A company’s share price does not mean much in and of itself – only when compared against metrics such as its earnings, dividend, net asset value, or the most important number of all, what you paid for it.
But here is a look at five stocks valued at around the $1 mark that have good prospects.
Peet & Co. Limited (PPC, $1.02)
120-year-old property developer Peet & Co. had a strong FY15 and is off and running in FY16. The company’s net profit rose by 22% in FY15, to $38.5 million, on the back of revenue that also rose by 22%, to $360.9 million. Peet lifted its fully franked dividend by one cent (28.6%t) to 4.5 cents.
Peet gives investors exposure to ownership and development of parcels of land, earmarked for future residential development. It manages and markets high-quality residential projects, often on behalf of syndicate, joint venture or co-investment partners. Peet has projects in every mainland state and territory, with a land bank of about 47,000 potential residential lots – with an on-completion value of more than $11.3 billion, according to the company – well-balanced between east and west coast markets, with the highest proportion of managed projects in Queensland and Western Australia. Peet expects to have more than 80% of its land bank in various stages of development by the end of FY17.
Capitalised at $500 million, Peet has a strong balance sheet, having entered FY16 with net cash and debt headroom of more than $127 million, and with a debt/equity ratio of 23.8%. Importantly, the company has no exposure to the heady Sydney apartment market. According to FN Arena, the analysts that follow PPC have a consensus target price on the stock of $1.48. At the current price PPC is expected to pay a FY16 dividend yield of 4.7%, rising to 5.1% for FY17.
Source: Yahoo!7 Finance, 2 November 2015
Mayne Pharma (MYX, $1.025)
Specialist pharmaceutical company Mayne Pharma transformed itself in FY15, getting out of long-term distribution contracts in the US that were crimping its revenue and profit, and over which it had no control. In February this year, Mayne Pharma struck a deal to buy the Doryx acne treatment brand and assets in the US from Actavis for $US50 million, as part of a broader push into the market that involved setting up a new US division. It followed the Doryx deal by ending its distribution agreement with Mylan for its Oxycodone products – which have a $US1 billion market – also taking control of the marketing under its own label.
The deals diversified Mayne’s US business into an integrated pharmaceutical business, with operations in generics, contract pharmaceutical development services and now specialty brands. The fourth business is Mayne Pharma International, which develops, manufactures, markets and distributes branded and generic products globally.
Mayne says it now has more than 30 pipeline products in the US, and more than 20 in Australia. It markets 30 different molecules globally – across 100 different presentations – and sells products in 10 countries. Mayne also serves 125 contract customers. The company is valued on the stock market of $823 million.
On FN Arena’s collation, the analysts’ consensus expectation for Mayne sees earnings per share (EPS) almost quadrupling this financial year – from 1.2 cents to 4.2 cents – and following that up with almost 50 per cent growth in FY17, when the dividend is expected to be reinstated. Analysts have a consensus share price target of $1.32 on the stock.
Source: Yahoo!7 Finance, 2 November 2015
Whitehaven Coal (WHC, $1.02)
While some people undoubtedly believe that coal is a business headed for the scrapheap, Whitehaven Coal has not received the memo. In fact, the company’s combative chief executive Paul Flynn makes a very forceful argument for the business to be on the verge of major growth, having recently brought its giant Maules Creek mine in New South Wales online.
It comes down to the product. At the moment, Whitehaven’s export business is 14% metallurgical (steel-making) coal and 86 per cent thermal energy coal. That mix will change as the metallurgical coal at Maules Creek starts to be accessed. But Whitehaven produces the high-energy, low-ash, low-sulphur coal that suits the next-generation power plants that are being built across Asia – where new “ultra-supercritical” technology enables electricity to be generated at much higher levels of carbon efficiency, and lower emissions, than the present. This technology wave is booming in Whitehaven’s biggest customers, Japan, Korea and Taiwan, which collectively take the vast majority of the miner’s output.
