Four regional gems for your portfolio

Australia being a highly urbanised nation, it will come as no surprise that the nation’s listed companies are also predominantly city slickers, with 96% of ASX-listed companies having their headquarters in the capital cities, according to a 2013 study by Dr Thomas Sigler of the University of Queensland.

But in that 4% of companies that have their corporate headquarters outside a capital city, there are some interesting situations – and the list is actually growing. The most recent addition was in August, when Launceston-based organic baby food company Bellamy’s Australia (BAL) made a solid debut on the ASX, turning its $1.00 issue price into an opening trade of $1.31. Bellamy’s has subsequently pushed that premium out to $1.395, valuing it at $266 million.

Here are some of the ASX’s best-performed regional gems.

Bendigo & Adelaide Bank (BEN, market cap. $5.5 billion)

Although it is no longer a wholly regional bank – having rolled out its “community bank” concept into capital-city areas – Bendigo & Adelaide Bank (BEN) still has its headquarters in the central Victorian city of Bendigo. The homespun bank is clearly doing something right, with FY14 revenue up 6.3% to $1.43 billion, cash earnings up 10% to $382.3 million, new loan approvals up 16%, and the net interest margin improving by 5 basis points, to 2.24%.

Bendigo & Adelaide Bank (BEN)

Source: Yahoo!7 Finance, 7 October 2014

The full-year dividend was boosted by 3 cents, to 64 cents a share. Bad and doubtful debts were up 17.2%, but that was a better than expected effort.

It was a solid result, but what Bendigo shareholders have come to expect. The bank is showing total return of 12.8% a year over five years, 21.1% a year over three years, and 27.2% in the last 12 months.

At a share price of $12.10, an expected FY15 dividend of 67 cents a share translates to a fully franked yield of 5.5%, or 5.9% on the expected FY16 dividend of 71 cents. Bendigo is 2% short of its consensus price target of $12.35.

NIB Holdings (NHF, market cap. $1.25 billion)

Workers at BHP Steelworks, Mayfield, established the Newcastle Industrial Benefits (NIB) Hospital Fund in 1952. Australia’s sixth largest health fund, Newcastle-based NIB was the first (and so far only) Australian health fund to demutualise and list on the ASX, which it did in November 2007.

NIB has been an outstanding performer on the stock market. Its five-year total return (capital gain plus dividends) figure is 29% a year. Over three years, it has returned 35.9% a year, while over the last 12 months it has delivered 37.1%.

NIB Holdings (NHF)

Source: Yahoo!7 Finance, 7 October 2014

About 280,000 of NIB’s 330,000 policyholders became shareholders. Institutions got the shares at 88.5 cents following a book-build: the shares opened at $1.14. The stock now trades at $2.85.

For the financial year 2013-14, NIB lifted earnings per share (EPS) by 3.9% to 15.9 cents, and its dividend by 10%, to 11 cents (plus a 9-cent special dividend). Revenue rose by 15% to $1.53 billion, while claims were up 12% to $1.2 billion.

While NIB is expected by analysts to struggle to boost EPS in 2014-15, the dividend is forecast to increase by a further cent, to 12 cents, putting NIB on a fully franked yield of 4.3%. The analysts’ consensus price target for NIB, at $3.21, is about 12.6% higher than the current price.

Retail Food Group (RFG, market cap. $739 million)

Gold Coast-based Retail Food Group (RFG) is the master franchisor and intellectual property owner of the Donut King, Michel’s Patisserie, Brumby’s Bakery, Esquires Coffee, Pizza Capers Gourmet Kitchen, Crust Gourmet Pizza Bars, The Coffee Guy and bb’s cafe franchise chains.

Retail Food Group (RFG)

Source: Yahoo!7 Finance, 7 October 2014

In August the company added the 236-outlet Cafe2U mobile coffee franchise and the 70-restaurant La Porchetta chain to its stable. RFG’s restaurants serve more than 10 million pizzas a year. The company also roasts more than 1.42 million kilograms of coffee annually through the Evolution Coffee Roasters Group, Caffe Coffee and Barista’s Choice coffee brands.

Company outlets are spread across Australia, New Zealand, China, Papua New Guinea, Saudi Arabia, Indonesia, Singapore and the USA.

Established in 1989 and listed in 2006, RFG has pumped along beautifully on the stock market. Its five-year total return figure is 21.4% a year. Over three years, it has returned 38.2% a year, while over the last 12 months it has delivered 23.5%.

For the year ended 30 June 2014, RFG lifted revenue by 10.1%, to $128.8 million, and net profit by 15%, to $36.9 million. However, EPS was up just 2%, to 26.5 cents, while the full-year dividend was boosted by 2.25 cents or 11.4%, to 22 cents.

Looking forward to FY15, the analysts’ consensus forecast expects RFG to lift EPS by 10%, to 29.2 cents, and the dividend by two cents, to 24 cents. That would price RFG on a fully franked yield of 4.7%, but the analysts’ consensus price target sees RFG over-valued for now, at $4.70 versus the current share price of $5.13.

Webster (WBA, market cap. $159 million)

Agribusiness outfit Webster (WBA) is headquartered well off the beaten track, in the tiny north Tasmanian town of Forth. From there it operates two businesses, Walnuts Australia and Field Fresh Tasmania, which makes it the southern hemisphere’s largest producer of walnuts, and Australia’s largest onion grower and exporter.

Webster (WBA)

Source: Yahoo!7 Finance, 7 October 2014

Webster is a counter-seasonal exporter, able to offer fresh walnuts and onions to its markets in the opposite six months to the northern hemisphere crops. As such, Webster exports its onions to 16 countries worldwide, and its walnuts to eight countries.

Almost 80% of walnut sales are to overseas countries, led by Italy (34%), China (22%) and Hong Kong (10%), while onion sales are almost 90% offshore, with Germany (51%) and Japan (16%) the major markets.

For FY14, despite the currency headwinds, Webster delivered revenue of $65.7 million, up 6.3%, and net profit of $8.3 million, up 19%. The full-year dividend of 3.5 cents was an improvement of one cent, or 40%, on the 2.5 cents paid in FY13.

Webster has been a splendid investment in recent years, generating five-year total return of 20.3% a year, three-year return of 50.4% a year, and 44.4% over the past 12 months. It’s trading at $1.15, but the analysts who follow it have a consensus price target on the stock of $1.43. Volume is very low in Webster, and it is difficult to buy decent licks of stock.

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.