Tag Archives: Media

article 3 months old

iCar Asia Rapidly Gaining Market Share

-Recent price rises absorbed
-Merger benefits forthcoming
-Thai profitability possible in FY16
 

By Eva Brocklehurst

Online vehicle classifieds provider iCar Asia ((ICQ)) is fulfilling broker expectations, after revealing continued momentum across its three markets in the March quarter. The company is consolidating its Thai acquisition faster than Canaccord Genuity expected and price rises in Malaysia mean the broker's FY15 revenue forecasts are on track. The company continues to gain share in Indonesia.

Canaccord Genuity has a Speculative Buy rating on iCar with a $1.43 target. The broker believes the next 12-18 months is critical to the evolution of the business as revenue generation comes to the fore after a period of market share gains. The Malaysian platform is now reflecting 80% of dealers uploading listings independently, and this reduces the reliance on iCar Asia's listing force, lowering costs and ultimately increasing margins. Recent price rises have been absorbed well, in the broker's view, and further product initiatives are expected to be rolled out in the near term with the focus turning to the new car dealer market.

The integration of One2car.com, Thaicar.com and Autospinn.com has occurred quickly with the company establishing cost efficiencies across Thailand and migrating 1,600 paying dealers from a complex structure to a simple four-level structure. However, Canaccord Genuity expects some dealer attrition from the shift. The recent launch of the response management system (RMS) platform in Indonesia has seen active dealer involvement increase substantially. The acceptance of the product by dealerships is well above what Canaccord Genuity expected, indicating the potential for monetisation to occur early than expected.

Morgans expects further benefits from the price rises and mergers will be forthcoming. The broker retains an Add rating and $1.35 target. Morgans forecasts iCar Asia will need to raises around $15m in new capital prior to the end of the current financial year. Barring future acquisitions, this capital raising should be the last the company needs to make before becoming a significant generator of cash flow. The broker estimates that the company's platform has now penetrated more than 65% of all major car dealers in Malaysia, Thailand and Indonesia.

Quarterly cash outflow of $3.7m was in line with the broker's expectations, affected by $700,000 in one-off merger integration and seasonal bonus costs. Morgans considers, as an early stage monetiser of developing market online classifieds, the company is performing well. There is potential upside, too, if it moves to charging for feature credits in Indonesia this year. The broker acknowledges negative operating cash flow can be expected in the early years of market penetration but by any measure, be it dominance in consumer engagement, capturing a major share of relevant dealer custom or the ability to raise prices well above industry growth rates, iCar Asia is delivering an exceptional performance.

Malaysia remains the most advanced of the company's markets with the site carlist.com.my increasing prices by 166% since February 1. This listing has now become the dominant supplier of sales leads to car dealers in Malaysia. Morgans notes the price rise caused a negative reaction from some dealers but many who deserted the site in February have since returned. Meanwhile, Thailand is on track to reach break-even or profitability in the second half of FY16.

Indonesia is the least developed of iCar Asia's markets. The Mobil123.com portal rolled out its RMS in December 2014 and now has 2,959 dealers using the system. Currently services are free to dealers and a decision when to commence charging has not yet been made. Morgans notes the main vertical competitor in Indonesia, carmudi.co.id, has been unable to close the gap in terms of consumer engagement or vehicle listings.
 

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article 3 months old

Weekly Broker Wrap: Media, A-REITs, Life Insurance, Tourism And Food

-Digital media to outperform
-Bell Potter upgrades My Net Fone
-Impact of closing some MYR stores
-Implications from Trowbridge report
-Inbound tourists staying longer
-Oz food companies perform strongly
 

By Eva Brocklehurst

Media

Morgan Stanley acknowledges a conundrum in its media coverage. The broker has never been more bearish on the medium term outlook for newspaper, TV and radio earnings and asset values yet it is upgrading the industry view to Attractive from Cautious. The reason is the composition of the stocks under cover have changed dramatically. In 2008 traditional media accounted for 90% of the value in the broker's coverage. Today, that has declined to 40% and internet and digital assets account for 60%. Looking forward, in aggregate, the broker expects the sector will outgrow and outperform the broader Australian market. Hence the relative Attractive rating.

