No matter what price was struck the last time a stock was transacted, it can always go higher; just as, of course, it can always go lower. But too many investors have a psychological unwillingness to buy stocks that are double-digit share prices, reasoning that the “value” they are buying lessens past $10. It’s a bias that has no fundamental grounding. Here are four stocks with double-digit share prices where investors can reasonably expect them to move higher.
- Charter Hall Group (CHC, $11.03)
Market capitalisation: $5.1 billion
12-month total return: –6.2%
3-year total return: 7.3% a year
Estimated FY24 yield: 4.1%, 45% franked (grossed-up, 4.9%)
Analysts’ consensus target price: $14.98 (Stock Doctor/Refinitiv, 12 analysts), $14.79 (FN Arena, five analysts)
Commercial real estate fund manager Charter Hall Group is the “headstock” of the company that manages (and invests in) a stable of property funds – direct investments, wholesale property trusts and listed real estate investment trusts (REITs) – covering the office, retail, industrial, logistics and social infrastructure sectors.
The company says it owns the “largest diversified property portfolio in Australia.” At the December 2022 half-year, Charter Hall Group had $88 billion in funds under management (FUM), $73 billion of it in property (the rest in listed equities.) Its tenant base is diversified, too, topped by the Australian government at 17.6% of its space, and with the top 20 tenants represented by government, multi-nationals and major Australian listed companies. CHC has 4,500 individual leases, and no single asset is worth more than 5% of the portfolio.
The commercial property market was battered by the pandemic, and CHC has come down sharply in price to reflect that, with the stock halving from its pre-COVID peak (and record high) of $21.61, reached in December 2021. In 2023 so far, CHC is down 8.3%.
Rising interest rates have also weighed heavily on the stock, with CHC telling a Morgan Stanley event that “you cannot have a circa 4% cash rate without negative impact on discount and capitalisation rates.” There will be downward pressure on valuations revealed in the upcoming June 30 results reporting season, in August.
But the company has shown that it’s able to grow its earnings and distribution per security, with EPS increasing at a compound annual growth rate of 19% (after tax) in the period from financial year 2018 (FY18) to FY22, and distributions growing by 6% a year over the same timeframe.
Bringing out the first-half result, in February, CHC gave FY23 guidance that, based on “no material adverse change in current market conditions,” FY23 guidance is for post-tax operating earnings per security of “no less than 90 cents” – compared to 115.6 cents in FY22 – and distribution per security guidance of 6% growth over FY22. The financial year is almost over, and the company has not changed that guidance: first-half operating EPS after tax was 50.7 cents per security.
On that basis, analysts think Charter Hall is good value. Price targets imply upside of about 32%, augmented by an expected FY24 grossed-up yield of 4.9%. That’s pretty good going on total-return grounds.
Charter Hall Group
Source: Google Finance
- Lovisa Holdings (LOV, $18.81)
Market capitalisation: $2 billion
12-month total return: 42.2%
3-year total return: 44.4% a year
Estimated FY24 yield: 3.9%, 65.5% franked (grossed-up, 5%)
Analysts’ consensus target price: $26.95 (Stock Doctor/Refinitiv, 14 analysts), $14.79 (FN Arena, five analysts)
Discretionary retail is a sector where there is plenty of alarm at the prospect of consumers going on strike in the face of rising cost-of-living pressures – already, sector members such as bedding and furniture group Adairs, jewellery chain Michael Hill and prams and baby goods retailer Baby Bunting have been hammered by the share market after cutting guidance because of falling sales.
But there is a bit more optimism about fast-fashion jewellery store chain Lovisa, on the back of its affordable low-price-point costume jewellery offering, and its ambitious global expansion plans. In FY22, the company’s global rollout strategy saw 85 new stores opened for the year, to a total of 629, led by 55 new stores in the US (up to 118) and 169 stores trading in Europe; the company entered two new markets during the year, in Poland and Canada, to make a total of 24 markets.
In the first half of FY23, to December, Lovisa cranked-up the pace considerably, opening 86 net new stores across new and existing markets – one more than opened in the whole of FY22 – including seven new markets opened in the half-year in Namibia, Hong Kong, Mexico, Italy, Hungary, Romania and Colombia (a franchise). That took the total store network to 715 stores, across more than 30 countries.
To put that in context, in FY21 Lovisa had 544 stores in 20 countries; in FY17, it had 288 stores in seven countries, and had not yet entered the United States – the US is now the company’s largest individual market, with 155 stores.
Analysts like the company’s ability to execute its large global roll-out opportunity as a strong player in the fashion jewellery market, while remaining relatively less affected by consumer spending pressures, given the accessibility of the product from a price point perspective. Its customer base is considered quite resilient.
And it is likely to add more, with about 200 new stores to be added in the financial year about to end, and about 180 in FY24. While like-for-like sales might soften, that rollout should underpin resilient revenue and earnings growth, even if the macro environment weakens any more.
Analysts feel there is attractive share price upside in Lovisa, with an expected 5% grossed-up yield coming as a bonus.
Lovisa Holdings
Source: Google Finance
- Block, Inc. (SQ2, $96)
Market capitalisation: $57.8 billion
12-month total return: –12.5%
3-year total return: n/a
Estimated FY24 yield: no dividend expected
Analysts’ consensus target price: $176.34 (Stock Doctor/Refinitiv, three analysts)
The fervour for the buy-now, pay-later (BNPL) stocks is a distant memory now, and it was no surprise last month when the Australian government announced it would “regulate the BNPL industry under the Credit Act, to better protect consumers against financial abuse by the lending schemes.
