Australian Broker Call *Extra* Edition – Mar 23, 2020

This story features APPEN LIMITED, and other companies. For more info SHARE ANALYSIS: APX

An additional news report on the recommendation, valuation, forecast and opinion changes for ASX-listed equities.

In addition to The Australian Broker Call Report, which is published and updated daily (Mon-Fri), FNArena has now added The Australian Broker Call *Extra* Edition, featuring additional sources of research and insights on ASX-listed stocks, also enlarging the number of stocks that make up the FNArena universe.

One key difference is the *Extra* Edition will not be updated daily, but merely "regularly" depending on availability of suitable quality content. As such, the *Extra* Edition tries to build a bridge between daily updates via the Australian Broker Call Report and ad hoc news stories, that are not always timely for investors hungry for the next information update.

Investors using the *Extra* Edition as a source of input for their own share market research should thus take into account that information after publication may not be up to date, or yet awaiting another update by FNArena's team of journalists.

Similar to The Australian Broker Call Report, this *Extra* Edition includes concise but limited reviews of research recently published by Stockbrokers and other experts, which should be considered as information concerning likely market behaviour rather than advice on the securities mentioned. Do not act on the contents of this Report without first reading the important information included at the end of this Report.

The Australian Broker Call *Extra* Edition is a summary that has been prepared independently of the sources identified. Readers will check the full text of the recommendations and consult a Licenced Advisor before making any investment decision.

The copyright of this Report is owned by the publisher. Readers will not copy, forward or disseminate this Report to any other person. For more vital information about the sources included, see the bottom of this Report.

COMPANIES DISCUSSED IN THIS ISSUE

Click on a symbol for fast access.
The number next to the symbol represents the number of brokers covering it for this report -(if more than 1)

APX   BSA   BUB   CAT   IGL   LYL   MLX   MNF   PGX  

APX    APPEN LIMITED

IT & Support – Overnight Price: $19.80

Canaccord Genuity rates ((APX)) as Hold (3) –

Appen’s Figure Eight (acquired in 2019) declared $33.7m in recurring revenue, up 28% from 2019 with the language technology data provider anticipating paying an earn-out of $37m in FY20, notes Canaccord Genuity.

Having established itself in the secure data space for some time, the company is well-positioned to consider government work which may be an exciting avenue for growth, according to the broker, adding  the relevance segment seems to have peaked and Appen's next stage of growth would be led in combination with Figure Eight.

The company’s changed forecast guidance for operating profit of $125-130m is a tad below the market consensus of $132m for FY20. Canaccord Genuity has modestly tweaked its forecast with operating profit falling -4% to $128m for FY20 at an AUD/USD rate of 68c. Also, the estimates for net profit after tax and EPS have gone down by -6%.

With underlying growth rate slowing, the stock has gone down from a price-to-earnings (PER) perspective and the broker retains the Hold rating with the target price increased slightly to $28.80 from $28.30.

The report was published on February 25, 2020.

Target price is $28.80 Current Price is $19.80 Difference: $9
If APX meets the Canaccord Genuity target it will return approximately 45% (excluding dividends, fees and charges).
Current consensus price target is $28.30, suggesting upside of 42.9%(ex-dividends)
The company's fiscal year ends in December.

Forecast for FY20:

Canaccord Genuity forecasts a full year FY20 dividend of 18.00 cents and EPS of 66.00 cents.
At the last closing share price the estimated dividend yield is 0.91%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 30.00.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 64.5, implying annual growth of 82.8%.
Current consensus DPS estimate is 11.0, implying a prospective dividend yield of 0.6%.
Current consensus EPS estimate suggests the PER is 30.7.

Forecast for FY21:

Canaccord Genuity forecasts a full year FY21 dividend of 27.00 cents and EPS of 89.00 cents.
At the last closing share price the estimated dividend yield is 1.36%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 22.25.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 80.4, implying annual growth of 24.7%.
Current consensus DPS estimate is 14.3, implying a prospective dividend yield of 0.7%.
Current consensus EPS estimate suggests the PER is 24.6.

Market Sentiment: 1.0
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

BSA    BSA LIMITED

Industrial Sector Contractors & Engineers – Overnight Price: $0.28

Canaccord Genuity rates ((BSA)) as Buy (1) –

Operating profit for BSA saw an increase of 39% for the first half at $12.8m against $9.2m in the prior period. The half-yearly earnings exclude impact of the HVAC – major projects business divested during the period.