Morgan Stanley's order of preference in internet/digital media is Seek ((SEK)), REA Group ((REA)) and Carsales.com ((CAR)). Among traditional media the broker's highest conviction Overweight stocks are market share winners such as Nine Entertainment ((NEC)) and APN Outdoor ((APO)) and those with undervalued turnaround potential such as Fairfax Media ((FXJ)) and APN News & Media ((APN)).

My Net Fone

My Net Fone ((MNF)) has acquired the global wholesale voice business of Telecom NZ ((TEL)) for consideration of NZ$22.4m to be initially funded with a $25m bank facility. The acquisition is forecast to generate revenue in FY16 of $90-100m and earnings of $3.5m before synergies. Revenue synergies are largely expected from providing wholesale managed services and software products to Telecom NZ International customers.

Included in the revenue forecast is a 3-year exclusive trading agreement with Spark New Zealand for international minutes, which the company estimates will generate annual revenue of around $10m. Bell Potter upgrades FY16 and FY17 estimates by 4.0% and 11% respectively on the back of the acquisitions but downgrades FY15 by 2.0%, largely because of acquisition costs. The broker increases the MNF price target to $4.00 from $3.00 and upgrades its recommendation to Buy from Hold.

Myer and A-REITs

Macquarie has looked at the implications for Australian Real Estate Investment Trusts (A-REITs) of closing underperforming Myer ((MYR)) stores. To date Myer has typically been handing back space at lower quality malls at the expiry of leases, rather than breaking leases early. Macquarie suspects, with a weighted average lease expiry of 15 years or so for the network, this will likely remain a slow burn for retail A-REITs. International retailers may spur a forecast 215,000 square metres in incremental demand in Australia but this will be centred on CBDs and high quality regional malls, which makes the redevelopment of lower quality centres post any Myer departure problematic, in the broker's view.

Any departure by Myer may be positive on the rent front but the capex outlay required to refit the space is more often value destructive for the retail landlords, Macquarie contends. An example is Dandenong, where JB Hi-Fi ((JBH)), Aldi, Daiso and Trade Secret took part of the old Myer space but factoring the $30m development cost, it was destructive to net present value. The broker considers the impact of any Myer departure on the existing discretionary retailers in the centres is negative as well. Hence, coupled with a general expectation for modest earnings and distribution growth for certain retail landlords, Macquarie remains Underweight on the retail A-REIT segment.

Life Insurance

The government is ramping up the pressure on the life insurance industry to adopt the recommendations of the Trowbridge report. The federal assistant treasurer, Josh Frydenberg, has said the extent to which government intervention is required will depend ultimately on the industry's own actions. The most significant concern is the upfront commission model which has misaligned the interests of insurers, advisers and clients, creating significant churn. JP Morgan considers the assistant treasurer's words a threat to the planning industry and life insurers. 

JP Morgan expects that if the remuneration measures outlined in the report are adopted, it would likely release capital in the industry and lead to improving returns if margins were not competed away. The broker also observes there has not been any strong response from the Financial Services Council, a co-sponsor of the report, although it appears to tacitly support the report. The Association of Financial Advisors, which also co-sponsored, has not supported the findings in the current form. JP Morgan believes there is still some way to go but addressing churn in the industry would be a positive for listed life insurers such as AMP ((AMP)) and Clearview Wealth ((CVW)).

Tourism

Are tourists responding to the weaker Australia dollar? That's the question ANZ analysts ask as the mining boom peters out. The analysts note statistics which show a weaker Australian dollar is encouraging more overseas visitors and they are staying longer and spending more. There were record visitor numbers from 15 key markets last year with China leading the way. Despite the increased cost of international holidays, the number of Australians travelling abroad remains strong. Domestic tourism is also robust, but underpinned by business travel and visits to family and friends. Hence, the analysts suggest the economy will gain most from incoming tourist arrivals and these should continue to strengthen, assisted by further falls in the currency and stronger economic growth in key offshore markets.

