Listed company FlexiGroup is widely regarded as a top investment opportunity for 2013, according to leading equity analysts and fund managers.
FlexiGroup, a diversified financial services provider, also topped broker and fund manager investment lists for companies with a market capitalisation placing them between 100 and 200 on the ASX, a corporate survey found.
The two-month survey, undertaken by leading financial research firm East Coles in late 2012, involved 40 funds management firms and broking houses, including AMP, BT, Citi, Credit Suisse, Greencape, IFM and UBS.
This report focuses on a specific part of the survey, stocks with a market capitalisation listing them between 100 and 200 on the ASX.
Nick Coles, a director of East Coles, says the survey’s findings are based on interviews and voting in 21 corporate performance categories, including earnings quality, growth prospects, risk management, disclosure and operational management. “The most prominent fund managers and brokers, overseeing hundreds of billions of dollars in equity investments, rated the stocks in the survey,” Coles says. “The data sample was very strong.”
Coles says BigPond Money’s list reveal the best stocks in the survey’s “investment desirability category”.
ATI Asset Management’s head of research David Liu says FlexiGroup (FXL) (click links for news and market data) has a solid track record of integrating acquisitions that grow earnings and revenue streams. “Extracting synergies from acquisitions reduces operating costs,” he says.
FlexiGroup, a provider of leasing, vendor finance programs and payment solutions, among other things, recently reported a half-year net profit after tax of $32.6 million for the six months to December 31, 2012. Net profit was up 16 per cent on last year’s corresponding period.
Liu says the company’s growth profile is supported by diversifying into the SME (small-to-mid size enterprises) sector. “It improves the quality of the company’s order book,” Liu says. “It’s no longer totally reliant on the retail sector.”
Analysts responding to the East Coles survey say FlexiGroup has a strong focus on building shareholder value. The company offers an effective executive and management team. It has sound risk management and access to capital. Liu says a major risk to company performance is more stringent consumer laws, while, in the survey, another pointed to the risk of increasing levels of competition given reasonably low barriers to entry.
Market experts appraise other top prospects for 2013,which include:
Liu says InvoCare is the dominant player in the funeral industry. An ageing population provides IVC with strong defensive characteristics. Good organic growth is complemented by its acquisition strategy.
Mike Mangan, of 2MG Asset Management, says InvoCare is a well-managed company, with strong market positions in a growth industry. He says it indexes fees to inflation “plus a bit”. While the stock appeals, Mangan says it isn’t cheap, trading on a multiple of about 20 times earnings.
Flight Centre (FLT)
Liu says this traditional bricks and mortar travel agent chain has adapted to structural change driven by growing online usage. “This business has successfully diversified and expanded its operations offshore and into the wholesale market,” he says. “Management has continued to beat market expectations over a long period of time.”
Mangan says Flight Centre continues to benefit from a strong Aussie dollar, with Australians taking advantage of cheaper overseas travel. It offers a strong balance sheet, with $500 million in cash. He says the risk is a falling Australian dollar.
Mermaid Marine Australia (MRM)
Massive LNG construction on Australia’s west coast drives this vessels operator. For full year 2012, Mermaid Marine Australia reported a 33.3 per cent increase in revenue to $380.4 million and an 18.3 per cent increase in net profit after tax to $51 million. Liu says MRM is leveraged to the high growth oil and gas sectors, and exhibits defensive characteristics via supply bases in Dampier and Broome.
Super Retail Group (SUL)
Super Retail Group comprises eight brands, including BCF (Boating, Camping, Fishing), Ray’s Outdoors, Rebel and Supercheap Auto. Liu says its growth profile is superior to competitors in the sector. “Stable and long-standing management continue to meet market expectations in terms of financial guidance,” he says.
Mangan says SUL’s share price has almost doubled in the past year, while other major retail stocks have either fallen or traded sideways. The risk is a major downturn in the retail sector. The shares finished at $10.58 on February 14.
TPG Telecom (TPM)
Liu says TPG is benefitting from increasing consumer demand for data and broadband services. Its low cost offering has led to it developing a well-established niche position in the market. He says the management team is well regarded by the investment community. He says the risk is margin contraction if a competitor introduces “irrational pricing behavior”.
This online vehicle advertising force continues to post solid results. For first half 2013, Carsales.com reported total operating revenue of $102.1 million, a 17 per cent increase on the previous corresponding period. Net profit after tax was up 14 per cent to $37.6 million. Mangan says the company continues to benefit from strong car sales across Australia. A strong Australian dollar makes imported cars cheaper.
Sandfire Resources NL (SFR)
Sandfire Resources owns the DeGrussa copper and gold mine in Western Australia. It announced the sale of its first shipment of copper concentrate from DeGrussa in December 2012 and the signing of three more contracts. Shipments of high grade direct shipping ore (DSO) from the open pit continue.
Cathy Moises, of Evans & Partners, says Sandfire Resources has high-grade copper, is a very aggressive group and offers good exploration upside.
Mangan says the possibility of a falling copper price is always a risk. So is absence of copper discoveries.
Saracen Mineral Holdings (SAR)
Moises says executive chairman Guido Staltari is well regarded by the market. She describes Staltari as “ethical and cautious”. She says Saracen, a gold producer and explorer, is potentially a good growth story. She says the risk is burning too much capital. “Historically, too much capital spending has been the market’s biggest criticism,” she says.
A comprehensive list of the ASX 200 (current October 2013). With company category, links to market data, price charts and recent news.
More: Last weekly market update 15/02/2013
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Anthony Black is a long-standing journalist, having worked in newspapers for 23 years. He was the Sunday Herald Sun’s finance editor for eight years and his reports were published in News Limited papers across Australia. Since 2008, he has been a freelance journalist and a public relations consultant. He interviews company chief executives and also writes about the Australian sharemarket and personal finance issues.
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