Nobody likes to be holding a stock that delivers bad news to the share market; the stock is usually cut in value, and it takes time for the share market to trust it again, because things like earnings or production downgrades often turn into other ones. It is especially galling when it is companies on which you have been positive in the past.
Here are three stocks I like but have blotted their copybooks recently.
- Bellevue Gold (BGL, $1.07)
Market capitalisation: $1.4 billion
12-month total return: –29.6%
Three-year total return: 8% a year
FY25 expected dividend yield: no dividend expected
Analysts’ consensus target price: $1.80 (Stock Doctor/Refinitiv, eight analysts); $1.713 (FN Arena, four analysts)
Bellevue Gold, which is developing its namesake mine in Western Australia, hit the skids in the first week of the year when it cut its production guidance for FY25 (the year to 30 June) from a range of 165,000–180,000 ounces to a range of 150,000–165,000 ounces. The shares fell more than 12%, taking them to their lowest level since 2022.
The company said it was on track to produce about 90,000 ounces from what has commonly been spoken of as one of Australia’s highest-grade gold mines, in the six months to June 30. If that rate held for 12 months, it would equal the higher end of the original FY25 gold production guidance range, at about 180,000 ounces.
Bellevue further said that FY25 production is weighted to the second half of FY25, and it is on track to reach a production rate of about 200,000 ounces a year from early in the June 2025 quarter.
Bellevue has a five-year growth plan to produce 250,000 ounces a year by 2027-28 and said in October that it had completed crucial infrastructure upgrades and was on track to hit the original 2024-25 guidance. Also, it talked in its early-January release of gold production in the December 2024 quarter being affected by lower grade (lower proportion of gold in the ore, in terms of grams per tonne) as the mine sequence progressed through the outer edges of the orebody, moving towards the higher-grade core.
This information clearly came as a surprise to investors, who have supported Bellevue’s case for being one of Australia’s highest-grade gold mines, with a mineral resource of 3.2 million ounces at 9.0 grams per tonne (g/t) of gold: about 800,000 ounces was mined there at 13 g/t of gold between 1987 and 1997, and BGL has reported exploration intercepts well above those figures regularly (as high as 374 g/t gold). So, issues with lower-than-expected grades of gold and “geological variability” was the last news that many investors expected.
Bellevue Gold has done a great job, moving from the Tribune lode ‘Discovery Hole’ in November 2017 to first gold in October 2023. The issue reported in January does not derail the thesis of BGL becoming a 250,000-ounces-a-year producer, but it was a hiccup.
I’ve been positive on BGL at higher prices; this kind of thing is annoying if you hold stock, but I think it gives investors a cheaper entry point than they would have had just a few weeks ago.
- VEEM (VEE, $1.14)
Market capitalisation: $155 million
12-month total return: 10.8%
Three-year total return: 8.4% a year
FY25 expected dividend yield: 0.8%, unfranked
Analysts’ consensus target price: $1.90 (Stock Doctor/Refinitiv, two analysts); $1.80 (FN Arena, two analysts)
I’ve liked VEEM, a Perth-based marine technology company that specialises in propulsion and stabilisation systems, for quite a while. VEEM sells its products to the global luxury motor yacht, fast ferry, commercial workboat and defence industries, as well as the industrial and mining industries.
Its two top products – and the main basis for its appeal – are its highly innovative gyrostabilisers, which significantly reduce the rolling motion of vessels in waves, and its high-performance propellers, fin systems and specialised components.
Propulsion products currently generate just under one-third of revenue, with defence work contributing 21%, engineering products and services 16%, and gyrostabilisers 12%.
Gyrostabilisers in particular is a huge opportunity, an estimated US$14.6 billion ($23.8 billion) market with limited competition. VEEM’s gyrostabilisers can almost eliminate the rolling motion of vessels in waves, increasing on-sea time and improving personnel and passenger comfort and safety in a wide range of ocean conditions; they are sold into the luxury yacht, passenger ferry and offshore work-vessel market, any situation where boats require a stable platform when underway, at anchor, undertaking helicopter operations, or launching and recovering other vessels. By significantly reducing rolling conditions, marine gyrostabilisers can improve crew performance and vessel operability in rough sea conditions.