Food

Canaccord Genuity Australia has reviewed a number of factors which are driving the strong performance of ASX-listed food and agricultural companies. Domestic and global population growth, specifically the expansion of the Asian middle classes, and a subsequent increase in demand from Asia for Australian agricultural exports are supportive. The lower Australian dollar will also drive increased competitiveness in exports. Australia has a reliable history in the sector and strong "clean and green" credentials, which should continue to play out favourably, in the analysts' view. There is also increased focus and fund allocation to these stocks from investment managers.

The five companies covered by Canaccord Genuity within this area have delivered mean returns of 104.5% from the time of the broker's initiation on the stock (three years or less). Coverage to date includes dairy companies such as Bega Cheese (BGA)) and Warrnambool Cheese & Butter ((WCB)), sandalwood oil producer TFS Corp ((TFC)), almond producer Select Harvests ((SHV)) and honey producer Capilano ((CZZ)).
 

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article 3 months old

APN Outdoor Grows Fast In Fast-Growing Market

-Stock has re-rating potential
-Wins Sydney Airport T2 contract
-Debt vs earnings ratio to fall
 

By Eva Brocklehurst

APN Outdoor ((APO)) is growing fast in a fast-growing market segment - billboards. As traditional media splinters and advertising effectiveness dissipates, advertisers have increasingly turned to billboards as a means of getting the message across. This is even more the case with the emergence of smart or digital billboards, which improve the impact of the medium. Hence, Morgans envisages another five years of solid growth ahead for the company. The broker notes the outdoor advertising sector has been the second fastest growing advertising medium, after online, in the past decade.

Morgans initiates coverage on the stock with an Add rating and $3.54 target. Conversion of static outdoor billboards to higher yielding digital billboards over the next few years will be the catalyst for growth, in the broker's opinion. APN Outdoor trades at a material discount to comparable listed outdoor advertising companies and has re-rating potential, with a continuation of recent growth rates and the digital conversion the main catalysts.

The company had 34 digital billboards in operation at the end of 2014. Demand is high and yields are attractive. Morgans observes outdoor advertising has high fixed costs built on long-term site leases while revenue is short term, with site bookings made typically no more than 30-60 days prior to ad placement. The main risks, therefore, relate to a slowing in digital conversions or the loss of a major leasing contract, as outdoor advertising companies are highly dependent on economic activity and advertising spending. Still, the risks are probably no higher than for any other media, the broker maintains.

UBS observes the company has renewed its Sydney Airport T1 external contract, the only one due for renewal in 2015, and acquired the T2 internal contract, pushing out incumbent competitor oOh!Media ((OML)). The new T2 contract will commence from October 2015. Earnings impact is likely to be modest as airports remain APN Outdoor's least profitable division, the broker contends. Still, UBS acknowledges the renewal of the Sydney Airport contract alleviates some contract risk and suggests 2015 prospectus forecasts will be met.

The broker notes the outdoor market was up 16% in January, although forward comparables will be tougher. UBS maintains a Buy rating and $3.15 target. The broker considers the stock attractive on current metrics, with a 3.0% dividend yield, and maintains a Buy rating and $3.15 target. The balance sheet suggests the net debt to earnings ratio will fall to 0.2 in 2018 from 1.7 in 2014, paving the way for potential capital management and/or M&A options.

The company recently beat its 2014 prospectus estimates but emphasised at the time it was too early to expect outperformance again in 2015, given ad market visibility is limited to a few months. Still, UBS notes 2015 trading has been positive so far, although the December quarter remains the largest and most important trading quarter.

APN Outdoor has six primary advertising categories, including billboards, transit, rail, airports, street furniture and retail centres and was listed on ASX late last year.
 

