Five stocks for 2022
Before I get into my five stocks for this year, let’s see how the 2021 portfolio performed to date.
- Neuren Pharmaceuticals (NEU): $1.30 now $3.75.
- Life360 (360): $3.77 now $8.52.
- Legend Mining (LEG): 11 cents now 8 cents.
- MyFiziq (MYQ): name changed to Advanced Human Imaging (AHI): $1.14 now 77 cents.
- Elders (ELD): $10.30 now $11.90.
And after auditioning what feels like 100 stocks, here are my 5 stocks for 2022.
1. Silk Logistics (SLH, $2.14)
Market capitalisation: $162 million
12-month total return: n/a (listed 9 July 2021)
Estimated FY22 dividend yield: no dividend expected
Analysts’ consensus valuation: $3.50 (Thomson Reuters, five analysts);
Source: nabtrade
Silk Logistics, which is one of the largest third-party logistics suppliers in Australia, came to the ASX in July 2021 after raising $70 million at $2.00 a share. Silk shares surged on to the market, “popping” 20% in initial trading to $2.41, and the initial enthusiasm pushed the stock as high as $2.55 in August. However, the share price has since subsided to current levels – which look to be attractive value.
For the FY21 financial year, Silk Logistics posted a net profit of $8.4 million, a turnaround of $12.7 million on the $4.3 million loss in FY20. Revenue rose by 28.6%, or $71.8 million, to $323.3 million. In the prospectus, Silk Logistics forecast earnings before interest and taxes (EBIT) of $17.8 million; that came in at $19.4 million. The strong performance has influenced some analysts to upgrade their expectations for the company beating FY22 prospectus forecasts: Morgans, for example, now expects underlying net profit to exceed the prospectus forecast by 20%.
Silk Logistics is a contract logistics business that provides an integrated “port-to-door” service to some of the world’s best-known brands. It targets customers in “recession-proof” industries such as fast-moving consumer goods (FMCG), food, ingredients, and containerised agriculture products. Silk picks up goods from the port, brings them to warehouses, picks them to order and then distributes them wherever the customer wants.The company is a vertically integrated business – that is, it offers port logistics, warehousing and distribution services – but it is quite differentiated in a marketplace that is full of small, inefficient operators at one end and huge multi-national businesses at the other. How Silk differentiates itself is its heavy use of technology and data analytics, and the fact that it is very “asset-light”: unless it absolutely has to own specialised equipment, for example in round-the-clock transportation of containerised agricultural commodities in South East Queensland between growing regions and the Port of Brisbane, Silk rents or leases its general-purpose fleet from major equipment suppliers, including its prime movers and trailers. It takes the same approach with warehouses. Being asset-light means that Silk can “turn resources on and off” relative to demand, so it is able to be much more flexible and cost-efficient than asset-owning competitors if there is a disruption such as waterfront industrial action, trade disputes or the current situation with shipping bottlenecks.
In November, Silk’s annual general meeting (AGM) was told that management was confident that it will deliver the full-year FY22 financial result “at or above” the prospectus forecast. The company is also confident of making an e-commerce acquisition in early 2022 and is “pursuing” port logistics targets in South Australia and Western Australia (where it has been using third-party service providers).
Silk is not widely followed but the analysts that do cover it are quite bullish. The consensus of the two analysts in Thomson Reuters’ survey is a valuation of $3.17; one of them, Morgans, lifted its target price from $2.71 to $3.19 following the AGM, on the back of management commentary about strong year-to-date growth in revenue.
2. Select Harvests Limited (SHV, $5.60)
Market capitalisation: $745 million
FY22 forecast yield: 3% fully franked (grossed-up, 4.3%)
Analysts’ consensus valuation: $8.88 (Stock Doctor), $8.80 (FN Arena)
Source: nabtrade
Agribusiness Select Harvests – the third-biggest almond grower in the world – has had a rough few months, retracing from $8.92 in early September to levels near $6–$6.20. A record almond crop in California pushed the export price of almonds to historic lows of about $6.80 a kilogram (California produces about 80% of the world’s almonds.) Add in the impact of COVID on the supply chain, and Select Harvests reported an FY21 profit of $15.1 million, down 40% on FY20’s record $25 million, despite a 22% larger crop than in 2020, at 28,250 tonnes (the crop was 80% bigger than it was just three years ago). A trading update in late August was viewed as fairly weak and the SHV share price plunged.
What’s been good news for Select Harvests is that California is now gripped by drought, brought by the La Niña weather pattern – which generally causes higher-than-usual rainfall in the Australian almond-growing areas – and almond production in California is expected to drop by at least 10% to 1.3 million tonnes this year, with another weak crop potentially to come next year as well. Worse, Californian farmers have been told by the state that they won’t be getting any water unless drought conditions improve. California’s difficulties are likely to see almond prices rise.