In propulsion, VEEM’s propellers lead the global market through their combination of high speeds, low vibrations, low noise and reduced fuel consumption. In September 2023, VEEM entered into an exclusive worldwide agreement to partner with Detroit-based Sharrow Engineering, a global leader in propulsion. Under the agreement Sharrow will design and VEEM will manufacture and sell ‘SHARROW by VEEM’ propellors between 50 centimetres and 5 metres in diameter for inboard vessels. The award-winning Sharrow design has shown significant improvements in the outboard market in relation to fuel efficiency, noise and vibration. In a world where consumers are becoming more environmentally conscious, the Sharrow provides both financial and environmental benefits. Propellers is a US$2.7 billion ($4.4 billion) addressable market for VEEM.
VEEM has delivered more than $200 Million of defence contracts, ranging from manufacturing and servicing the Oberon-class submarine valves in the 1980s through to the propulsion system for the new Pacific-class patrol boats, currently under construction.
VEEM has not received the memo that Australian manufacturing is dead, operating from its 14,700 square-metre purpose-built fabrication and manufacturing facility in Perth, including Australia’s largest non-ferrous foundry.
It’s a great story, but it has to be said that the weak trading update at the annual general meeting in November 2024 and a further downgrade to FY25 earnings guidance. The November trading update took 16% from the share price and the follow-up downgrade, in December, burned a further 5%.
The issues reflected additional costs, delays on large orders, and the need to re-work some gyrostabiliser parts; importantly, the company told the ASX that the issues have been resolved and won’t occur again.
I’m still confident in the long-term story for VEEM, and I think it’s good buying at these levels.
- PlaySide Studios (PLY, 42.5 cents)
Market capitalisation: $174 million
12-month total return: –26.7%
Three-year total return: –25.4% a year
FY25 expected dividend yield: no dividend expected
Analysts’ consensus target price: 82.8 cents (Stock Doctor/Refinitiv, three analysts); 90 cents (FN Arena, one analyst)
Melbourne-based PlaySide Studios (PLY) is an Australian global leader: it is a very big name in the global video game industry, in which it is one of the top independent developers in the world. PlaySide publishes its own games based on original intellectual property, delivered across four platforms: PC, mobile, virtual reality (VR) and augmented reality (AR), and also provides end-to-end game development services in collaboration with some of the biggest game studios in the world, and major technology and entertainment companies such as Activision Blizzard, Meta, Netflix Games and Take Two Interactive. It also has a Publishing arm which provides funding, development support, marketing and publishing of third-party games from smaller independent studios.
PlaySide’s own IP includes games made under its wholly owned Dumb Ways to Die franchise, which is a global blockbuster; the award-winning real-time strategy PC games Age of Darkness: Final Stand, and Kill Knight which are available on PC, console and Nintendo Switch; and PlaySide also owns the rights to publish the viral internet sensation game MOUSE: P.I. For Hire. In FY24 it signed a licence deal with Warner Bros. to build a real-time strategy game based on the Game of Thrones TV franchise, which will be its largest game to date.
PlaySide simply could not be better regarded in the global games industry. But, in October, it appalled the share market with an operating update, in which it told investor that it expected FY 2025 revenue to be between $62 million and $68 million, which would represent a decline of between 4% and 5.2% increase on FY24’s revenue of $64.6 million.
Worse, for FY25, management said earnings before interest, tax, depreciation and amortisation would fall in the range of zero to $5 million, down on the $17.5 million that PlaySide recorded in FY24.
Lastly, the company revealed that it would be consuming a significant amount of cash during the year, investing in games, and that this would see it ending the period with a cash balance of $15 million to $20 million. At the end of June 2024, it was sitting on $37.1 million in cash.
Taken all together, the share market stripped more than 32% from the share price, from
From 71.5 cents before the FY25 update, PLY now trades at 42.5 cents.
PlaySide’s problem was that after delivering a five-year revenue compound annual growth rate (CAGR) of 67% through to FY24, the market got used to that. In FY25, the company said, it was more about “building for the future while maintaining operational discipline” rather than another year of high growth.
I believe the company. It has got its strongest line-up of games ever, which will boost revenue, and it is still funded well enough to do what it wants to do.
The problem with micro-cap stocks is that the share price fall will take a bit of work to redress. But if you did not own PLY, it looks great value now.
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