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In July, we took a look at five promising, trading under the arbitrary share price cut-off of 50 cents. Here is an update on their progress:
· Silver Lake Resources (SLR, 47 cents): Now 45 cents, down 4.4%
· MainstreamBPO (MAI, 48 cents): Now 57 cents, up 18.7%
· Smart Parking (SPZ, 27 cents): Now 26 cents, down 3.7%
· Bluglass (BLG, 27 cents): Now 24.5 cents, down 9.2%
· LBT Innovations (LBT, 25.5 cents): Now 30 cents, up 17.6%
· Average gain: 3.8%
This time, we’ve lifted the price cut-off – here are five promising buys trading at under $1.
· PMP Limited (PMP, 75 cents)
· Market capitalisation: $382 million
· Five-year total return: 22.3% a year
· FY18 consensus forecast yield: 4.3%, unfranked
· Analysts’ consensus target price: $1.13
Printer and printing services group PMP is on the long way back from near-collapse: back in 2011 PMP carried net debt of about $150 million and the business was almost under. The shares had slid all the way from $4.47 in October 1993 to 15.4 cents in December 2012 – a slow decline of 96.6%. But a series of tough decisions and business exits gradually turned the company around.
In February, PMP merged with rival print and digital services provider IPMG, which includes the core printing operations of Hannan Print, Offset Alpine Printing and Inprint. PMP is now Australasia’s largest printer and distributor of catalogues, magazines and marketing materials, about twice the size (by revenue) of its nearest rival.
The recent FY17 result – a net loss (before significant items) of $1.9 million – reflects stalled first half while waiting for Australian Competition and Consumer Commission (ACCC) approval of the merger, and the beginning of the process of integrating the companies and capturing the savings and efficiencies. For example, PMP says it achieved $40 million of annualised cost savings actioned within four months of the merger. There should be plenty more where this came from, given that PMP has enhanced its scale and capability, allowing much better capacity management and improved fleet utilisation.
Not only has the merger combined the two biggest printing companies, PMP also has a well-diversified business, which includes Gordon and Gotch – the monopoly magazine distributor on both sides of the Tasman – as well as a digital division, a letterbox distribution business and a highly profitable New Zealand printing operation.
In FY18, as more of the synergy benefits of the merger start to flow through, analysts expect a strong rebound in profitability and a resumption of dividends, albeit unfranked. Analysts see considerable scope for share price appreciation, with a consensus target price of $1.13.
· ZipMoney (ZML, 72.5 cents)
· Market capitalisation: $209 million
· Five-year total return: 7.3% a year
· FY18 consensus forecast yield: n/a
· Analysts’ consensus target price: $1.275
ZipMoney is one of the standard-bearers of the “fintech,” or financial technology, wave that is sweeping through the financial services industry. It is a point-of-sale credit provider that offers customers a “buy now, pay later” proposition with an interest-free period, creating an alternative to using a credit card. Established in June 2013, it floated on the ASX in September 2015 at 20 cents a share.
ZipMoney offers two “digital wallets,” that allow customers to buy now and pay later, online or in-store, interest-free. ZipPay handles everyday purchases, up to $1,000; ZipMoney covers larger purchases (up to $30,000). In September 2016, ZipMoney bought another fintech start-up, personal financial money management tool Pocketbook, which has picked up more than 300,000 users since it was launched commercially in October 2012. The software keeps track of categories of personal spending, and after analysing patterns of income and spending history, lets users know how much they can “safely” spend in the coming period.
Across these offerings ZML has 665,000 users, at 4,400 merchants, and has handled $300 million worth of transactions since inception. It has loan receivables of $150 million. In FY17, revenue more than quadrupled, to $17 million; transaction volume more than tripled, to $230.6 million; and customer numbers rose seven-fold, to 681,472. ZML had 63,333 customers in the first quarter; in the fourth quarter of FY17, it added 300,882.
ZipMoney has impressed some big players. In May, it secured a $200 million funding line from National Australia Bank, part of a $260 million facility that represented at the time the largest debt market deal for an Australian fintech. The company also announced an asset-backed securitisation (ABS) program for its consumer receivables. Last month it announced a $40 million deal with Westpac that saw Westpac invest $40 million upfront to explore using ZipMoney’s products and services across its payments network, and take a further $8 million worth of performance options. This was the largest direct investment in a fintech by a major bank.
