In reality, a stock moving from double figures (in cents) into the three figures – that is, achieving and passing a share price of $1 – doesn’t signify much, other than the obvious fact that the price is increasing. But investors being human beings, they usually ascribe much bigger significance to the transition to a round number, particularly a number with a dollar-sign in front of it. Here are three stocks that are on the verge of making (or re-making, in two of the cases) the magical but actually mundane 100-cent milestone – and are poised to head higher.
- Omni Bridgeway (OBL, 98 cents)
Market capitalisation: $277 million
12-month total return: –40.6%
3-year total return: –34.1% a year
FY25 (June) Estimated Yield: no dividend expected
FY25 (June) Estimated P/E ratio: negative P/E
Analysts’ consensus target price: $2.52 (Stock Doctor/Refinitiv, two analysts)
Global litigation funder Omni Bridgeway (known until March 2020 as IMF Bentham Limited) is the world’s biggest player in the litigation funding business, in which a third party provides capital to a law firm or plaintiff for a legal claim in exchange for a monetary interest in the settlement of the case. The global litigation funding market was worth close to $US16 billion ($24 billion) in 2022 and is projected to grow by 9 per cent a year to $US24 billion by 2028, according to market intelligence firm RationalStat. But Omni Bridgeway says that the addressable global market is worth about US$220 billion ($328 billion).
The business has defensive growth qualities, with its underlying earnings uncorrelated to any market or business cycle. But there are also structural tailwinds, with litigation financing a growing industry around the world, and Omni Bridgeway well-positioned as a global industry leader.
Litigation funding also has ESG aspects, in that provides Davids with the funding to mount a case against Goliaths: litigation is very expensive, but litigation funders can enable small plaintiffs not only to have their day in court, but to win their cases (litigation funders also sometimes fund Goliaths versus other Goliaths.) For the litigation funders, it is a reasonably straightforward proposition: source the cases that could be a litigation investment opportunity, identify the risks, assess the prospects of success, calculate how it can price that risk to ensure it gets an adequate return for the risks that it’s taking, and fund the case.
Part of the process that saw IMF Bentham merge with Netherlands-established Omni Bridgeway in 2020 was not only to expand out of its Australian base market, but also to move from funding investments from its own balance sheet, and secure outside investment to fund cases. Omni Bridgeway is building a global funds management platform for legal “assets,” which are its cases. The company launched its first fundraising in 2016, raising $US190 million ($280 million), and has now grown to $3.3 billion of funds under management. Omni Bridgeway says the asset (case) portfolio is well-diversified geographically, and by area of law; and the ten largest current cases only represent 14% of the portfolio.
In FY24, total gross income and revenue declined 10%, to $277 million, while net profit surged from $900,000 in FY23 to $30.5 million: however, on a statutory basis OBL reported a net loss of $87.5 million – reflecting conservative treatment of the variability of returns from investments with binary outcomes, and non-linear periods for completions – and that is what gives it a negative price/earnings (P/E) ratio.
Omni Bridgeway has investment “vintages” maturing, similar to a private equity firm, in terms of the years in which it funded cases; in FY24, its investments achieved an overall multiple on invested capital (MOIC) of 2.7 times, well above its long-term track record of 2.2 times. That corresponded to an internal rate of return (IRR) of 53%. There was no dividend.
Omni Bridgeway only fell below $1 last week, but it should not stay in double-figures in cents terms for long. Omni Bridgeway is a difficult stock to get to grips with, in terms of its financial innards, but if you’re looking for a stock that is well-positioning in a growing global industry, OBL fits that description.
- Lindsay Australia (LAU, 90 cents)
Market capitalisation: $282 million
12-month total return: –14%
3-year total return: 37% a year
FY25 (June) Estimated Yield: 5.4%, fully franked (grossed-up, 7.8%)
FY25 (June) Estimated P/E ratio: 8.7 times earnings
Analysts’ consensus target price: $1.22 (Stock Doctor/Refinitiv, four analysts); $1.217 (FN Arena, three analysts)
The 71-year-old Lindsay Australia is a refrigerated transport, logistics and rural supply company, which started out carrying local fruit and vegetables to the trains in Coffs Harbour for transportation to the Sydney markets.
Lindsay is now a national transportation business – although mostly focused on the eastern seaboard – with a business portfolio of integrated road, rail and rural services businesses. The company is Australia’s largest refrigerated road and rail provider, operating more than 250 prime movers, more than 750 “reefer” trailers and more than 600 containers. Lindsay has become closely linked to the Australian agriculture and horticulture industries, with an end-to-end business model that covers each stage of the food production chain, from seed planting, irrigation and fertilising, and packaging, through to food transport and exporting. Lindsay’s core operations share many common customers, which gives it a strategic advantage in terms of bundling services, and pricing.