Corporate cost increased to $3.7m in the first half from $2.9m during the first half of 2019 and was well ahead of the broker’s forecasts of $3.2m. Canaccord Genuity estimates similar cost for the second half of $3.7m.

Company management has guided towards FY20 revenues amounting to $500m, having achieved revenues of $259m in the first half, notes the broker, while the FY20 operating profit forecast, at $13.2m, looks at a materially stronger second half.

The broker has reduced FY20 and FY21 operating costs forecasts by -1% and -2.5% to $25.2m and $27.1m, mostly due to higher corporate costs. The broker retains the Buy rating with target price at $0.49.

The report was published on February 25, 2020.

Target price is $0.49 Current Price is $0.28 Difference: $0.21
If BSA meets the Canaccord Genuity target it will return approximately 75% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Canaccord Genuity forecasts a full year FY20 dividend of 1.00 cents and EPS of 3.00 cents.
At the last closing share price the estimated dividend yield is 3.57%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.33.

Forecast for FY21:

Canaccord Genuity forecasts a full year FY21 dividend of 1.00 cents and EPS of 3.00 cents.
At the last closing share price the estimated dividend yield is 3.57%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 9.33.

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

BUB    BUBS AUSTRALIA LIMITED

Dairy – Overnight Price: $0.51

Bell Potter rates ((BUB)) as Buy (1) –

Bubs Australia reported the first-half with an underlying operating loss of -$3.7m, below Bell Potter’s forecast of -$2.9m. Revenue was up 39% year-on-year at $27.1m, in line with the broker’s estimate of $27.3, while gross margin at 24% was (sort of) in line with Bell Potter’s 26%.

With no formal guidance by the company, Bell Potter expects an uplift in revenue during the second half due to some recently signed distribution agreements, new product launches and relaunch of adult nutrition products.

The broker has updated forecast to reflect somewhat lower gross margins with a decrease of -26% in operating profit in FY20 and -34% in FY21 respectively.

The broker states the baby food maker is still in the early stage of the product life cycle and revenue is mostly driven by expansion in the distribution footprint. With signs of positive momentum, Bell Potter rates the stock a buy with valuation at $1.25.

The report was published on February 26, 2020.

Target price is $1.25 Current Price is $0.51 Difference: $0.74
If BUB meets the Bell Potter target it will return approximately 145% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Bell Potter forecasts a full year FY20 dividend of 0.00 cents and EPS of minus 1.50 cents.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 34.00.

Forecast for FY21:

Bell Potter forecasts a full year FY21 dividend of 0.00 cents and EPS of minus 0.20 cents.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 255.00.

Market Sentiment: 1.0
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

CAT    CATAPULT GROUP INTERNATIONAL LTD

Medical Equipment & Devices – Overnight Price: $0.65

Bell Potter rates ((CAT)) as Buy (1) –

Catapult Group reported first-half results with an operating profit of $5.7m which was more than 100% above Bell Potter’s forecast of $2.2m. The astonishing figure was driven by a much better than expected operating profit margin of 11.2% versus the broker’s estimated 4.5%.

While revenue at $50.7m was just a little ahead of Bell Potter’s forecasted $49.7m, the group enjoys a positive free cash flow of $13.6m with negligible bank debt, notes the broker.

The broker states management has not provided any FY20 guidance but remains “committed to growing ARR as our platform expands, improving operating cost efficiencies as it grows, and generating free cash flow.”

Bell Potter has upgraded FY20, FY21 and FY22 operating profit forecasts by 19%, 9% and 2% respectively on the back of lower forecasted operating expenses and adoption of AASB 16.

Buy rating maintained with target price up 4% to $2.25.

The report was published on February 26, 2020.

Target price is $2.25 Current Price is $0.65 Difference: $1.6
If CAT meets the Bell Potter target it will return approximately 246% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Bell Potter forecasts a full year FY20 dividend of 0.00 cents and EPS of minus 2.80 cents.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 23.21.

Forecast for FY21:

Bell Potter forecasts a full year FY21 dividend of 0.00 cents and EPS of 1.60 cents.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 40.63.

