Three stocks under $1

A three-digit share price – 100 cents – is an arbitrary marker on the stock market, because it does not tell you much on its own. But when you can find situations where there is forecast earnings; a strong dividend yield also with growth prospects; and analysts projecting share price growth, companies still with a share price of less than $1 can be considered likely to attain (or re-attain) that level.

Below are three candidates – but remember at the end of the day these are small caps which inherently carry a higher level of risk and should be considered as part of a well-diversified portfolio.

1. Healthia (HLA:ASX)

·        Market capitalisation: $57 million

·        Estimated FY20 dividend yield: 5%, fully franked

·        Analysts’ consensus price target $1.35 (Thomson Reuters)

In the same vein as dental aggregators 1300 Smiles (ONT:ASX), Pacific Smiles (PSQ:ASX) and Smiles Inclusive (SIL:ASX), and veterinary groups Greencross (taken over in February) and National Veterinary Care (NVL:ASX), Healthia was listed in September 2018 to capitalise on the increasing demand for allied health services in Australia, by aggregating a fragmented industry characterised by lots of small practices.

Healthia operates two established allied health businesses in My FootDr podiatry and All Sports Physiotherapy and Sports Medicine. Flagship operation My FootDr is Australia’s largest podiatry group, with 75 clinics, providing a range of podiatry services including biomechanical assessment, laser fungal nail treatment, diabetic screening, sports injury management and general foot care. The company’s physiotherapy division operates 26 clinics, mostly under its Allsports Physiotherapy and Sports Medicine brand, and the company also operates seven Extend Rehabilitation hand and arm therapy clinics and iOrthotics, a Mackay-based maker of custom-made and 3D-printed orthotic devices for podiatrists.

Healthia listed at $1 a share in September 2018, and after an initial burst of enthusiasm pushed the shares as high as $1.29, HLA has fallen below its issue price. The share market is wary of the short-term effect of the aggregation strategy – which is driven by acquisitions – on the earnings, and also the equity issues required to retain the clinicians in the acquired businesses, in what is effectively a franchised model. The acquisition pipeline drives most of the earnings increase in the early years and it takes a couple of years for true organic earnings growth to be identified. But the flipside of the strategy is that significant economies of scale start to flow from a bigger, consolidated entity.

Healthia chairman Glen Richards was behind the highly successful Greencross aggregation strategy, while Greencross co-founder Wes Coote is Healthia MD/CEO.

On broker Canaccord Genuity’s numbers, earnings per share (EPS) will come in at 7.9 cents for FY19, rising to 9.7 cents in FY20 and 12.1 cents in FY21, with the fully franked dividend growing from 2 cents in FY19 to 4.5 cents in FY20 and 5.5 cents in FY21. At the current share price of 90 cents, that prices Healthia on a prospective fully franked FY20 yield of 5%.

Healthia (HLA:ASX): one-year price performance

Source: nabtrade

2. MACA (MLD:ASX)

·        Market capitalisation: $252 million

·        Estimated FY20 dividend yield: 5.3%, fully franked

·        Analysts’ consensus price target $1.28 (Thomson Reuters) 

Mining support services, construction and infrastructure contractor MACA has been a poor performer over the last two years, surrendering a share price high of $2.25 in November 2017 to slide below $1 as earnings slumped in FY18 (–26%) and the December half of FY19 (–34%), as bad weather and skilled labour shortages affected its Western Australian projects. The market was also unimpressed with MACA’s troubled open-pit gold mining contract with Australian company Beadell Resources at Tucano in Brazil, where MACA pulled out of the five-year partnership 18 months early.

But throughout this period of weaker margins and profits, MACA’s revenue growth has been consistent. Analysts’ consensus expects a 17% EPS fall to show in the full-year FY19 result – before a 25% rebound in FY20.

Despite the Beadell setback, MACA is committed to diversifying itself by industry, commodity and geographically. Currently it operates in Australia (mainly Western Australia and Queensland) as well as Brazil and Cambodia. Australian mining work generates the bulk (62%) of revenue, but civil construction is increasingly important, at 21%. By commodity, gold generates most revenue, at 62%.

MACA works very closely with clients, and is prepared to back them financially: it is doing this with Blackham Resources (BLK:ASX), where it will provide financial backing for Blackham’s stage-one expansion of the Wiluna gold mine in Western Australia, which will boost Wiluna to a yearly production of 120,000 ounces and extend the mine life. (The mooted stage-two expansion could push production as high as 250,000 ounces a year.) MACA sees its funding support as a win-win because it helps its client achieve a longer operating period, by unlocking significant gold sulphide reserves at Wiluna. MACA in return is taking a shareholding in BLK of more than 19%.

At the half-year result in February, MACA lifted its FY19 revenue guidance to $640 million from an earlier (FY18 result) estimate of $620 million – full-year FY18 revenue came in at $563 million – and boosted its order book from $1.3 billion to $2.2 billion. Its major clients include BHP, Regis Resources, Bluff Coal, Pilbara Minerals, Ramelius Resources, Emerald Resources (Cambodia) and Oz Minerals (Brazil).

Solid revenue growth and continued winning of new work augur well for investors buying MACA at current levels, backed by an attractive 5.3% fully franked dividend yield expected for FY20, or 7.6% on a grossed-up basis.

MACA (MLD:ASX): one-year price performance

Source: nabtrade

3.      CTI Logistics (CLX:ASX)

·        Market capitalisation: $59 million

·        Estimated FY20 dividend yield: 5.4%, fully franked

·        Analysts’ consensus price target $1.22 (Thomson Reuters)

Western Australia-based CTI Logistics has been a major player in the road freight, courier, parcel distribution and taxi truck operations in its home state for many years, but in 2015 the company began an expansion to the east coast market, firstly buying GMK Logistics and then rail carrier Jayde Transport in 2017. With warehouses in Brisbane, Newcastle, Sydney, Melbourne, Adelaide and Perth, GMK in particular has given CTI the national footprint from which to grow its transport and logistics businesses. CTI is still heavily influenced by the health of the WA market – and thus, the resources sector – but national diversification has helped to lessen this WA reliance to about half of total revenue. Jayde, for example, generates three-quarters of its revenue outside WA.

In FY18, CTI lifted revenue by 18.4%, which enabled net profit to grow by 18% and earnings per share (EPS) to grow by 35% (excluding property-related adjustments). Then, in the December 2018 half-year, revenue grew by 27%, to $111.8 million, while net profit was up 7% to $3.3 million. Property holdings valued at $86.1 million underpin the share price. Analysts’ consensus expectations are for 20%-plus EPS growth in FY19 and FY20, but CTX still trades on a prospective FY20 price/earnings (P/E) ratio of less than 10 times earnings – backed by an expected fully franked dividend yield of 5.4%, or 7.7% on a grossed-up basis.
 

CTI Logistics (CTX:ASX): one-year price performance

Source: nabtrade