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In October 2019, we ran ‘4 under 50 cents.’ The stocks were:
Amaysim (AYS) @ 38 cents – moved to 31.2 cents (down 17.9%)
Adacel Technologies (ADA) @ 45.5 cents – moved to 68.5 cents (up 50.5%)
Aurelia Metals @ 44.5 cents – moved to 40 cents (down 10.1%)
SRG Global (SRG) @40 cents – moved to 38 cents (down 5%)
Average gain: 4.4%
In October 2019, we also picked a ‘4 Under $1’ group. The stocks were:
SDI Limited (SDI) @ 82 cents – moved to 88 cents (up 7.3%)
Michael Hill International (MHI) @ 58.5 cents – moved to 58 cents (down 0.8%)
Freelancer (FLN) @ 78 cents – moved to 37 cents (down 52.6%)
Frontier Digital Ventures (FDV) @ 73 cents – moved to 88 cents (up 20.5%)
Average loss: 6.4%
Then there was the ‘3 Under $1’ trio from July 2019. The stocks were:
Healthia (HLA) @ 90 cents – moved to $1.15 (up 27.8%)
Maca (MLD) @ 94 cents – moved to 90 cents (down 4.2%)
CTI Logistics (CLX) @ 78 cents – moved to 72 cents (down 7.7%)
Average gain: 5.3%
Amid a market slump, it’s even more nerve-wracking than normal to choose another group of stocks – but here we go again, with ‘5 Under 50.’ You’ll notice two anomalies – my first stock, AMA Group, was actually at 52 cents at time of writing; and that I’m giving Aurelia Metals another go.
Market capitalisation: $384 million
Five-year total return: –4.8% a year
FY20 forecast dividend yield: 5.2% fully franked (grossed-up, 7.4%)
Analysts’ consensus valuation: 83.2 cents (Thomson Reuters), $1.20 (FN Arena)
Crash repairs company AMA Group has slid from as high as $1.48 in August 2019 to 52 cents – not great for existing holders, but potentially a nice entry point for new investors. AMA Group’s half-year result reported last month was poor: although the company grew revenue by 32%, it recorded a loss after tax of $11 million – a $21 million turnaround from a profit of $10 million a year ago. AMA Group put this down to challenging market conditions, which have eaten into repair volumes, ratcheted up the pressure on pricing, and the cost associated with new vehicle technologies; the automotive parts and accessories division has also been hit by falling new car sales. AMA suspended its interim dividend (although it has told the stock exchange that it expects to be in a position to pay a full-year dividend.)
AMA has grown steadily in recent years through acquisitions – with 21 completed in the FY19 financial year – but the most important of those were national (and New Zealand) repairs business Capital S.M.A.R.T and ACM Parts, Australia’s largest recycler of panels and mechanical parts for the automotive industry. Both of these businesses, acquired in the December half-year, were bought from Suncorp.
AMA says these acquisitions are a “game changer” for it, which will nearly double the size of the company in terms of revenue – which is projected to be in more than $1 billion in FY21. Analysts are highly bullish on the company’s prospects for recovery – and its capital-growth prospects. Meanwhile there is an attractive fully franked yield potentially on offer.
Market capitalisation: $345 million
Five-year total return: 9.6% a year
FY20 forecast dividend yield: 2.5% fully franked (grossed-up, 3.6%)
Analysts’ consensus valuation: 66.5 cents (Thomson Reuters), 65 cents (FN Arena)
At Cobar in New South Wales, Aurelia Metals operates two wholly-owned gold and base metal mines – Hera and Peak – giving it gold, silver, lead, zinc and copper production. The company’s two processing plants work through a combined capacity of 1.3 million tonnes a year (Mtpa), producing (in the FY19 financial year) 117,521 ounces of gold (at an all-in sustaining cost, or AISC, of $1,045 an ounce) and 35,599 tonnes of base metals. The company reported a full-year net profit of $36 million (down 64%), but paid a maiden full-year dividend of 2 cents a share.
In the December 2019 half-year, revenue was flat at $165.2 million, but net profit fell by 41%, to $15.6 million. But the company made significant investment in growth, particularly its new lead-zinc plant (scheduled for commissioning in the current quarter) and it has a clear pathway to growth with increased base metals production and focus on developing the newly discovered high-grade Kairos gold lode under the Peak mine. At Hera, a new discovery called Federation, located about 10 kilometres south-west of the mine, is also showing promise. There are other highly prospective areas in its land portfolio that Aurelia intends to explore, and analysts like the look of the situation. As a bonus, Aurelia is a dividend-paying miner.
Market capitalisation: $129 million
Five-year total return: –1% a year
FY20 forecast dividend yield: no dividend expected
Analysts’ consensus valuation: 80 cents (Thomson Reuters)
In January 2018, I nominated cancer-fighting biotech Immutep – named in honour of the Egyptian god of medicine, Imhotep – as one of four promising biotechs. The shares were then 2.2 cents – which a one-for-ten consolidation late last year made equivalent to 22 cents – and IMM is moving along nicely. The company specialises in immuno-oncology, which is the field of developing immune-based therapies that enable the body’s immune system to selectively recognise and attack cancer cells. Immutep’s lead product candidate, IMP321, is called eftilagimod alpha, or “efti” – in addition, it has a pre-clinical product candidate for autoimmune diseases, called IMP761, and two other clinical product candidates that have been licensed out to (and are under the control of) the company’s development partners, GlaxoSmithKline and Novartis.