Flynn argues that Whitehaven’s coal quality actually underpins the emissions reductions commitments that its major trading partners have given, because it burns more cleanly and it gives off less CO2 than coal from other sources. Japan in particular is financing a massive amount of ultra-supercritical coal-fired power capacity in Asia, as a way to earn carbon credits (because the new capacity replaces dirtier generation capacity.) And Asia needs colossal amounts of power – Flynn argues that Whitehaven is in the sweet spot to supply a major source of it.
That may not be how everyone sees coal’s future but the analysts who follow the $1.05 billion stock appear to share Flynn’s view. On FN Arena’s collation, they have a consensus price target of $1.55 on WHC. There is an (unfranked) dividend yield of 0.9% expected in FY16, rising to 1% in FY17, but that can be considered an after-thought.
Source: Yahoo!7 Finance, 2 November 2015
Transfield Services (TSE, $1.005)
Transfield Services – soon to be renamed Broadspectrum – is another company where investment might seem counter-intuitive: Transfield is most often seen in the media these days as the operator of the Department of Immigration’s offshore detention centres on Nauru and Manus Island, which attract a lot of publicity, none of it good.
That is what is forcing the name change: the privately-held parent company Transfield Holdings, which is owned by the sons of founder Franco Belgiorno-Nettis, wants to distance itself from Transfield Services.
TSE disputes the social activism campaign against its Nauru and Manus Island operations, saying that “values drive what we do,” and that the “care and wellbeing of asylum-seekers defines our services.” Away from the headlines, Transfield Services is a diversified provider of essential services, operating in public transport, health, education, social infrastructure, project management, services to water, utilities, telecommunications (including the NBN), and oil and gas. One example of the company’s work is that it provides more than three million meals a year to Australia’s armed forces.
Infrastructure maintenance generates 44% of revenue, with defence, social and property (including the Immigration work) generating 24%. One-quarter of revenue comes from North America. The government/private sector split is 54:46.
TSE has $9.8 billion in contracted revenue, with $2.5 billion to be delivered in FY16. The company says it has a pipeline of opportunities worth more than $25 billion, including the $9.8 billion of work-in-hand and $3.6 billion of contracts either short-listed or preferred. There is a significant weighting towards government contracts.
According to FN Arena, analysts who follow TSE have a consensus target price of $1.38 on the stock, with an (unfranked) dividend yield of 6.2% expected in FY16, rising to 7.2 per cent in FY17.
Source: Yahoo!7 Finance, 2 November 2015
Grays eCommerce (GEG, $1.01)
Lastly, for a more speculative situation, online retail and auction company Grays eCommerce is an interesting proposition. Grays is primarily a business-to-business (B2B) sales channel, although Grays Wine is the third largest online wine site in Australia. Grays is a 100-year-old auction business that moved online in 2000. The company sells consumer, industrial and commercial goods, direct from manufacturers and distributors, online, giving vendors an efficient alternative sales channel for disposing of excess stock or surplus assets, and offering customers value and convenience.
Grays offers project management services that cover the end of project activity, and the valuing and selling the plant and equipment. For example, it managed the closure of Mitsubishi’s car plant in Adelaide, selling $13.3 million worth of plant and equipment.
Grays sells more than 120,000 items every month to both consumers and businesses. The major businesses are GraysOnline, Grays Mining and Grays Asset Services businesses. Grays’ clients include major corporations, insolvency practitioners, financiers and banks.
Before abnormal items, GEG returned to profitability in FY15, generating earnings per share (EPS) of 6.9 cents, but reporting a net loss of $1.2 million. Revenue rose by 31 per cent, to $192.9 million.
Grays listed on the ASX in November 2014, and is capitalised at $94 million. On Thomson Reuters’ numbers, the analysts’ consensus price target on the stock is $1.40. No earnings forecasts are available.
Source: Yahoo!7 Finance, 2 November 2015
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