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article 3 months old

Weekly Broker Wrap: Supermarkets, Packaging, Airlines, Health Insurers And Media

-Supermarket competition ramps up
-Globally focused stocks less constrained
-Lower AUD, oil benefits packagers
-Airline industry more rational
-Health insurer margins diverge
-Media heads for flat end to FY15
 

By Eva Brocklehurst

Supermarkets

Given elevated earnings risk, Morgan Stanley believes investors should continue to avoid the Australian supermarkets. Since March 2013 the broker has argued that aggressive store roll-outs and the emerging competitive threats form Aldi and Costco would impact on the major supermarkets' profitability. Woolworths ((WOW)) has recently indicated it will start to invest in price and Morgan Stanley expects this will slow industry growth further. The broker is alarmed by the chain's recent admission that it had lost share as consumers perceived its prices to be too high. The broker lowers its industry sales growth outlook for FY15-17 to 2.5% from 4.1% to reflect this looming price competition.

As a result, Morgan Stanley has downgraded Wesfarmers ((WES)) to Equal-weight from Overweight on slower growth expectations for Coles. Coles has, in recent years, employed more sustainable strategies to drive profit growth compared with its rival, Woolworths, but the broker does not consider it immune to a weaker outlook. Metcash ((MTS)) will be the most affected by competitor price investment because of its poor positioning and thin margins, in Morgan Stanley's view. Its weak balance sheet compounds the problem.

Morgan Stanley believes Australian supermarkets are fast becoming a zero sum game, and the big chains will increasingly take share from each other rather than the independents. While the Metcash-supplied IGA and specialists (greengrocers, delicatessens) control 22% of the market, the broker believes this overstates the opportunity to gain market share, especially from specialists. While the broker concedes its outlook for Woolies and Coles looks quite bearish in isolation, in the light of weaker industry growth it becomes more plausible.

Equity Strategy

Macquarie has reviewed the equity market outlook following changes to its currency and commodity price forecasts. In a demand-deficient, low-growth environment those stocks able to deliver sustainable, above-average earnings growth will stand out. The broker increasingly finds these are located in the international industrials space, reflecting the fact they are not constrained to the low demand currently being experienced domestically and have a larger pool of opportunities available, such as acquisitions. The lower Australian dollar will also boost translation of offshore earnings. Key picks? Westfield Corp ((WFD)), James Hardie ((JHX)), Amcor ((AMC)), Computershare ((CPU)) and CSL ((CSL)).

Paper & Packaging

Deutsche Bank considers the outlook for the packaging sector is positive, as companies benefit from lower raw material costs, stable trading and a depreciating Australian dollar. Balance sheets appear sound and the broker expects both organic growth and acquisitions are in the frame. Amcor is still experiencing good growth in emerging markets and there are signs of improvement in the US. Orora ((ORA)) is benefiting from operational improvements as is Pact Group ((PGH)). Considering valuations are more demanding Deutsche Bank believes Pact provides the greatest valuation upside, trading at 12.7 times FY16 earnings estimates, with a dividend yield of 4.6% and free cash flow yield of 7.5%.

Airlines

Goldman Sachs expects a rebound in the profitability of Australasian airlines. Qantas ((QAN)) and Virgin Australia ((VAH)) are expected to deliver a major turnaround in earnings in FY15/16, underpinned by cost cutting, lower fuel pricing and more rational industry conditions. The broker reiterates a Buy rating for Qantas and expects a return to pre-tax profit in FY15 of around $855m. Free cash flow should be stronger and lead to lower gearing in FY15-17. The broker has reinstated Virgin with a Neutral rating as, while a turnaround is still expected, the improved outlook appears captured in the share price. The broker also considers Air New Zealand ((AIZ)) is fairly valued and retains a Neutral rating, with strong earnings growth expected, backed by solid demand.

