DICK SMITH

         Dick Smith Dividends (Source - Company Reports) 



Modest first quarter performance, despite tough market conditions: Dick Smith Holdings Ltd (ASX: DSH) recently reported that its sales improved by 6.9% year on year (yoy) in the first quarter of 2016 while comparable sales improved by 1.3%, driven by better New Zealand business post acquisition. Meanwhile, the group has been expanding its consumer electronics network and opened 14 stores in the second half of 2015 leading to a total of over 393 located stores in Australia & NZ as of fiscal year end of 2015. The group’s online sales also delivered outstanding performance and almost doubled during FY2015, contributing over 8% of retail sales.
 


Store network penetration (Source: Company Reports)
 
On the other hand, the group’s gross profit in 1Q16 would be under pressure on the back of the DSH’s heavy promotions activity and unfavorable product mix. The group also experienced a challenging October performance and therefore is cautious on its Christmas trading period outlook. Accordingly, Dick Smith estimates its fiscal year of 2016 net profit after tax to be $5 million to $8 million lower than its earlier guidance of $45 million to $48 million. On the other hand, the group estimates a better cash conversion year on year on the back of its ongoing efforts to enhance working capital position.
 
Cheaper Valuations: Dick Smith stock delivered a worst year to date performance by falling over 66.9% (as of Oct 30, 2015) on the back of lower than projected fiscal year of 2015 performance, and crashed over 46% in just last five days due to subdued FY16 outlook. On the other hand, this correction of the stock placed Dick Smith at a very cheap P/E of 4.3x as compared to its retail peers and the stock is trading close to its 52 week low. Dick Smith also has an annual dividend yield of 17.27%. Further, it is to be noted that in case the company achieves the bottom end of the new lowered guidance for FY16, it would mean that DSH would be able to have profit slightly below FY15’s profit indicating growth return even from small improvements. We noted that Deutsche Bank Group has also increased its voting interests in the company. The group intends its network to grow till 420-430 stores by FY2017, by opening of over 15 to 20 new stores annually. The group is also improving its private label’s penetration, which accounts for more than 12.5% of its FY15 sales. DSH estimates its private label to be more than 15% of sales by 2017 fiscal year. We remain positive on the stock despite the recent crash and accordingly give a “BUY” recommendation at the current price of $0.695.
 
 

DSH Daily Chart (Source: Thomson Reuters)
 

Capitol Health Ltd

CAJ Dividend Details
 
Slower growth in FY16 while ongoing acquisitionsare favorable: Capitol Health Ltd (ASX: CAJ) recently reported that the regulatory modalities coupled with disruptions of referral patterns owing to the Medicare Benefits Schedule (MBS) review, would lead to a slower than estimated growth in FY16 (gross revenue to be 4-6% below expectations). More insights would be provided by the company on 16 November 2015 during the annual general meeting. It is to be noted that CAJ is focusing on acquisitions and partnerships to generate growth in the long term. The group recently entered into an MOU with Enlitic to leverage Enlitic’s expertise and Artificial intelligence for delivering better patient outcomes. CAJ expanded its NSW radiology in Sydney through Liverpool diagnostics acquisition and recently settled the acquisition. The enterprise value of the acquisition is over $4.5 billion and $1.5 million of earn out is subject to revenue accretion in CY2016. The group also finished its Southern radiology and Eastern Radiology acquisitions during April and July months respectively. Meanwhile, Capitol Health generated outstanding revenue increase by 23% yoy to $111.2 million for the FY15, partly driven by synergies from Sydney radiology, Imaging Olympic park acquisitions, and improving market penetration coupled with organic growth. CAJ’s underlying net profit before tax also surged 59% yoy to $16.2 million, on the back of better operational efficiencies and enhanced business scalability.
 


Result Overview (Source: Company Reports)
 
Stock Outlook: CAJ stock had been under pressure this year and corrected about 57.84% (as of Oct 30, 2015) in the last six months, and with the recent lowered guidance for FY16, CAJ stock plunged by around 29% in just last five days. On the other hand, we view this recent correction as an attractive bargain opportunity for investors given the improving addressable market of the group. The Government’s favor towards MRI market players, rising ageing population, acquisition synergies, stress on early detection of diseases and CAJ’s focus on sub specialty radiology would benefit CAJ’s performance. We remain bullish on CAJ despite the ongoing challenges and accordingly, give a “BUY” recommendation to the stock at the current levels of $0.39.
 
 

CAJ Daily Chart (Source: Thomson Reuters)

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