It’s time for another group of prospects under 50 cents. While 50 cents is an arbitrary price-level on the Australian Securities Exchange (ASX) – here is a group of four promising stocks that all come in under that level, with two of them fully-franked dividend payers.
The caveat here is that shares that look attractive at such levels have often come down from much higher levels – leaving, of course, disgruntled shareholders. Using the stock market well often comes down to turning these kinds of situations to your advantage because situations can change.
1. Amaysim (AYS, 38 cents)
Market capitalisation: $112 million
Estimated FY20 yield: no dividend expected
Estimated FY20 P/E ratio: 8.1 times earnings
Analysts’ consensus valuation: 56.5 cents (Thomson Reuters), 62 cents (FN Arena)
Amaysim (AYS) has disappointed investors for a long time – but that’s why you now have the chance to pick it up for what could turn out to be bargain levels, below 50 cents. For much of its life since being launched in 2010, Amaysim has been a “virtual” mobile phone network operator – one that does not own the wireless network infrastructure over which it offers services, but buys wholesale access and then structures plans for retail customers. Along the way, Amaysim expanded into broadband, and selling mobile devices, and then moved into offering electricity and gas plans on its platform after buying Click Energy in April 2017. In FY19, Amaysim effectively “re-set” its business, closing its mobile device store and selling out of the broadband business, to focus on two core businesses, mobile and energy.
Amaysim believes it can disrupt the energy market by turning it into a subscription-based market on the same principle as its mobile phone subscription service: the subscription energy product will be launched early in 2020. Customers will choose a small, medium or large subscription, for which they receive a certain quantity of energy every month: an app will show them how their consumption is tracking against their subscription, and if they go over, they will be charged a top-up rate. If customers don’t use their allotted quantity in a month, they simply roll over to the next month. The company says this is a more cost-effective and convenient way to consume energy.
Earnings slumped in FY19 – from 8.75 cents a share in FY18 to a loss of 2.8 cents – as the company cleared the decks for its re-set, and analysts expect earnings per share (EPS) trajectory to return to the positive over this financial year and FY21, when Thomson Reuters’ analyst consensus looks for EPS of 5.9 cents, with a dividend of 1.2 cents – the first since 2017. FN Arena’s consensus is a bit more optimistic, looking for EPS of 4.8 cents and a dividend of 2.4 cents in FY21. That implies a yield range of 3.1%–6.3% for FY21.
2. Adacel Technologies (ADA, 45.5 cents)
Market capitalisation: $35 million
Estimated FY20 yield: 4.4%, unfranked
Estimated FY20 P/E ratio: 9.5 times earnings
Analysts’ consensus valuation: 77.5 cents (Thomson Reuters)
Air traffic management and control systems specialist Adacel Technologies (ADA) is another stock to have thoroughly chastened investors, with the share price down from almost $3.00 in late 2017 to below 50 cents. The company had a very poor FY19, slipping from a net profit of $7.7 million in FY18 to a loss of $2.7 million, as new system installations in Guadeloupe, Fiji and Portugal encountered difficulties, the company lost a significant contract with the US Federal Aviation Administration (FAA) and forecast orders did not materialise. Revenue fell by almost 19%, to $41.3 million.
Adacel’s products and services play a significant role in the global market of providing crucial software used in air traffic management (ATM) systems and critical tools used in the training of air traffic controllers, for both civil and military organisations. One of the major players in the global radar simulator market. Adacel produces state-of-the-art simulation and training solutions, advanced speech recognition applications and operational ATM systems.
It was not all bad news in FY19. In February Adacel announced a contract renewal with the United States Air Force (USAF), under which it will continue providing services to support the USAF’s ATC Tower Simulator System program. Adacel has delivered more than 100 simulators since it won the original contract in 2002: with the program now in a sustainment phase, the terms of the new contract state that Adacel will retain responsibility for the maintenance, support, and modernisation of the Tower Simulator System units at USAF installations all over the world.
Adacel has promised shareholders that things will improve – it projects a pre-tax profit of $4.1 million–$4.6 million for FY20. While that is still well short of the $10.2 million it earned in FY18, the company believes that will come from a more economically rational product and service offering.
Despite the earnings slump, Adacel still paid a 1-cent dividend in FY19, and as earnings start to recover in FY20 and FY21, analysts see that dividend rising to 2 cents and 3 cents respectively, equating to (unfranked) yields of 4.4% and 6.6%, with scope seen for share price recovery.