Health Insurance

Industry-wide margins fell in FY14 and Goldman Sachs observes gross margins are far from uniform across the sector. The margin of Bupa is 200 basis points better than both Medibank Private ((MPL)) and HBF, Western Australia's largest health insurance provider, and even further ahead of nib Holdings ((NHF)). Australia's largest not-for-profit health fund, HCF, continues to position with a much lower margin. Within the groups of smaller funds, Goldman notes the open funds generate margins similar to the leaders whereas the small restricted funds are much lower. The broker believes claims will continue to rise strongly, given the ageing cohort of policy holders. Hence, gross margins by fund may diverge even further, depending on that fund's particular focus. Hospitals cover is expected to be well placed, given the margins are in an upwards trend.

Media

Ad market agency bookings lifted by 1.5% in February year on year and brings year-to-date growth to 0.9%, UBS observes. Bookings were weaker in February for banking & finance, pharmaceuticals, household supplies, general retail and travel. Automotive, education, food and insurance spending lifted. Metro free-to-air TV spending was up 1.5% and regional TV was up 3.3%. Metro radio fell 2.7% and regional radio rose 20%. Newspapers fell 14.3%, digital ad spending rose 5.2% and outdoor bookings were up 8.8%.

UBS believes Nine Entertainment's ((NEC)) recent trading suggest revenues are up 8-9% in the current quarter with market share trending towards 40%. Guidance from both Seven West Media ((SWM)) and Nine suggests FY15 market growth will be flat for TV, with a recovery in the second half of 2015. JP Morgan notes the start to the second half of the financial year was modest and driven by non-traditional media such as digital and outdoor. This broker also expects a flat finish to FY15 with metro TV trends subdued and print still challenged.
 

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article 3 months old

Freelancer Shapes Up For Growth Surge

-Platform liquidity above forecasts
-30% compound growth over five years
-Cash flow to increase from FY18


By Eva Brocklehurst

Freelancer ((FLN)) continues to penetrate a large and deep global market for freelance workers. Canaccord Genuity is impressed with the improved platform that has enabled the company, that connects consumer and small business projects with an online workforce, to be one of the fastest growing technology providers listed on ASX.

The broker reiterates a Buy recommendation and has updated its valuation model to a discounted cash flow methodology from an enterprise value/revenue multiple, which increases the price target to $1.46 from $1.38. Freelancer appears expensive on face value but, when breaking down its earnings, the broker estimates the stock trades at a discount to the ASX Industrials, while experiencing a significantly stronger revenue growth profile and higher marginal return on invested capital (ROIC). These are the two drivers of value creation, in the broker's view.

Freelancer reports an 87% gross profit margin and has an implied sustainable earnings margin of 65%, with an incremental ROIC that is likely to drive a 30% compound revenue growth rate over the next five years. Canaccord Genuity takes the view that in early-stage software companies, revenue growth matters more than improvements in margins, with high-growth companies seen offering returns to shareholders five time greater than medium-growth companies over the long term.

Given the volume of projects listed on the company's website, 2015 has begun strongly and platform liquidity is tracking above Canaccord Genuity's previous expectations. The broker expects the company will make further investments in marketing and product and expand into new regions and territories in the near term. All up, growth is considered a proxy for value, although the broker warns that, in this context, value does not mean reported earnings.

Canaccord Genuity estimates that 75% of operating expenses in FY14 were on growth initiatives such as marketing, product engineers and customer acquisitions with the remainder allocated to maintaining support staff, call centre and fixed overheads. The company is expected to break even on a statutory basis in FY18, as it slows its reinvestment rate to 50% of group revenue. The slowing of relative expenditure should allow free cash flow to materially increase from FY18. Management remains reluctant to provide guidance on when exactly it plans to ease off the growth pedal and this is a potential risk to earnings forecasts, the broker acknowledges.

See also Market Domination Key To Freelancer on December 9 2014.
 

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article 3 months old

Weekly Broker Wrap: Financials, Media, Insurance And Transport

-Need to scrutinise diversified financials
-Improved gearing flexibility in media
-Margin erosion ahead for insurers
-Nib vulnerable to consumer choice
-Heightened M&A in transport?

