Five stocks under 50 cents

Financial journalist
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Key points
  • E&A is a quiet achiever in the resources industry which has met guidance, but seen its share price come off
  • eServGlobal is a global leader in its field of ‘mobile money’ solutions and has entered a JV with Mastercard.
  • Real estate investment trust Ingenia announced an institutional placement to raise $45 million and an entitlement offer to raise $44 million.

When stocks are cheap, it’s time to go bargain hunting. Here are five industrial stocks under 50 cents to put on your watch list.

E&A Limited (EAL): 48.5 cents, market cap. $62 million.

Like all service providers to the resources industry, E&A Limited (EAL) has seen its share price come off this year, but it is a quiet achiever.

E&A Limited (EAL)

Source: Yahoo!7 Finance, 13 October 2014

EAL is a South Australian-based investment company that operates eight wholly owned subsidiaries across the mining, resources, defence, water, energy and financial services industries. These businesses operate in the sectors of heavy mechanical and electrical engineering; water and fluid solutions; maintenance engineering and plant construction; and investment and advisory.

About 53% of revenue comes from the oil and gas industry, followed by mining and quarrying (21%), infrastructure (17%), renewable energy (4%), defence (3%) and financial Services (2%). Queensland LNG and CSG (coal seam gas) is emerging as a major growth area for the company.

For the first half of FY14, EAL met its guidance for a record half-year result, with revenue up 19.8%, to $116.8 million, and net profit up 7.3% to $4.4 million. For the full-year, revenue surged 17%, to $234.6 million, while net profit at $7.7 million, was virtually unchanged. The fully franked full-year dividend of 5.5 cents was an increase of 10% on last year.

At 48.5 cents, EAL trades on an historic price/earnings (P/E) ratio of 7.5 times and a historic fully franked yield of 11.3%. But the stock is lightly traded.

EServGlobal (ESV) 49 cents, market cap. $124 million

eServGlobal is one of those rare Australian companies that is a global leader in its field – ‘mobile money’ solutions. ESV’s mobile payment technology, HomeSend, is an international remittance system that enables people to transfer money via their mobile phones.

EServGlobal (ESV)

Source: Yahoo!7 Finance, 13 October 2014

Earlier this year, HomeSend got a massive tick of approval when card giant Mastercard Inc. entered a joint venture with ESV and its original partner Belgacom to build HomeSend into a global payment hub. Mastercard holds the majority stake (55%) of the joint venture, while eServGlobal owns 35% and Belgacom 10%. The joint venture will enable cross-border remittances and domestic person-to-person transfers between mobile money accounts, payment cards, bank accounts or cash outlets, to or from anywhere in the world.

ESV says it is poised to attack two different – but related – markets, with enormous potential. The first is the US$654 billion that migrants working in first-world economies send home to developing countries – $436 billion through official channels, and $218 billion through unofficial channels. ESV expects HomeSend to be the largest processor of digital remittances globally by 2018. The second market is the 2.5-billion working-age adults in the world, who are unbanked.

For the half-year ended 30 April 2014, ESV lifted revenue by 24%, to $16.9 million, while the net profit of $20.5 million represented a $23 million turnaround from the $2.5 million loss a year earlier. Recurring revenue was 45% of the total. The full-year result – due out in November – will need to cement ESV as a profit-maker.

Ingenia Communities (INA): 45 cents, market cap. $305 million

Real estate investment trust Ingenia Communities is a specialist retirement living REIT that is well-placed to benefit from Australia’s ageing population. Formerly known as the ING Real Estate Community Living Group, Ingenia owns, manages and develops a diversified portfolio of seniors living communities across Australia. Its real estate assets are valued at $355 million and include lifestyle parks, rental villages and deferred management fee villages.

Ingenia Communities (INA)

Source: Yahoo!7 Finance, 13 October 2014

The rental villages are operated under the Garden Villages brand; the deferred management fee (DMF) villages are branded Settlers Lifestyle: while the Active Lifestyle Estates brand is the group’s manufactured home estates (MHEs) portfolio. The MHEs are at the ‘affordable accommodation’ end of the retirement living market: Ingenia buys caravan parks and tourist villages in areas with a large and growing over-50s population, and places manufactured homes on the sites.

For the year to 30 June 2014, Ingenia lifted revenue by 60% to $45.8 million, with underlying profit up 97%, to $11.6 million. (On a ‘continuing operations’ basis, underlying profit more than tripled.) Net profit was $11.5 million, compared to a loss of $10.3 million in FY13, which was caused by a one-off $15.6 million write-down of discontinued operations. The full-year distribution was 1.15 cents, up 15%.

Last month, Ingenia announced an institutional placement to raise $45 million and an entitlement offer to raise $44 million, to buy three Lifestyle Parks initially, and assess a further pipeline of possible acquisitions.

Laserbond Limited (LBL), 11.5 cents, market cap. $10 million

Laserbond is a unique company on the stock exchange. It is a surface engineer, using its proprietary technologies to extend the life of industrial components so that they do not need to be replaced. Laserbond says it can extend machinery life by four to five times its original service life on average, at a fraction of the cost of purchasing new equipment.

Laserbond Limited (LBL)

Source: Yahoo!7 Finance, 13 October 2014

Where this business becomes highly relevant is that most of the industries that use Laserbond are facing huge pressure from increasing costs. Laserbond’s customers come mostly from the mining, metal refining and smelting, power generation, road and rail transport and oil and gas drilling and exploration sectors. The company re-surfaces their equipment or surface-engineers new components and replacement parts to extend their service life. It either works on the parts at its Sydney and Adelaide workshops or sends a team to the customer’s site.

Laserbond reported a strong result for the year ended 30 June 2014, with revenue of $10.9 million – down 19% – but a net profit of $638,149, compared to a net loss of $4.3 million in FY13. Earnings per share (EPS) were 0.73 cents, compared to –5.1 cents in FY13. The company paid a fully franked dividend for FY14 of 0.4 cents a share. The company has $2.6 million of cash on the balance sheet and very little debt.

It is a really promising little stock – but the big problem is that it is tiny, and very illiquid.

Smartpay Limited (SMP): 23 cents, market. cap. $40 million

New Zealand-based payment solutions provider Smartpay Limited (SMP) is front-and-centre of the move to contact-less payment. Smartpay supplies countertop broadband and dial-up EFTPOS terminals, and mobile terminals, as well as the new contactless terminals – both countertop and mobile (WiFi and Bluetooth) – that handle transactions on PayWave (VISA) or PayPass (MasterCard) technology.

Smartpay Limited (SMP)

Smartpay has more than 45,000 EFTPOS terminals under rental contract in New Zealand and Australia: Smartpay provides the terminals, service and support to merchants in return for a monthly fee.

For the year ended 31 March 2014, Smartpay lifted revenue by 37% to NZ$22.9 million, while its full-year net profit of NZ$1.7 million was a $6.7 million turnaround on the loss of NZ$5 million the year before. The rebound would have been even better if it were not for a $1 million negative currency adjustment.

Smartpay’s move into the Australian market is the potential game-changer. It is early days, but given the size of the market, and the very few direct competitors, Australia is the big growth opportunity. Smartpay is doing some promising things, but it is not yet a dividend payer.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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