FYI | Jan 28 2021
This story features LYNAS RARE EARTHS LIMITED, and other companies. For more info SHARE ANALYSIS: LYC
By Peter Switzer, Switzer Report
My spotlight is on these 5 stocks
Last Saturday I shone the spotlight on the five big winners and losers of the past week of trading. Today I thought I’d see what the expert analysts think about these winning companies. After big rises for the likes of Zip and Lynas, you could expect a bit of profit-taking this week (fund managers do that) but let’s see if there could be a positive trend for these stocks going forward.
1. Zip Co ((ZIP))
Until last week, the analysts surveyed on FNArena thought Zip Co’s outlook was positive. Two weeks ago with my first story of the year, I pointed out that Zip had a [consensus price target suggesting] 21.2% upside so the analysts I looked at were on the money, and more!
Z1P one month
Since Christmas, the stock is up 40% going from $5.15 to $7.23. But now the analysts’ target prices are a tad lower, so an 8.1% drop is tipped.
That 28.8% jump last week has done that, and while I think this is a good company with a future (which benefits when Afterpay spikes because of what’s called the halo effect), the future upside will depend on some new runs on the board from the company.
These can’t be easily predicted. But, like Afterpay, these guys often come up with new acquisitions and it’s why I argue Z1P is a good “buy the dip” kind of company.
And they should be a good long-term play as well, given the news last week.
Zip reported an 88% spike in quarterly revenue to $102 million on the back of record quarterly transactions of $1.6 billion. That’s a 103% rise. “The company boasted it had now cemented itself as a “true global BNPL leader”, and was closing in on Afterpay in Australia,” The Australian reported.
“We’re the fastest growing industry player in Australia – we were the most downloaded BNPL app in December,” co-founder Peter Gray said last week.
2. Lynas Rare Earths ((LYC))
Lynas has always been a tricky company to play but recently on back of our Switzer Report I dabbled with this miner of rare earths, and it has saluted the judge. However the analysts now think the latest share price spike was too much. The survey [suggests] a 23.6% downside risk exists but these look too negative, given the news last week.
“Australian rare earths miner Lynas Corp’s (ASX: LYC) shares jumped on Friday after it announced a deal with the US government to build a commercial light rare earths separation plant in Texas,” Mining.com reported. “The facility, expected to produce about 5,000 tonnes of rare earths a year, would help Washington’s push to secure domestic supply of essential minerals used in magnets and motors that power phones, wind turbines, electric vehicles and military devices.”
Once again, Lynas could face a bit of profit-taking, but the longer-term potential of the company was seen by many investors on Friday. This should not be forgotten, whenever the company’s share price slips. China currently accounts for 70% of worldwide production and controls 90% of the $4 billion global market. So with relations with China souring, especially with the US and us, Lynas could be well placed.
That said, this has been a company that can disappoint, just when you think it’s on the way up.
3. Netwealth ((NWL))
The next company is one that I’ve never had any interest in but Netwealth had a nice rise last week — up 20.5%. And where there’s smoke, there’s often a fire worth getting warmed up by. At this point in time, the analysts are leaving the company out in the cold. The assessment is that the share price should fall by 13.4%!
Back in October, we learnt that there had been an 8% increase in funds under management (FUM) during the September quarter, the majority of which was attributed to positive inflows rather than market movements. The platform group also noted a 109% year-on-year increase in its managed account balanced over the 12 months to 30 September, despite negative market movements over the period.
Further, Netwealth said net inflows to its funds under advice had been $9.1 billion in the 12 months to 30 June, and that it had recorded a 35% increase in funds under advice in the 12 months to June (ifa.com).
This good news continued, with funds under administration (FUA) at 31 December 2020 of $38.8 billion, an increase of $4.8 billion (14% increase) for the December quarter, including a market movement of $2.2 billion. The company also liked that it was named as a Top 200 company (out of 18,000 companies) in the 2020 Forbes Asia, which recognises 200 Asia Pacific companies with less than US$1 billion in revenue that demonstrate consistent top and bottom line growth, low debt and robust governance.
The one-year chart shows a company that’s on the way up, but, once again, we could see some profit-taking. Before the Coronavirus crash this was an $8.54 company. Now it’s $17.75, so that’s a 107% gain, which is clearly coming out of the demise of its bigger rivals, such as AMP.
Given I believe stocks will rise in 2021, NWL is another “buy the dip” company, but the biggest rises might have already been clocked up.
4. Bingo Industries ((BIN))
The next company is Bingo (BIN), which registered a 20.22% rise last week, but the analysts think a 9.8% downside is ahead. This isn’t surprising given the latest rise follows the announcement that the company had received a $2.3 billion takeover bid offered up by an Australian private equity group for its waste management business. Bingo confirmed media reports it had been approached by CPE Capital and a consortium of investors to acquire the company under a proposal of $3.50 per share.
The current share price is now $3.27. I don’t like getting into these takeover plays. Many years ago, the late Rene Rivkin told me he often gets into these because he believed the first offer is never the best. But it’s a gamble that can backfire if the buyer is not for haggling.
The long-term chart shows $3.27 is the top for this company. It has always had trouble spiking much higher. At these levels, Bingo goes in the bin for me.
5. WiseTech Global ((WTC))
The final winner is WiseTech Global (WTC), which put on 19.73% last week, but that was too much for the experts, who think it could fall 22%!
This is a company that has been a victim of Viceroy Research, the same short seller as Tyro. This market thumbs up might not only be a sign that the company is better than was suggested by the self-interested short-seller, it might also say that the research leaves a lot to be desired.
After Viceroy bagged WTC’s expansion programme, the company returned fire, with WiseTech’s chief financial officer, Andrew Cartledge, saying he had “serious concerns” about Viceroy’s claims and that they lacked understanding of the firm’s acquisition strategy and the risk, cost and time involved in developing technology internally versus acquiring it. (SMH)
This big spike in the share price is a plus for WTC and a minus for Viceroy.
The long-term chart says WTC has re-established itself in the eyes of the market, but it will have to come up with some proof in coming months that its acquisitions deliver profits, or recent gains will unwind. The current share price of $33.20 isn’t far from its previous highs so if you want to invest in WTC, you need to believe that all their promises are more than promises.
Management advised that the share price rise was driven by growth from both its CargoWise platform and newly acquired businesses.
Earlier this year, management reaffirmed its FY 2021 revenue guidance of $470 million to $510 million and EBITDA guidance of $155 million to $180 million. This represents revenue growth in the range of 9% to 19% and EBITDA growth of 22% to 42%.
CEO Richard White told the AGM that “CargoWise is the market-leading platform for global logistics execution and is well-positioned to strengthen its position in the global market over the near-term and long-term.”
That said, a note from Citi in December said it was a seller and had a target of $27.70, which means they got that a ‘bit’ wrong! But they’re not alone, with Credit Suisse targeting $28, Morgan Stanley $26, Ord Minnett $24.75 and Macquarie $23.
It would seem that WTC has a bit to do to impress the analysts.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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