By Eva Brocklehurst

Diversified Financials

Credit Suisse considers diversified financials relatively inexpensive and poised for strong earnings growth. Among large caps the broker's preference is for Challenger ((CGF)). Among fund managers, Perpetual ((PPT)) is preferred, offering double digit earnings and valuation support. In the wash up of reporting season, the broker notes December quarter funds management growth was positive for all those under coverage, with Henderson Group ((HGG)) having an exceptional 12 months, albeit flows appear to be decelerating.

Fund managers are trading below their historical 15% premium to the ASX200 and offer earnings growth of 5.0% in FY15 and 12% in FY16, on the broker's estimates, driven not only by markets but by operational leverage, acquisitions and cost cutting programs.

Citi considers absolute value is hard to find in the sector and only has Challenger and Henderson on Buy ratings. Several stocks in the sector offer reasonable fully franked yields and solid earnings growth and this could put them in demand, in the broker's view. While a further market rally could take stocks above valuation, Citi remains hopeful of refining entry points for key stocks in the wake of any correction.

Media

There is an element of improved gearing/financial flexibility in those media stocks that announced a buy-back during the latest results and JP Morgan believes this also signals that no material media regulatory reforms are expected to occur in 2015. The metro TV ad market is expected to be flat in the first half of the year. Nine Entertainment ((NEC)) and Southern Cross Media ((SXL)) are most optimistic, given the impact of cricket coverage,  with a more subdued outlook at Seven West Media ((SWM)) and Prime Media ((PRT)). In online classifieds the broker envisages a period of reinvestment and movement down the value chain, resulting in lower longer-term industry earnings margins in a maturing growth profile.

First radio surveys of the year show a slow start and small decline for Southern Cross's commercial metro ratings share and JP Morgan believes it will take time to rebuild the audience. The company's metro radio's turnaround is the most pressing operational issue, given current gearing metrics. APN News & Media's ((APN)) ratings momentum continues to be strong but its gearing also remains at the higher end of the sector, the broker observes, with the company reliant on a strong radio performance to alleviate concerns.

Credit Suisse found APN News the clear number one in radio ratings in the first 2015 survey as its audience share expanded. Credit Suisse expects the Australian metro radio market will look considerably different at the end of 2015, with four more metro radio networks on board earning similar revenue with similar ratios and audience share. The broker retains an Outperform rating on APN News and Underperform on Southern Cross.

Insurance

February was a reminder to UBS that insurance is cyclical, with confidence in the maintenance of margins collapsing as GWP (gross written premium) declined. Suncorp ((SUN)) and Insurance Australia Group ((IAG)) no longer look as expensive and QBE Insurance

((QBE)) no longer looks as cheap. The broker believes investors are at a relatively early stage in acknowledging the cycle pressures that will translate into significant margin reductions.

There is no template for a typical insurance downturn, in UBS' observation, but GWP growth of 1.0% for the majors is well below the industry average of 3.0%. This scenario played out in FY05-08 with sustained pricing pressure across a number of lines. Eventually, the broker notes, margins were crunched. While GWP has slipped, there has been no acknowledgment to date among the general insurers that underlying margins are at risk. UBS factors in a 1.0% underlying margin erosion for both Suncorp and Insurance Australia for the next two years.

Health Insurance

Scale players are increasingly making their mark in this industry and this is becoming an important differentiator. The latest data reveals the top five health insurance players lost 60 basis points of market share in 2014, continuing a trend of policies moving to smaller players. Further, Deutsche Bank observes, net margins for small players fell much more than their larger rivals. The broker expects good margin head room is still there for Medibank Private ((MPL)) if it can extract scale efficiencies, but this may take time. For nib Holdings ((NHF)), its low-margin hospital book is at risk if consumers buy extras cover elsewhere. Nib's results were significantly affected by its loss-making Top-Extras 85 policy, reducing its gross margin for extras. Its hospital gross margins are also narrow, particularly in NSW, and this suggests that any shift in consumer buying habits could leave the company exposed.