But efti is the main game. Efti is a soluble LAG-3 protein, based on the LAG-3 immune control mechanism, which is Immutep’s intellectual property. LAG-3 is considered one of the most promising targets in immuno-oncology: it is a protein molecule that can identify cancer cells to regulate immune responses, allowing patients to fight the disease using their own cells. In the TACTI-002 phase 2 trial, Immutep is testing whether a combination of efti with Merck’s KEYTRUDA drug can help patients with non-small cell lung cancer (NSCLC). This year, early results of the trial have been positive: there has been a 41% response rate from the first stage of the first part of the trial, which compares favourably to standard care treatments.
Efti is currently also in a Phase 2b clinical trial (called AIPAC) as a chemo-immunotherapy for metastatic breast cancer – data from this late-stage study is expected by the end of the current quarter. It is also in a Phase 1 clinical trial (INSIGHT-004), in collaboration with Merck and Pfizer, to evaluate a combination of efti with a human antibody called avelumab, to treat patients with advanced solid tumours; and a Phase 1 combination therapy trial (TACTI-mel) assessing how efti and KEYTRUDA work together against metastatic melanoma.
Biotech investing comes with plenty of caveats – but Immutep is progressing well.
Market capitalisation: $155 million
Five-year total return: 18.7% a year
FY20 forecast dividend yield: 3.3% fully franked (grossed-up, 4.8%)
Analysts’ consensus valuation: 49 cents (Thomson Reuters)
Building services, infrastructure and telecommunications company BSA made a big decision last year when it sold its Build/HVAC Major Products division – which specialised in Heating, Ventilation & Air Conditioning Work. That left BSA with a “two pillar” market approach, with a Property & Infrastructure Division (including its Maintain and Fire Protection specialisations), and a Telecommunications & Utilities Division. BSA is a major contractor to NBN: in 2016 it was awarded a five-year NBN infrastructure contract to add to its existing NBN operations and maintenance contract. BSA has also won significant contracts with Foxtel and Ericsson.
The company is also involved in tunnelling projects, so it’s directly exposed to the pipeline of infrastructure build rolling out nationally: for example, it has secured a $30 million contract for the WestConnex M4-M5 Link.
BSA says the new structure reduces its overall portfolio risk, allows it to focus more on recurring revenue (now 81%); and also allows it to engage much better with independent contractors – to do connection work that flows from the “gig economy.”
From earnings per share (EPS) of 5 cents in FY19, analysts expect BSA to earn 3.3 cents in FY20, rising to 3.9 cents in FY21. There is solid dividend flow, too, with the dividend expected to more than double in FY20, to 1.2 cents. A price slide from 46 cents in September to 36 cents currently has opened-up some nice value.
Market capitalisation: $789 million
Five-year total return: 20.9% a year
FY20 forecast dividend yield: no dividend expected
Analysts’ consensus valuation: 70 cents (Thomson Reuters)
Fresh from returning to profit in the first half of the financial year, Adelaide-based oil and gas company Cooper Energy has announced that it will begin gas production at the Sole gas field, in the Gippsland Basin off the Victorian coast, later this month. Cooper Energy wholly owns the field, which will send gas for processing at the onshore Orbost Gas Processing Plant, which Cooper sold to energy infrastructure company APA Group in 2017. APA has been working to upgrade the plant to supply approximately 24 petajoules (PJ) of gas a year. The project was already delayed by early December last year, before bushfires hit the area: the delays to this work saw Cooper receive a $9.9 million damages payout in the first half – which put the company into net profit – but Sole is ready to go, as a very welcome new source of gas supply for south-east Australia.
Cooper is expecting a transformational uplift in production and cash flows from Sole. Plant design rates of 68 terajoules (TJ) of gas a day, would lift Cooper’s total daily production to about five times current levels, and give the company what it describes as “utility-style cash flow.”
Apart from Sole, Cooper has in the pipeline the re-commissioning of the idle Minerva Gas Processing Project in the Otway Basin in western Victoria coming along – which it half-owns with Japanese group Mitsui – which will be a low-cost processing hub for gas from the joint venture’s offshore Casino Henry gas field, and other discoveries. There is also the Otway Phase-3 Development Project (OP3D), which potentially could bring a further 100 PJ-plus of gas to the market from 2022 onwards, using gas from the offshore Henry and Annie prospects – the latter discovered in September 2019, by the first offshore exploration well drilled in the Otway Basin for seven years, and the first discovery in the Basin in 11 years. The successful well was the first of an $80 million drilling campaign by the Cooper-Mitsui joint venture. Cooper also made a find in October at the Dombey prospect it part-owns with Beach Energy, in the onshore Otway Basin. In the Gippsland Basin, near Sole, Cooper will drill an appraisal well on its offshore Manta gas discovery later this year.
Cooper is bringing these gas discoveries into a market that is desperate for new supply, at prices that protect gas users from rising prices. A great example is the gas supply deal the company signed last month with O-I, Australia’s largest manufacturer of glass container products. The gas agreement is for the supply of 1 PJ per year for two years starting January 1, 2021. The gas will be supplied from Cooper’s share of production from the Casino Henry operations. COE is in a situation where it has the gas, and gas users, who need to strike guaranteed supply arrangements.
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