impacted by weak consumer spending given the challenging market conditions. But the group’s stock recovered over 4.98% (as of Oct 14, 2015) in the last four weeks due to improving outlook. Moreover, the fall in the stock prices resulted in a cheaper P/E of 15.02x against its peers, and KMD has a decent dividend yield of 5.3%. Based on the foregoing, we give a “BUY” recommendation at the current stock price of $1.37.


KMD Daily Chart (Source: Thomson Reuters)

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
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Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.
 
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