Transport

Weak growth dominated the sector in the latest reporting season, reflecting a tough domestic economic backdrop. Cost cutting benefits were showing through but not enough to flow to earnings, in Deutsche Bank's observation. The broker continues to like Asciano ((AIO)) for its increasing cash flow and cost reductions as well as an increased dividend profile. Brambles ((BXB)) is attractive for its international business exposure while Qantas ((QAN)) has regained favour, given its expected restructure and lower fuel cost benefits. Going forward, cost inflation and weak headline growth may signal a turn up in merger & acquisition activity or restructuring to augment earnings, in the broker's opinion.

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article 3 months old

Strong Start To 2015 For oOh!Media

-Digital adoption to fuel growth
-Broad national presence
-Dividend target in 2015
 

By Eva Brocklehurst

oOh!Media ((OML)) made a strong start to 2015, beating prospectus forecasts in its maiden result as a listed company. Outdoor media, in which the company operates, has bucked the trend seen in other advertising channels, delivering strong growth in a fragmenting media landscape.

JP Morgan expects returns will increase over the medium term. The company operates in an industry with high barriers to entry and constraints on supply. Moreover, Out-of-Home category is expected to benefit from the adoption of digital technologies, presenting new revenue opportunities. Increased yield and effectiveness come from the digital engagement. The market size is growing and its consumers are more interactive. Combine this with a national footprint and it means broad-based advertising campaigns can be launched as well as targeted advertising.

The company offers a relatively diverse exposure to the category, having a presence on roadside billboards, in retail and social precincts and at airports. The number of advertising sites as well as content is constrained by regulations so any changes can have an impact on the market structure and future earnings. Additionally, plans to convert a number of large format billboards to digital are dependent on relevant development approvals. Hence, oOh!media has focused initially on the retail and airport segments because of the proximity to purchases and the quicker regulatory process.

The next stage of the strategy is to roll out the large format digital panels on roads. This is expected to increase digital revenue to $80m in 2015 from $60m in 2014. Digital revenue would then increase its contribution to revenue to 30% from 23%. JP Morgan believes the digital strategy should ensure the company obtains double digit earnings growth over the next five years.

The broker has an Overweight rating and price target of $2.51 and notes the board intends to target a dividend pay-out ratio of 40-60% of pro forma 2015 adjusted profit. JP Morgan expects an 8c dividend in 2015, rising to 9c in 2016.

Macquarie is upbeat on the outlook and does not believe the current valuation is challenged. An Outperform rating and $2.70 target are maintained. The company is expected to spend over $30m during 2015 of which more than $26m is slated for growth opportunities. oOh!Media will continue to digitise its retail portfolio and ramp up investment in roadside.

Full year returns from the capital expenditure are likely to come in 2016. Returns will continue to lag investment in this manner, Macquarie maintains, providing a positive earnings driver beyond 2016. Capex is expected to remain elevated through to 2017. Macquarie forecasts dividends of 9c in both 2015 and 2016.

See also oOh!media Attracts Attention on January 30 2015.
 

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article 3 months old

Seek To Find Further Weakness

By Michael Gable 

We are getting close to the end of reporting season. We have expected the market to soften after an impressive rally, but at the moment it is still hanging in there. Perhaps entering a bit of a "news vacuum" post results would tip investors into a profit taking mood. Having reported last week, we take a closer look at Seek ((SEK)).
 


Up until the beginning of last week, SEK was looking positive, having broken to the upside of a year-long sideways channel. Unfortunately, it has fallen back into the range and is once again finding resistance under $18. We would therefore expect further weakness in SEK, possibly to levels closer to $15.
 

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities Pty Ltd is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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article 3 months old

Opportunity In REA

By Michael Gable 

Weak employment numbers and commentary from RBA governor Glenn Stevens last week further highlights the prospect of lower rates and the market is clearly enjoying it. Logically, we would still expect some softness over coming weeks, but the overall picture for the stock market is looking good for 2015. This week, we take a look at REA Group ((REA)) following on from its interim reports last week.
 