Not only will this lead to more rigorous scrutiny, buy-now, pay-later services will be treated as a credit product, with providers required to have a credit licence, hardship requirements and minimum standards for conduct.
Counter-intuitively, Block, Inc. (formerly Square, Inc.) – the owner of Afterpay, which it took over in January 2022 – has seen its CHESS Depositary Interests (CDIs), which trade on the ASX, rise almost 15% since the announcement of the crackdown. That is mostly because at that point, the stock had fallen one-third from its February peak, as investors anticipated it.
With greater regulation in Australia now in the rear-view mirror, the analysts that follow Block are very bullish on the reason why the US digital payments heavyweight bought Afterpay in the first place – it wants to combine the BNPL tool with its two major offerings, Square and Cash App.
Square is a “cohesive commerce ecosystem” that helps merchants start, run, and grow their businesses, and consists of more than 30 distinct software, hardware, and financial services products, that combine commerce, customer relationship management, staff management, and banking capabilities. Square is used in the United States, Canada, Japan, Australia, New Zealand, the United Kingdom, Ireland, France, and Spain.
Cash App is a consumer digital wallet combining financial products and services to help individuals store, send, receive, spend, save and invest their money. In 2022, Cash App had 47.8 million monthly users in the United States, and as Block works toward its goal of establishing Cash App as “consumers’ default wallet for day-to-day spending,” research firm Oberlo predicts the product will have 52.9 million users in 2023, rising to 63.1 million users by 2026.
Block intends to integrate Afterpay into its commerce platform as the BNPL arm, with each of the arms contributing greater consumer scale. Square is expected to boost Afterpay’s growth through access to millions of sellers in the US and beyond. Into the United Kingdom, Ireland, Canada and Japan. While only available in the US and the UK at present, Cash App is expected to launch in Australia in coming years.
In that context, the regulatory situation in Australia is hardly the most relevant thing.
Block’s CDIs trade on the ASX under the code SQ2, one-for-one with Block’s US shares, which currently trade on the New York Stock Exchange (NYSE) at US$65.52. US analysts have, on consensus, a very positive view of Block, Inc. – as collated by Wallmine, the analysts’ consensus 12-month price target on SQ is US$198.00. Although there are exchange-rate considerations to factor-in to the CDI price on the ASX, if SQ heads toward US$198.00, SQ2 is going to rise with it.
Block, Inc
Source: Google Finance
- EVT (EVT, $12.29)
Market capitalisation: $2 billion
12-month total return: –6.3%
3-year total return: 14.2% a year
Estimated FY24 yield: 3.5%, fully franked (grossed-up, 5%)
Analysts’ consensus target price: $17.11 (Stock Doctor/Refinitiv, six analysts), $17.90 (FN Arena, two analysts)
Hospitality company EVT Limited – formerly known as Event Hospitality & Entertainment, and before that as Amalgamated Holdings – manages a portfolio of hotels including QT, Rydges and Atura, the Thredbo ski resort in New South Wales, as well as mainstream and boutique cinemas in Australia, New Zealand and Germany, as well as the new IMAX cinema in Sydney’s Darling Harbour, which is expected to open later this year.
As a hospitality business, EVT was mauled by the COVID pandemic, but in the first half of the current financial year, it reported a rebound in profit as Australians resumed spending on travel and entertainment. The domestic-led tourism revival drove record trading across its hotels and resorts, and boosted earnings across its cinemas.
But after notching revenue of $606.8 million over the six months to December 2022 – a 58.9% rise, and only 8% below pre-COVID levels – and a near-tripling in net profit, to $96.7 million, EVT announced a fully franked interim dividend of 14 cents per share. That was the first dividend since mid-2020, as the company kept its cash to help improve liquidity as it battled the pandemic’s impact on its business.
EVT’s hotel strategy has now evolved to cover all segments of the market from luxury (QT) all the way through to budget offerings (LyLo, its “socially conscious” budget brand). The company has also introduced a new boutique accommodation concept, qtQT, on the rooftop of QT Gold Coast: six cabins, each with their own private balcony, are set within tropical surroundings, to offer guests their very own urban oasis, as part of a concept to use formerly unused space. The company has 76 hotels, with five added in the December half-year, with 11,463 rooms, spread across Australia, New Zealand, the UK and the Middle East.
The hotels business is the part of the group that analysts are keenest on. At Thredbo, even though a new business model building on summer activities such as mountain biking helped the business have an excellent June-December 2022 half-year, the skiing business is difficult to predict; and cinema box office has experienced slower growth over recent months, as consumers tighten budgets.
Although factors such as energy, wages and other inflation pressures remain a “constant focus,” EVT said at the time of the half-year result that FY23 is a “recovery year,” and was “trending well.” It has not said anything to the contrary since: analysts polled by Stock Doctor/Refinitiv expect earnings per share (EPS) growth of about 69% in FY23, slowing to about 49.9% in FY24. On that basis and backed by an expected 5% fully franked yield next financial year, analysts like EVT a lot.
EVT (EVT)
Source: Google Finance
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