Latest Research

Small Caps - Results Preview

Argonaut Limited logoSmall caps (ex-mining services) under coverage offer exposure to attractive sectors. GCS and SXE have significantly increased their presence on the construction-rich east coast. PGC sells products and services into the acute and aged healthcare space. PPC has a large, low-cost, country-wide property development portfolio focused on growth corridors. ASB should benefit from increasing naval spend, and TOX has exposure to the defensive waste management sector. We think there is more value apparent in GCS, PGC and PPC, while ASB, SXE and TOX are closer to our valuations.

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Mining Services - Results Review

Argonaut Limited LogoMarkets are expecting big things from mining services companies this reporting season. With good reason; a number of companies in this space are likely to demonstrate solid momentum into FY18. However, whether performance will be strong enough to support recent share price gains is not as clear, and we are finding it difficult identifying value in the stocks we cover. We feel anything other than outperformance may disappoint. From an operational point of view we like both ASL and ANG; they will very likely post solid results and indicate good growth in FY18. However, from a valuation perspective we think this is already reflected in share prices. PEA is a reliable performer, but the emerging competition in this space gives us pause. We would still avoid MCE; it will take time to diversify away from offshore drilling. GNG is currently the best investment option – FY18 will be a record year and, on our numbers, will support a dividend yielding >7%.

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Paragon Care (PGC) - Strong Vital Signs

Paragon Care LogoA strong 2H17 meant PGC met or exceeded guidance and expectations for the full year. Vital signs are good; revenue growth, margin expansion, and strong operating cash flow are a healthy combination. Evidence suggests the strategy to consolidate a fragmented industry is well considered. Businesses are being successfully integrated onto the growing platform, synergies extracted, and cross-selling opportunities targeted. We have upped our valuation to $1.12 (prior $1.05) on the back of a solid FY17 and believe there is both organic and acquisitive growth upside. Buy maintained.

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Orbital (OEC) - Drones To Provide The Lift

Orbital Corporation LogoPreliminary FY17 results are disappointing and below expectations, although the value in the business relates to significant opportunity for growth in the UAVe segment. Earnings forecasts are strongly weighted to this sector. Gains have taken the share price closer to our revised valuation of $0.75 (prior $0.90). Forecasting risk is elevated and we reduce to hold (prior buy) in the near term as realisation of the UAVe potential will take time.

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Gage Roads (GRB) - Turning On The Taps

Gage Roads LogoOne year into its 5-year strategy, GRB has comfortably delivered against expectations. The latest quarterly showed strong operating cash inflow and unaudited earnings ahead of our forecasts. Marketing efforts and growing brand awareness has shifted the sales mix towards proprietary products, boosting the FY17 GP margin to an impressive 58%. Sales growth through independent retailers and the on-premise market validates GRB’s “return to craft” strategy. Upgrades to earnings on the back of the latest results improves our blended valuation to $0.066 (prior $0.061). We maintain a positive view and buy call.

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