REA has in the past been a star performer in comparison to the broader market. For the last few years, its share price has been steadily increasing over time. On this chart however, you can see that since peaking in March last year, it took a fairly long period of time to correct against the trend. We can now see that REA was forming a flag formation, just taking a break from the longer-term uptrend. That shorter-term correction was broken at the end of January and from a charting perspective, we could see REA resume the uptrend. Shorter term, it appears as though we could see a pullback, so investors looking for an entry point on the chart can wait for a retest of the mid $40’s.

Content included in this article is not by association the view of FNArena (see our disclaimer).
 
Michael Gable is managing Director of  Fairmont Equities (www.fairmontequities.com)

Michael assists investors to achieve their goals by providing advice ranging from short term trading to longer term portfolio management, deals in all ASX listed securities and specialises in covered call writing to help long term investors protect their share portfolios and generate additional income.

Michael is RG146 Accredited and holds the following formal qualifications:

• Bachelor of Engineering, Hons. (University of Sydney) 
• Bachelor of Commerce (University of Sydney) 
• Diploma of Mortgage Lending (Finsia) 
• Diploma of Financial Services [Financial Planning] (Finsia) 
• Completion of ASX Accredited Derivatives Adviser Levels 1 & 2

Disclaimer

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article 3 months old

More Brokers Eye Off LatAm Autos

-Strong shift to digital advertising
-Technology  to enhance offering
-Emerging attraction of Latin America
 

By Eva Brocklehurst

Canaccord Genuity has joined Moelis in recently initiating coverage of LatAm Autos ((LAA)), which is growing in significance in the Latin American vehicle classifieds market. The company intends to use the proceeds from its recent listing to invest in technology that will increase its competitive advantage and relevance.

Canaccord Genuity is a believer in the benefit of the shift to digital advertising, the rise of internet penetration and the significance of the car market with the growth of the middle class in Latin America. The broker initiates with a Speculative Buy rating and a 36c target. The targeted subscription model is expected to provide a degree of earnings visibility and also increase the level of engagement with car dealerships.

The company is working on releasing an enhanced software platform, PTX, across its key markets which should improve the search functionality and website efficiency for all users. A dealer management system will be rolled out which will enhance the way dealerships interact with consumers, boosting loyalty to LatAm Autos' platform. This should also enable the company to promote high margin transactional products through its dealer network. The broker observes LatAm Autos has $12.9m in cash to invest in technology and acquire listings. Increasing the range of depth products through its platform remains significant opportunity in the broker's view, although market dominance and maturity is needed for this to occur.

To the broker, history demonstrates the importance of being well funded and leading the provision of a portal in large emerging markets, but it is also difficult to apply traditional valuation methodologies with this new business model. What underpins the broker's optimism is management's focus on having the largest number of quality car listings in each of its target markets. Once scale is achieved, Canaccord Genuity expects private car vendors will be charged a fixed fee per basic and premium listing. Private sellers currently provide the smaller percentage of revenue on the website.

LatAm Autos' most advanced asset is its Ecuadorean business, which owns PatioTuerca.com. Following its successful implementation in Ecuador, a roll out across the other operating regions is expected to commence in 2015. The broker believes operating the six websites on the same technology will accelerate the path to profitability.

Canaccord Genuity considers Latin America one of the most attractive emerging markets globally. LatAm Autos' main competitors in the automotive online business are mostly privately owned. In this scenario being a listed player is a competitive advantage, as the company will have access to capital to fund growth opportunities as they arise. The broker points out there is yet to be a clear winner in Latin America's online vehicle market and that, over the past three years, jobs and real estate online classified entities have undergone consolidation.

The broker believes LatAm Autos is still 3-5 years away from a serious inflection point in earnings but the business is well advanced. In the broker's opinion, to be the dominant online automotive portal provider, the incumbent needs to invest for three to five years to gain a market share of over 70% in listings, audience and leads to dealers.

See also Online Spurs Upside For Latam Autos on February 2.
 

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