Brokers expect to see a revival in export demand and for Select Harvests to wait to see higher prices before committing to sales of the FY22 crop. Further out, the company says that investment in greenfield developments and orchard acquisitions should see its total crop approaching 31,000 tonnes by 2028. As well as exporting almonds, Select sells value-added industrial almond products to the food industry; these go into beverages, ice creams, bakery products, cereals, confectionery and snacks.
While the extent of the recovery in almond pricing in the near term is uncertain, it looks like SHV has been badly over-sold, and the rebound could bring very nice capital gains. Citi has a price target of $9.00, while UBS is looking for $8.60: they’re the two brokers contributing to FNArena’s consensus target price of $8.80, which would represent a rise of almost 45% if borne out. At Stock Doctor, the consensus valuation of six analysts is very similar at $8.88. Sydney broker Barclay Pearce Capital (BPC) has an even more mouth-watering price target on SHV – it is looking for $11.71.
3. Whispir (WSP, $2.60)
Market capitalisation: $216 million
12-month total return: –39.2%
Listed: June 2019, IPO price $1.60
Estimated FY22 dividend yield: no dividend expected
Analysts’ consensus valuation: $3.50 (Thomson Reuters, five analysts); $3.45 (FN Arena, one analyst)
Source: nabtrade
Cloud-based communications management systems platform provider Whispir sells its workflow platform as Software-as-a-Service (SaaS) to a customer base that now stands at 834 entities, 49 of which are in North America and 137 in Asia. Many of these are “blue-chip” clients, including IBM, Amazon Web Services, BHP, Dulux, Telstra, AGL, OCBC Bank, George Weston Foods, Malayan Insurance and Accenture.
Whispir provides a central platform for businesses contact audiences via SMS, WhatsApp, email, social media, voice message and any other mediums they use to communicate with their customers, users and stakeholders. Because it enables users to deliver important and contextually relevant information across multiple channels, Whispir was built to handle normal marketing and internal business communication but also abnormal situations such as crisis management.
Examples of customers using Whispir include:
- Changi Airport in Singapore streamlining gate changes and maintenance requests among its 700 operations staff;
- State Health Departments across Australia using Whispir for end-to-end COVID-19 vaccine communication; and
- The municipality of Oak Hill, Tennessee, using Whispir to streamline city maintenance, and create a space for citizens to report maintenance issues and track them to resolution.
In FY21, Whispir lifted revenue by 22% to $47.7 million, with annual recurring revenue up 28% to $53.6 million. Customer numbers rose by 27%, to 801 (now 834). The lifetime value of the current customer cohort increased by 9% to $413 million, while the net loss narrowed slightly, from $9.9 million in FY20 to $9.7 million. The gross margin eased slightly, from 62% to 60%. Cash on hand at 30 June 2021 was $49.2 million. Management said that Whispir was well-positioned for growth in FY 2022, based on its book of long-term, blue-chip clients. The company is particularly focusing on winning new business in North America and Asia.
In November, Whispir upgraded its guidance for FY22 revenue from a range of $57.2 million to $60.2 million – a range given in October – to a range of $64 million to $68 million. The lift, which represented an increase of 11.9%–13% in just one month – would represent revenue growth of between 34% and 42% on FY20.
EBITDA (earnings before interest, tax, depreciation and amortisation) guidance was also lifted: in October, Whispir advised that the FY22 EBITDA (excluding non-cash share-based payments) loss was expected to be in the range of $15.5 million to $13 million; by November, that had become an expectation of a loss between $13.2 million and $11.2 million – an upgrade of between 13.8% and 14.8%. The guidance boost indicated the significant momentum that Whispir’s business is building.
4. Booktopia (BKG, $1.23)
Market capitalisation: $233 million
12-month total return: –34.6%
Listed: June 2019, IPO price $1.60
Estimated FY22 dividend yield: no dividend expected
Analysts’ consensus valuation: $3.72 (Thomson Reuters, three analysts); $3.72 (FN Arena, one analyst)
Source: nabtrade
Online bookseller Booktopia, which sells in Australia and New Zealand under the brands Booktopia and Angus & Robertson – and is the country’s largest online book seller – has hardly put a foot wrong in terms of financial results since it listed on the ASX in December 2020, in a $300 million float. In August, it released an excellent FY21 result, lifting revenue by 35% to $223.9 million (10% above prospectus forecast) and more than doubling underlying EBITDA to $13.6 million, which was 45% better than the prospectus forecast. However, the initial public offering (IPO) costs caused a net loss of $18.1 million.
The EBITDA margin surged by 2.3 percentage points to 5.9%, a rise of 64%. The average order value rose by 9% to $71.07, and the average annual spend per customer jumped by 14% to $126.85. Booktopia shipped a record 8.2 million units in FY21, an increase of 26%, which represents an average of 31,500 items per business day. Booktopia dispatches a new order every 3.9 seconds. While about 85% of what it sells are books, Booktopia Group also sells eBooks, DVDs, audiobooks, magazines, maps, calendars, puzzles, stationery and cards.
