From time-to-time at Switzer Super Report we like to put together lists of stocks with a price theme, such as ‘Seven under 70 cents,’ or ‘Five under 50 cents.’ It’s interesting – and enjoyable – to scour the stock market looking for value under those arbitrary share-price cut-offs, but it’s also nerve-wracking. And we’ve certainly had a few poor performers in our stock groups. Before introducing the latest group of ‘Five under 50 cents,’ let’s look at how the most recent lists have performed.
Most recently, there were the ‘Four Specs’ from October 10, 2016, with their current prices and the share price change:
Then, there were the four ‘Promising biotechs‘ from September 26, 2016:
Before that, there were the ‘Top Industrials for 2016‘ from December 14, 2015:
And the ‘Dollar Dazzlers’ from November 2, 2015:
And the ‘Five under $5’ from September 20, 2015:
So, more successes than failures: and these are only nominal gains, not annualised. The point is that in stock market investment, you’re trying to have more winners than losers, such that your average portfolio performance moves in your favour.
That said, here is our latest group, of ‘Five stocks under 50 cents’.
Ramelius Resources (RMS, 49.5 cents)
Market capitalisation: $260 million
Analysts’ consensus target price: 77 cents
Gold miner Ramelius Resources is one of the local producers enjoying the renaissance in the gold price. With gold trading at about US$1,300 an ounce and the Australian dollar fetching about 77 US cents, Ramelius and its Australian peers are looking at an Australian dollar gold price of $1,700 an ounce.
And with an all-in sustaining cost (AISC) – the total cost incurred in producing gold over the expected lifecycle of a company’s mines – running at $1,100 an ounce in September quarter, and expected to remain at that level through to the end of FY2020, Ramelius is making a very healthy margin.
The company’s flagship operation is the Mt Magnet gold project, near the town of Mt Magnet, 500 kilometres northeast of Perth in the Murchison Goldfield of Western Australia. Mt Magnet hosts a variety of operations, both open-pit and underground. In 2015, Ramelius also started producing at two high-grade mines near Leinster in WA, Kathleen Valley and Vivien.
In FY16 Ramelius’ gold production surged 28% to 110,839 ounces, and buoyant gold prices enabled it to lift revenue by 33% to $173.7 million and net profit by 71% to $27.5 million. However, Ramelius is not a dividend-payer.
This financial year, Ramelius expects record gold production of 135,000 ounces, with potential to reach up to 150,000 ounces in FY18 – and the AISC will fall as production increases. The new Milky Way deposit at Mt Magnet will boost the mine life once it comes into production this financial year, and Ramelius has also identified new prospects, Stellar West and Brown Cow, both close to Milky Way.
After raising $25 million through a share placement in July, Ramelius is cashed-up, and is debt-free, with an undrawn bank facility with CBA, and much of its production hedged (already sold) at about $1,650 an ounce to June 2018. Ramelius appears to be excellent value in the current environment for gold.
DorsaVi (DVL, 44 cents)
Market capitalisation: $66 million
Analysts’ consensus price target: 73 cents
Australian medical device company DorsaVi makes wearable sensor technology for the workplace, the clinic and elite sport. The company holds six patents for a system of sensors and movement analysis software and hardware. Its product suite includes ViSafe for workplace Occupational Health and Safety (OHS) solutions, ViMove for medical and physiotherapy clinics, and ViPerform for elite sport.
The products are approved and selling in the US, Europe and Australia. At present ViMove represents about 60% of DorsaVi’s annual income, with the balance evenly split between ViSafe and ViPerform.
The ViMove system uses a wireless sensor technology system that measures movement and muscle activity in the lower back, spine and pelvis – wearable motion and muscle activity sensors record data at 200 frames per second and provide new insights for clinicians and their patients.
ViSafe also uses a wireless sensor technology system that tracks and measures how people move in work situations, in real-time, so companies can assess the way their employees move, so as to create a safer work environment. The ViSafe system consists of wearable motion sensors, software, and sophisticated algorithms that provide an objective, quantitative overview of workplace physical activity. DorsaVi analyses the data and video footage to pinpoint risky areas of repetitive movement, techniques and the demands of certain equipment, which can lead to injuries, and suggests ergonomic and equipment improvements.
ViPerform tracks how elite athletes move in real time, to give trainers and coaches better data to allow then to evaluate, screen and assess the athletes. The data helps the sporting organisation’s staff to accurately assess and prevent risk of injury, guide training programs, help determine when players are safe to return to play, and help the athletes select the optimal footwear and equipment for their individual movement style. The system is used in the AFL, NRL, NBA and NFL in the US, and major soccer teams in the UK.
In FY16 DorsaVi lifted revenue across all three main markets – the United States, United Kingdom and Australia – with total revenue for the year rising 75%, to $3.24 million. At this stage analysts expect DorsaVi to break through for profitability in FY18, but no dividend is expected. In the meantime, their consensus target price implies 66% upside.
Praemium (PPS, 45.7 cents)
Market capitalisation: $181 million
Analysts’ consensus price target: 60.5 cents
Investment platform provider Praemium specialises in software and systems for financial advisory businesses, including portfolio management and reporting, client relationship management (CRM) and separately managed accounts (SMA) systems, investment management services and V-Wrap, a cloud-based portfolio administration system. All of its products are powered by proprietary technology. The business model is based on selling the investment platform and the portfolio administration and reporting software (V-Wrap) and the financial planning and practice management software (WealthCraft) as a cloud-based Software-as-a-Service model.