ZipMoney says it’s “market opportunity” is $300 billion-plus, across the retail, health, education and travel sectors, as it builds on its prime positioning among “millennial” consumers (those born between the early 1980s and early 2000s). The company is yet to make a profit, and that is not expected to happen this year: analysts see FY19 as the breakthrough profit year. But in the meantime, analysts are impressed with the progress, and the consensus target price implies plenty of room for ZML’s share price to move.
· Apiam Animal Health (AHX, 76.5 cents)
· Market capitalisation: $77 million
· Five-year total return: n/a
· FY18 consensus forecast yield: 2.6%, fully franked
· Analysts’ consensus target price: $1.01
Bendigo-based veterinary products and services provider Apiam Animal Health listed on the ASX in December 2015, and saw its $1 shares surge as high as $1.71 by September 2016. Since then the shares have plummeted to as low as 62 cents in June this year, and back to 76.5 cents, as the company disappointed the market – particularly the full-year guidance released in May, which appeared to bring unwelcome signs of increases in Apiam’s costs. But that could work to the favour of investors looking at Apiam now.
Originally founded as a single veterinary practice 1998 by its managing director, Chris Richards, who was a pig industry specialist, Apiam has expanded into providing veterinary services, genetics, as well as animal health products. It is an aggregator of rural veterinary practices. Its strategy is to target agribusiness, aiming to provide veterinary services to just over one-third of Australia’s pig industry, half of the beef cattle feedlot industry and one-quarter of the dairy cattle industry. The company also services the pet market in regional Australia.
The company’s FY17 revenue of $98 million and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $8.3 million came in at the upper end of May 2017 guidance. Net profit came in at $5 million. The dividend of 1.6 cents a share, fully franked, represented a payout ratio of 42.6% of net profit – there is room to boost this payout ratio. Expenses did prove to be a worry, doubling in total, but the company justified this as part of acquiring businesses and building the foundations for future growth.
Apiam is a unique exposure to Australian agribusiness and food production, through a critical service provider. The company says FY18 has a “favourable” industry outlook, with the key drivers for the production animal sector looking positive, and the rural companion animal (pet) sector growing, with increased demand for better services offering, and pet owners prepared to spend more on their animals. Apiam says it is “well placed to deliver revenue and earnings growth in FY18.”
Analysts see earnings per share (EPS) stabilising this year before strong growth in FY19, but rising dividends in both years, putting AHX on a projected 3.5% fully franked yield in FY19. A consensus analysts’ target price of $1.01 implies a healthy outlook for the AHX share price, as the market becomes better acquainted with its regional strategy and business outlook.
· Bionomics (BNO, 47 cents)
· Market capitalisation: $226 million
· Five-year total return: 7.5% a year
· FY18 consensus forecast yield: n/a
· Analysts’ consensus target price: $1.50
I have nominated Adelaide-based Bionomics in these lists before: as a “future pharma star” in December 2013 – at 87 cents – and again in September 2014, at 58 cents. So I can understand some scepticism about this stock. But I still believe that BNO is an under-rated Australian biotech star.
Bionomics is developing a suite of first-in-class therapeutics for diseases of the central nervous system (CNS) and cancer. Its lead drug candidate, BNC210, has achieved strong results in trials for the treatment of anxiety and depression: in a Phase II clinical trial in patients with generalised anxiety disorder (GAD), BNC210 met all the primary and secondary endpoints, and outperformed the “standard of care” drug, Lorazepam – without any sign of sedation, memory impairment, addiction, or loss of motor co-ordination.
Clinical trials of the drug in post-traumatic stress disorder (PTSD) are ongoing: BNC210 has the potential to alter the way that GAD and PTSD are treated. With the anxiety treatment market estimated by Bionomics at US$18.2 billion by 2020, the hopes for BNC210 entering the market as a treatment are very high.
BNO’s other two drug candidates at the clinical stage are aimed at cancer. BNC101 is a first-in-class antibody targeting cancer stem cells, in development for the treatment on colon cancer and other solid tumours, while BNC105 is being developed for the treatment of both solid and blood cancers.