Market Sentiment: 1.0
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

IGL    IVE GROUP LIMITED

Media – Overnight Price: $0.57

Bell Potter rates ((IGL)) as Buy (1) –

IVE Group reported a soft first-half with revenue falling -4.1% to $360.2, lower than Bell Potter’s expectations at $383m. The operating profit (pre-AASB 16 basis) was down -7.1% to $40.1m and a tad less than the broker’s $41.5m estimate.

The company pointed towards guidance for operating profit for FY20 between $75-79m, expecting that operating conditions would deteriorate in the second half due to covid-19 and its impact on customer supply chains and business confidence, notes Bell Potter.

Guidance for the second half operating profit is between $35-39m which includes contribution from the Salmat acquisition. Salmat capital investment program involves outlay of $25-30m and will dampen FY21 cash flows, comments the broker.

Bell Potter considers the underlying business robust despite near-term uncertainty and retains its Buy rating while downgrading the target price to $2.20 from $2.60.

The report was published on February 26, 2020.

Target price is $2.20 Current Price is $0.57 Difference: $1.63
If IGL meets the Bell Potter target it will return approximately 286% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Bell Potter forecasts a full year FY20 dividend of 16.30 cents and EPS of 24.00 cents.
At the last closing share price the estimated dividend yield is 28.60%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 2.38.

Forecast for FY21:

Bell Potter forecasts a full year FY21 dividend of 16.70 cents and EPS of 27.00 cents.
At the last closing share price the estimated dividend yield is 29.30%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 2.11.

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

LYL    LYCOPODIUM LIMITED

Mining Sector Contracting – Overnight Price: $4.41

Bell Potter rates ((LYL)) as Buy (1) –

Lycopodium reported its first-half result with revenue at $109.5m, up 52% versus prior comparable period, mostly due to a number of big projects, including EPC (Engineering, Procurement and Construction) work, comments Bell Potter.

A standout feature of the result was the operating cash flow of $74.6m with an operating cash conversion of 463%. This, states the broker, was due to receipt of early cash payments for some of its construction projects and depicts a strong risk management framework.

The strengthening of the gold price will likely improve the future project outlook, according to Bell Potter, but the broker also warns about potential project delays caused by supply chain issues.

The company has provided FY20 net profit after tax guidance of $14.1m. Bell Potter has reduced EPS estimates for FY20 and FY21 by -18.7% and -2.7% respectively.

Buy rating retained with target price unchanged at $6.50.

The report was published on February 26, 2020.

Target price is $6.50 Current Price is $4.41 Difference: $2.09
If LYL meets the Bell Potter target it will return approximately 47% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Bell Potter forecasts a full year FY20 dividend of 30.00 cents and EPS of 35.60 cents.
At the last closing share price the estimated dividend yield is 6.80%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 12.39.

Forecast for FY21:

Bell Potter forecasts a full year FY21 dividend of 36.00 cents and EPS of 50.50 cents.
At the last closing share price the estimated dividend yield is 8.16%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 8.73.

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

MLX    METALS X LIMITED

Tin – Overnight Price: $0.05

Bell Potter rates ((MLX)) as Buy (1) –

According to Bell Potter, Metal X’s half-yearly results convey the poor performance of Nifty (Metal X’s copper operations) before being suspended along with a disappointing performance by Renison (tin operations in Tasmania). Adding to the woes were low commodity prices. With Nifty operations now suspended, it’s up to Renison to carry MLX forward, comments Bell Potter.

The company reported a loss of -$61.6m, less than Bell Potter’s estimate of -$85m.  While the first half result reflects poor production performance and weaker commodity prices, the market is now waiting for an outcome on several matters including the strategic review of the company's copper assets, clarity on capital needs and its new strategy, comments the broker.

The diversified minerals explorer is making plans on mining the high-grade Area 5 zone at Renison early in the second half. The broker also anticipates an equity raising during the first half of 2020.

Buy rating retained with target price reduced by -7% to $0.14.

The report was published on February 26, 2020.

Target price is $0.14 Current Price is $0.05 Difference: $0.09
If MLX meets the Bell Potter target it will return approximately 180% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Bell Potter forecasts a full year FY20 EPS of minus 4.80 cents.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 1.04.

Forecast for FY21:

Bell Potter forecasts a full year FY21 EPS of minus 3.80 cents.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is minus 1.32.