LAU reports its results under two segments:
- Rural: Lindsay Rural supplies more than 1,500 farmers with an extensive range of agricultural products including packaging, fertilisers, chemicals, and irrigation equipment. Customers can use Lindsay Transport’s refrigerated fleet to deliver rural supplies to farms and transporting fresh produce direct to east coast markets. Lindsay Rural has operations in New South Wales, South Australia, and Victoria.
- Lindsay Transport (including Lindsay Fresh Logistics).
In FY24, Lindsay Transport generated 70.4% of revenue, with Rural contributing 18.9% and the recently purchased WB Hunter business contributing 10.7%. In 2023, Lindsay bought northern Victorian-based rural merchandise company WB Hunter, a retail business that provides a comprehensive range of rural supplies, agricultural services, trade essentials and pet products, with an eight-store footprint throughout northern Victoria (seven stores) and southern New South Wales (one store), with a broad base of more than 10,000 commercial and retail customers.
In FY24, Lindsay’s revenue grew by 18.9%, to $804.4 million, while underlying net profit slipped 17%, to $30.4 million; earnings per share (EPS) was down 19.4%, to 9.7 cents; and the full-year fully franked dividend was held steady, at 4.9 cents a share. ROIC fell from 24.8% in FY23 to 20.2%.
To a significant extent, Lindsay’s exposure to the agriculture sector means that economic conditions don’t greatly affect it, but the flipside of this is that weather conditions in its agricultural and horticultural markets do. Recently, there have been near-term headwinds in terms of unfavourable weather, as well as pressure emanating from labour and freight-related costs. But the business has excellent growth prospects, both as the agricultural and horticultural markets grow, and also as Lindsay’s strong financial position enables it to participate in the ongoing market consolidation within the fresh and refrigerated logistics market.
If Lindsay were to repeat its 4.9-cent dividend in FY25, it would be trading on an historical yield of 5.4%, fully franked, equating to a grossed-up yield of 7.8%: this is what analysts expect, before a 1-cent lift in the dividend in FY26.
Given where analysts’ consensus sees the share price heading, LAU offers a prospective total-return investment that looks very attractive.
LAU has been as high as $1.35, in mid-2023; it looks more than capable of scaling those heights again.
- Sun Silver (SS1, 91 cents)
Market capitalisation: $114 million
12-month total return: n/a
3-year total return: n/a
FY25 (June) Estimated Yield: no dividend expected
FY25 (June) Estimated P/E ratio: n/a
Analysts’ consensus target price: $1.15 (Stock Doctor/Refinitiv, two analysts)
I looked at Sun Silver in May 2024 (can we link to SR of 27 May?) at 57 cents, but with silver having its time in the sun, the stock’s performance has been very robust.
Floated through an initial public offering in May, at 20 cents a share to raise $13 million, Sun Silver is exploring and developing the Maverick Springs silver project in Nevada, USA, which has an inferred mineral resource of 292 million ounces of silver equivalent, at a grade of 72.4 g/t of silver equivalent, and also contains about 1.37 million ounces of gold. Further drilling looks virtually certain to boost this resource, with the latest program – using portable X-ray fluorescence (pXRF) readings, which cannot be used to quantify resources – indicating the presence of high-grade silver mineralisation in the extensional targets at Maverick Springs.
Sun Silver’s plans to exploit Maverick Springs revolve around value-adding the silver to produce high-quality silver paste, which is critical for improving the efficiency and sustainability of solar photo-voltaic (PV) cells, thereby improving the efficiency of solar panels. Solar energy is currently the fastest growing source of silver demand, and that demand is projected to grow exponentially through to 2050.
Sun Silver is on the shortlist for a US$60 million ($89.6 million) tax credit from the US Department of Energy for its Silver Paste project, under a program that aims to help projects that support advanced energy manufacturing and enhance US competitiveness in clean energy. Sun Silver hopes to supply silver paste to solar PV cell manufacturers in the US, which Washington sees as aligning with efforts by the US to reduce its dependence on China for silver paste supply and bolster domestic supply chains.
Solar energy capacity within the US alone is forecast to increase by 125GW per year to 2030. In the next six years, the US government is aiming for more than six times current solar capacity: the target is for solar energy to provide 30% of all electricity in the US by 2030 and 45% by 2050. The estimated amount of silver required to achieve this target by 2050 represents virtually all of the current known global reserves. If Maverick Springs can be successfully developed, Sun Silver will be a major player in meeting this target – and in helping the US move away from having to rely on China for its ‘clean energy’ requirements.
Analyst projections for silver prices are growing more bullish. As further drilling news flows through and a potential resource upgrade down the track starts to appear more likely, Sun Silver does not look like staying under $1.00 for much longer.
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