Praemium operates in two main markets, Australia and the UK, but it also has a toehold in Asia. It has eight offices globally, with more than 190 staff and more than 700 clients, covering $80 billion in assets
In FY16 Praemium lifted revenue by 23%, to $30.1 million, boosted underlying profit by 72%, to 3.8 million, and reported a net profit of $779,000, up from a net loss of $2.1 million in FY15. The Australian business recorded underlying earnings of $9.4 million, while the UK business showed a loss of $3.4 million: however, UK revenue surged 76%, dwarfing the 10% rise in Australian revenue. The UK division is expected to break through into profitability soon.
In a product sense the main growth driver for Praemium is its software for separately managed accounts (SMAs). An SMA is a portfolio of securities managed by an investment manager on behalf of an individual investor, who owns the individual stocks in their own name. The beauty of this arrangement is that the SMA portfolio is managed with each client’s individual tax circumstances in mind.
Praemium says the SMA is disrupting the investment platform market: SMA funds on the platform grew by 25% in FY16 to a record $4.8 billion. The Morgan Stanley Asia Insight Report (2016) estimated that the SMA market will grow from $18 billion today to $60 billion by 2020, and that ultimately, SMAs could deliver 75% of the financial advice industry’s net flows. Praemium is the SMA market leader, with 17% market share. Its global SMA revenue jumped by 43% in FY16.
Analysts’ consensus forecasts are very positive for Praemium. Analysts expect earnings per share (EPS) to more than triple this year, from 0.38 cents a share in FY16 to 1.2 cents, and to rise a further 58% in FY18, to 1.9 cents. However, analysts don’t see dividends over this period.
The shares have risen strongly from 28 cents at the start of the year to 45.7 cents, but the analysts that follow Praemium reckon there are more gains to come: their consensus sees the stock at 60.5 cents, or 32% higher than now.
Updater Inc. (UPD, 48.5 cents)
Market capitalisation: $237 million
Analysts’ consensus price target: 97 cents
Updater is a rare beast, a company listed on the Australian Securities Exchange that has no operations in Australia, and no plans to establish any. Updater has developed an online technology platform designed to simplify the process of moving house. The company’s platform is only offered in the US moving market, where 45 million Americans – or 17 million households – move house every year.
Updater is designed to provide a seamless one-stop moving experience, offering services that include updating customer accounts, connecting utilities, forwarding mail, notifying all of the businesses and organisations with which the householders have relationships, and discounts on products and services the mover may need.
Updater is getting good traction in the market. When the company listed on the ASX in December 2015 – after raising A$22 million – it had an estimated 2.2% market share of the US moving market. Last month, Updater announced that its estimated market share for the September 2016 quarter was more than 6% of all household moves in the US.
Market share is the major focus for Updater, with the company saying that it eventually will drive profitability. The company is not yet profitable, but in the financial year 2015 (Updater uses the calendar year) revenue rose by 67% and for the half-year ended June 2016, revenue was up 68%. Profitability is not expected this year or next, but that does not seem to worry investors: in September, Updater raised a further A$30 million to fund growth.
Updater has already partnered with more than 500 US real estate companies, who offer moving customers access to Updater under their own brand. As Updater’s market share grows, the company plans to start selling products to the US businesses spending billions of dollars trying to reach the home moving audience, enabling these businesses to communicate with potential customers in a contextual and personalised way.
The company listed on the ASX because Australian investors were among the first to seed the private company, and because Updater wanted to build its market capitalisation before listing on the NASDAQ stock market in the US. Australian investors in the float bought CHESS Depositary Instruments (CDIs) at 20 cents, with 25 CDIs equating to an Updater share. Updater got off to a great start on the ASX in December 2015, with the CDIs rising 90% from the 20-cent issue price. The peak price has been 61 cents in October, but Updater has come back to 48.5 cents. On the analysts’ consensus target price of 97 cents, that is still cheap.
Salmat (SLM, 46.5 cents)
Market capitalisation: $87 million
Analysts’ consensus price target: 58.9 cents
Marketing company Salmat is on the long way back from being, at one point last decade, almost a billion-dollar company on the ASX. But Salmat hit the skids after a string of problems, including the sale of its BPO business, which printed and distributed bills and statements for banks, utility providers and telecommunications companies, to Fuji Xerox in 2012 for $375 million. The company wanted to take a new direction, but BPO generated 40% of earnings. Then Salmat’s door-to-door sales business was hit by regulatory pressure, which saw its energy retailer customers pull out of the door-to-door business. FY2014 net profit slumped 98%, from $40.1 million to just $261,000. By June 2015 that had become a net loss of $98 million, and the company failed to pay a dividend.
Salmat initiated a transformation program in January 2015 aimed at simplifying its operations, reducing and restructuring costs in a bid to grow in a more targeted and sustainable manner. Any business that did not make money was ditched, and where possible, services were moved to the cloud. The company was still in loss for year ended June 30 2016, but the loss had been trimmed to just $6 million.
Salmat’s catalogue business has been very resilient and continues to generate revenue, with its major clients being Woolworths, Coles and Super Retail Group. The contact centre business generated 43% of FY16 revenue and 19% of underlying earnings. Salmat is focusing its digital marketing services business on mid-tier companies that are unlikely to have digital capabilities in-house. It has also acquired a managed services business called MicroSourcing.
Analysts expect Salmat to burst back into profitability this year, making 4 cents a share in FY 17 (compared to a 4.1 cent loss in FY16), and lifting EPS to 4.9 cents a share in FY18. On the back of this, dividends should recommence for the first time since 2014, with 0.5 cents a share expected this year and 1.7 cents in FY18. At 46.5 cents, the expected FY18 dividend would represent a yield of 3.7%. As Salmat stems the losses, the analysts’ consensus price target at 58.9 cents, sits 26.7% higher than the current share price.
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