BNC101 is currently in a Phase 1 trial in colon cancer patients, the data from which is expected in 2018. BNC 105 is being funded by global pharmaceutical company Novartis in a ‘biomarker’ study in renal cancer patients (a biomarker is typically a protein in blood that is objectively measured and may indicate abnormal biological processes, pathogenic processes or pharmacological responses to a therapeutic), and is also in clinical trials in patients with chronic lymphocytic leukaemia and melanoma patients, the latter in combination with Keytruda – however, this collaboration will be affected by the recent removal of Keytruda from trials in the US after two patient deaths.
The major strength of Bionomics, apart from its intellectual property, is the agreement it signed in July 2013 with global pharmaceutical company Merck & Co. to discover and develop novel small molecule candidates for the treatment of chronic pain, including neuropathic pain. Under the terms of the agreement, Merck has the option to exclusively license compounds from Bionomics for development and commercialisation.
Under the agreement, Merck took the BNC375 Alzheimer’s Disease drug candidate in a pre-clinical US$506 million deal, paying $20 million upfront with $486 million to come in milestone payments and royalties. Merck recently initiated a Phase I trial, which prompted a US$10 million milestone payment to Bionomics. It’s the second candidate Merck has taken to trials, after Bionomics’ chronic pain treatment. In October 2015, Merck took up a direct 4.9% shareholding in Bionomics, paying $US9 million.
Bionomics’ share price has struggled in recent years, but this can be sheeted home more to disparities in the pricing of its capital raisings than any problems with its drug candidates. In particular, the successful Phase 2 GAD trial results in September 2016 marked the point at which the share price turned around.
Bionomics will look to sign more partners as it builds out its pipeline of drug candidates over the next couple of years. But with this stock, there is always the possibility that partner Merck will lob a build.
· Alexium International (AJX, 50 cents)
· Market capitalisation: $152 million
· Five-year total return: 45.8% a year
· FY18 consensus forecast yield: n/a
· Analysts’ consensus target price: $1.00
Much of the excitement that surrounded materials technology company Alexium International (AJX) in the early days after its 2010 listing was its potential to crack the global defence market: the company owned the global rights to the Reactive Surface Technology (RST) platform, a process used to treat clothing and other textiles so the material is protected from biological and chemical attacks. Alexium still has defence applications – it has been working for several years with Natick (the US Army Research Centre) and the US Marines, along with a prime contractor that currently supplies the uniforms – and the company specifically referred in its August 2017 newsletter to the potential for use of its products implicit in any US military buildup – but these days, there is a wider array of usage possibilities for Alexium’s technology.
Alexium designs and produces fire-retardant chemical treatments for textiles, and sells them worldwide. It has patents and patent applications on 25 different chemical solutions, including water-proofing, moisture wicking and anti-microbial activity, which are used in bedding fabric, sportswear, workwear and uniforms, tenting, and transportation applications. Alexium’s products can potentially be used in a wide range of other areas including coating technology for building materials, including cladding. After the recent Grenfell tower disaster in London, that is an area that builders and property owners are looking at very closely.
At the moment, the bedding industry is the main driver, with the company’s strategy to create market awareness of its products in that industry, before expanding into other markets with unmet technological needs. In 2017, Alexium has begun supplying chemicals to US homewares maker Pegasus Home Fashions for a new line of “cool touch” pillows, and has make its first shipment of its Alexicool technology to the single largest producer of mattress fabrics in the world.
The company says these continued gains in the bedding and mattress industry are creating a firm foundation for sustainable growth and a profitable first half of FY18.
While the bedding business is growing, the company also says FY18 will see an increased effort to diversify Alexium’s revenue streams outside of textiles: the company is pushing into epoxy/polymeric markets, and is exploring opportunities in protective coatings and wood treatments.
Alexium’s revenue rose almost sixfold in FY17, to $24 million, but the company reported a net loss of $12.1 million, or 4 cents a share. But analysts have FY18 pencilled in as the breakthrough year for profitability, expecting EPS of 0.3 cents, as sales improve and margins begin to outweigh costs.
There is some concern on the debt front, but the company reported that at the end of FY17 it had $3.4 million in cash and $1.4 million in receivables, and in addition, it was about to sign a US$10 million debt facility: together with cash generation from higher realised margins, this would be the foundation to provide working capital for growth. The company said it did not need to raise additional equity, but left in place the caveat that it would only do so to finance rapid growth arising from large defence sector sales, or other areas where large orders required additional working capital.
Analysts are highly positive on Alexium, seeing $1 as achievable in the medium term.