Market Sentiment: 0.0
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

MNF    MNF GROUP LIMITED

Telecommunication – Overnight Price: $3.56

Canaccord Genuity rates ((MNF)) as Buy (1) –

With the reported recurring revenue of $48m below the implied level, MNF Group’s first-half result was not welcomed by the market despite reiteration of operating profit guidance, observes Canaccord Genuity. The company reported a loss of -$2.1m in gross profit from ADSL customers going to NBN.

Operating profit guidance for FY20 increased by $3m to $36-39m post- AASB 16 basis, implying a $3m benefit from adopting the standard.

There is evidence of solid organic growth in the business which is expected to increasingly dominate the earnings mix and improve the valuation rating, finds Canaccord.

The broker has made minute changes to the operating profits forecast, lowering the FY20 estimate by -2% with no change in estimate for FY21 and a 2% uplift for FY22.

Canaccord Genuity expects better quality recurring revenues from UCaaS and CPaaS customers in the future, as well as earnings to emerge from the Singapore business.

The broker regards the stock positively and rates it a Buy with target price unchanged at $5.90.

The report was published on February 25, 2020.

Target price is $5.90 Current Price is $3.56 Difference: $2.34
If MNF meets the Canaccord Genuity target it will return approximately 66% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Canaccord Genuity forecasts a full year FY20 dividend of 7.00 cents and EPS of 19.00 cents.
At the last closing share price the estimated dividend yield is 1.97%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 18.74.

Forecast for FY21:

Canaccord Genuity forecasts a full year FY21 dividend of 11.00 cents and EPS of 25.00 cents.
At the last closing share price the estimated dividend yield is 3.09%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 14.24.

Market Sentiment: 1.0
All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

PGX    PRIMERO GROUP LIMITED

Mining Sector Contracting – Overnight Price: $0.16

Canaccord Genuity rates ((PGX)) as Buy (1) –

The Primero Group reported earnings below Canaccord’s expectations after booking $40m of revenue related to Wartsila at 0% margin, due to uncertainty around payment, notes Canaccord Genuity.

Operating profit of $4.1m was below Canaccord Genuity’s $6.1m estimate but excluding the Wartsila contract, the remainder of the business performed in line with Canaccord's expectations. Revenue of $112.5m was 35% above the second half of 2019 while group operating profit margins were at 3.6%, compared to the broker’s forecasted 6.9%.

The company’s updated FY20 contracted order book is $195m, with FY21 order book at $170m and the group anticipating second-half operating profit margins to be about 6%-8%, in-line with the long-term average, notes the broker.

The broker remains cautious about Wartsila being a credit risk but also notes the arbitration process in South Australia is relatively streamlined, and the time between claim and payment can be as little as a month.

The broker retains Buy rating with target price decreased to $0.54 from $0.70.

The report was published on February 25, 2020.

Target price is $0.54 Current Price is $0.16 Difference: $0.38
If PGX meets the Canaccord Genuity target it will return approximately 238% (excluding dividends, fees and charges).
The company's fiscal year ends in June.

Forecast for FY20:

Canaccord Genuity forecasts a full year FY20 dividend of 0.00 cents and EPS of 4.00 cents.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 4.00.

Forecast for FY21:

Canaccord Genuity forecasts a full year FY21 dividend of 2.00 cents and EPS of 5.00 cents.
At the last closing share price the estimated dividend yield is 12.50%.
At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 3.20.

All consensus data are updated until yesterday. FNArena's consensus calculations require a minimum of three sources

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The content of this information does in no way reflect the opinions of FNArena, or of its journalists. In fact we don't have any opinion about the stock market, its value, future direction or individual shares. FNArena solely reports about what the main experts in the market note, believe and comment on. By doing so we believe we provide intelligent investors with a valuable tool that helps them in making up their own minds, reading market trends and getting a feel for what is happening beneath the surface. This document is provided for informational purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. FNArena employs very experienced journalists who base their work on information believed to be reliable and accurate, though no guarantee is given that the daily report is accurate or complete. Investors should contact their personal adviser before making any investment decision.

As part of emerging new trends overseas, The Australian Broker Call *Extra* Edition also includes providers of sponsored research. Readers should bear in mind, sponsored research, while not necessarily of lower quality, has the embedded complication that the company that is the subject of the research has paid for this research. Providers of sponsored research that can potentially be included in this Report are Breakaway Research, Edison Investment Research, Independent Investment Research, NDF Research, Pitt Street Research, and TMT Analytics.

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