Booktopia continues to win market share in the $2.6bn domestic book industry, having increased share by about 1.7 percentage points in FY21, but at only about 8% of the market, it has a lot of room for growth. While the company didn’t give guidance for FY22, management reported in the FY21 result announcement that the new financial year had begun well, with revenue running above the previous corresponding period at the end of August. The annual general meeting in November was told that Booktopia expects this growth to be maintained for the remainder of FY22.
Moreover, the AGM heard that the current sales performance indicated that BKG was reaping the full benefits of strong consumer spending, the retention of the many new customers it acquired during the lockdowns of 2020 and 2021, and the increased capacity it has built through its investments in storage, logistics and automation. Anticipating its best Christmas retail season ever, Booktopia has commissioned a new 1.3-hectare (13,521 square-metre) storage facility that can hold up to 8 million books, in Sydney. This facility will double capacity and allow the company to ship 60,000 books a day. The increased scale and efficiency improvements from the improved automation are highly likely to boost margin growth even further.
So, why has the share price slumped from a peak of $2.99 in August, to $1.23? I think the market has got this one wrong and BKG seems to be outstanding value.
(Note: In December, the Australian Competition and Consumer Commission (ACCC) launched proceedings in the Federal Court against Booktopia over claims allegedly made on the Booktopia website between 10 January 2020 and 2 November 2021 that customers had to notify Booktopia within two days of delivery of a faulty, damaged or incorrect product in order to be able to get a refund or other replacement options. The competition regulator is seeking penalties, declarations, costs and other orders. Booktopia has responded that it included these statements in its terms of business to ensure that it could confidently provide replacements, refunds and other remedies to customers. It says that at no time were these communications intended to exclude or limit Booktopia’s obligations under Australian Consumer Law. The allegations have taken down BKG’s share price, but I think that just makes it better value.)
5. Immutep (IMM, 45 cents)
Market capitalisation: $233 million
12-month total return: –34.6%
Listed: June 2019, IPO price $1.60
Estimated FY22 dividend yield: no dividend expected
Analysts’ consensus valuation: $3.72 (Thomson Reuters, three analysts); $3.72 (FN Arena, one analyst)
Source: nabtrade
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 in late 2019 made equivalent to 22 cents.
I looked at Immutep again in March 2020, as one of ‘Five Under 50 Cents’, with the shares at 33 cents. At 45 cents, IMM is still moving along nicely – and biotech analysts think the stock has plenty left in it.
The company specialises in immuno-oncology, which is the field of developing immune-based therapies that enable and stimulate the body’s immune system to selectively recognise and attack cancer cells. Immutep’s lead product candidate, IMP321, is called eftilagimod alpha, or “efti,” and it is being developed for the treatment of cancer and autoimmune disease.
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.
There has been steady news flow from Immutep lately. In December, Immutep announced that the first five patients had been treated in the INSIGHT-003 study, which is evaluating the use of efti in conjunction with the existing standard-of-care chemotherapy plus anti-PD-1 therapy. (PD-1 is a protein found on T cells [a type of immune cell] that helps keep the body’s immune responses in check. When PD-1 is bound to another protein called PD-L1, it helps keep T cells from killing other cells, including cancer cells.) The study, which will recruit another 15 patients, is the first time such a triple combination therapy has been tested.
In November, the company announced positive results from its trial of efti against late-stage breast cancer trial. The results were presented at SITC 2021, the world’s leading cancer immunotherapy conference. That conference also heard an outline of some of the interim data from the TACTI-002 phase 2 trial, in which Immutep is testing whether a combination of efti with Merck’s KEYTRUDA drug can help patients with non-small cell lung cancer (NSCLC) and head & neck squamous cell carcinoma (HNSCC). Recruitment for the three patient cohorts involved in TACTI-002 was completed in November: further data from the trial is expected in the first half of 2022 (calendar-year). In addition, the TACTI-003 Phase 2b trial will be conducted on about 154 patients with First-line HNSCC
Efti is currently also in a Phase 2b clinical trial (called AIPAC) as a chemo-immunotherapy for metastatic breast cancer – SITC 2021 also heard positive clinical results from this late-stage study. Patients with hormone receptor–positive breast cancer in three separate subgroups showed “very encouraging overall survival” benefit when treated with efti plus paclitaxel, compared with the placebo. Quality of life (QoL) is a secondary endpoint of this study: so far, a “statistically significant QoL preservation” was seen in the first six months in the group of patients who were treated with efti plus paclitaxel.
In June, Immutep reported positive final data from 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. There were “encouraging activity signals” from the combination.
The bottom line with Immutep is that the clinical data continues to strengthen. You don’t need a degree in pharmacology to think that a company that has collaborations with Novartis, Merck, Pfizer, and GlaxoSmithKline – among others – is positioned very well for a knock-out deal.
All prices and analysis at 20 January 2022. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.