Treasure Chest: Small Caps Favourites

This story features INSIGNIA FINANCIAL LIMITED, and other companies. For more info SHARE ANALYSIS: IFL

By Rudi Filapek-Vandyck

Mr Market clearly didn't like the interim results released by mining services provider and rail equipment manufacturer Bradken ((BKN)) this morning. One might wonder what there was not to like after the company reported a jump in net profits of no less than 65% in the first six months of its fiscal year to June?

Two problems: market expectations were higher and company management left the guidance for the year unchanged, which pretty much takes out speculation for positive surprise potential, at least for the short term.

As I write this story the share price is down close to 2% and it's not that Bradken shares were truly expensively priced ahead of the event. Not at all. That was the reason why Bradken was on many a stockbroker's favourite list for the year. At RBS, for example, the small caps team reiterated their "conviction" yesterday to be "long" Bradken and to combine this by being "short" Oakton ((OKN)). Over at Goldman Sachs, the Emerging Companies Model Portfolio equally contains Bradken. The pain is higher at Credit Suisse where small caps analysts only this week added Bradken to their Focus List while removing Clough ((CLO)).

Clough shares are up more than 1.25% today and will at this rate soon land on Icarus' radar (consensus price target is approaching fast). One day's movement does not make a full year's investment strategy, but it'll be interesting to see what the stockbrokers responses will be in the days ahead.

Maybe other choices made recently by these stockbrokers and small caps specialists might prove better in terms of share price developments? Only the future will tell.

Credit Suisse made a few changes to its Small Caps Focus List this week, by nominating Flexigroup ((FXL)) among the favourites and removing IOOF Holdings ((IFL)), by adding Super Retail Group ((SUL)) and removing OrotonGroup ((ORL)), by adding Wotif ((WTF)) and removing GWA ((GWA)) and by elevating Cockatoo Coal ((COK)) and demoting Fantasic Holdings ((FAN)). As mentioned, there was also the proposed switch between Bradken and Clough.

Small Caps specialists at Goldman Sachs made only one change this week, they elevated Breville ((BRG)) and removed Flightcentre ((FLT)) from their Emerging Companies Focus List. Other stocks on the list include Ausenco ((AAX)), Adelaide Brighton ((ABC)), Austbrokers ((AUB)), Henderson Group ((HGG)), iiNet ((IIN)), Imdex ((IMD)), Iress ((IRE)), Kingsgate Consolidated ((KCN)), Kathmandu ((KMD)), Mineral Deposits ((MDL)), McMillan Shakespeare ((MMS)), Norfolk Group ((NFK)), OrotonGroup, St Barbara ((SBM)), Sedgman ((SDM)), Sandfire Resources ((SFR)) and Super Retail Group.

Note that Ausenco and Breville are rated Neutral, all others Buy.

At RBS, Conviction Calls for the year ahead are made via pairs whereby one is believed to be the future outperformer and the other the opposite and thus the funding source. As such, RBS this week announced three changes. Among mid-cap resources the stockbroker's high conviction call is to go long Independence Group ((IGO)) funded out of Aquila Resources ((AQA)). In the basic materials sector RBS now recommends being long Orica ((ORI)) funded out of Nufarm ((NUF)). And as flagged earlier, the broker's small caps team reiterated being long Bradken with Oakton being the funding source.

Click to view our Glossary of Financial Terms