3. Aurelia Metals (AMI, 44.5 cents)
Market capitalisation: $389 million
Estimated FY20 yield: 2.3%, fully franked
Estimated FY20 P/E ratio: 8.1 times earnings
Analysts’ consensus valuation: 72 cents (Thomson Reuters), 70 cents (FN Arena)
Base metal and gold miner Aurelia Metals (AMI) has halved in value since March – but appears to have found a base from which to rise again. Aurelia developed the Hera gold/zinc/lead mine in New South Wales in 2015, but found the transition from junior explorer to miner a tough one. Construction over-runs, problems with the ore body and too much debt ultimately led to a major recapitalisation and a share price of 1 cent.
But to its credit, Aurelia pulled off a transformational deal in 2018 when it bought the nearby Peak gold/copper mine from Canadian miner New Gold. The deal included a large processing plant and an underground mining fleet with a replacement value of close to $400 million.
Aurelia quickly found the very high-grade Chronos gold ore body, which enabled it to pay off the $45 million in debt used for the Peak purchase in just three months, and since then the operation has generated cash: at the end of the September 2019 quarter, Aurelia was sitting on $93 million of cash, and no debt. The company has two major processing plants with a combined capacity of about 1.3million tonnes of ore a year, it has a high-margin gold and base metals (copper, lead and zinc) production profile, and recent drilling results show huge resource upside, both near Aurelia’s mining operations and in the Cobar Basin region.
Hera is showing an all-in sustaining cost (AISC) of production of A$1,149 an ounce, while at Peak the AISC is A$764 an ounce, giving the company, for the quarter, an AISC of A$988 an ounce: at the moment, the A$ gold price is above $2,200. Taking all four of its metals together, Aurelia says its AISC in FY19 was A$1,045 an ounce, which gave it an AISC margin of A$703 an ounce. The company projects an AISC range for FY20 of A$1,050–$1,250 an ounce
(AISC is a broad definition of a miner’s total cost of staying in business – not just the cash costs of the mining operation, but all of the add-ons, such as financing costs, royalty expenses and general corporate and administration costs. It is measured in dollars per ounce, and when subtracted from the average realised selling cost per ounce achieved in a given period, gives you the AISC margin per ounce – the crucial source of profitability.)
The cash flow from this margin enabled Aurelia to pay a maiden fully franked dividend of 2 cents a share in FY19. On Thomson Reuters’ collation, analysts expect 2.25 cents in FY20, rising to 4.49 cents in FY21.
4. SRG (SRG, 40 cents)
Market capitalisation: $176 million
Estimated FY20 yield: 4.8%, fully franked
Estimated FY20 P/E ratio: 13.8 times earnings
Analysts’ consensus valuation: 50 cents
Engineering-driven specialist construction, maintenance and mining services group SRG Global (SRG) – formed from the 2018 merger of SRG and Global Construction Services – is one of the market’s best potential exposures to the Australian infrastructure pipeline, which is expected to hit peak activity in the middle of the decade.
SRG reported for FY19 on the basis of a 12-month contribution from SRG Limited but only a 10- month contribution from Global Construction Services Limited, and the company said the result was hit by challenging market conditions, delayed awards of targeted large- scale construction projects and the associated carrying costs to maintain engineering and delivery capability. Revenue was $506.4 million and adjusted earnings before tax, depreciation and amortisation (EBITDA) was $32 million. A full-year dividend of 1.5 cents was paid. Earnings per share (EPS) was 4.3 cents.
The company said it had record work-in-hand of $708 million, a rise of 36% since December 18. Importantly, recurring revenue now represents about 70% of work-in-hand. SRG says its “opportunity pipeline” is worth $5.2 billion, across positive growth sectors, and that it is “well positioned for sustainable growth in FY20 and beyond.” The balance sheet is healthy, with cash in hand of $58.3 million and net cash of $12.2 million.
While analysts see steady growth in revenue in FY20 and FY21, earnings are expected to fall in FY20, before resuming growth in FY21 when Australian infrastructure spending will be starting to get moving. The fully franked dividend is expected to rise to 1.9 cents this year and to 2.1 cents in FY21, giving an attractive yield situation, with analysts also foreshadowing robust share price appreciation.
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