Summary and Recommended Investment Strategy. Investment
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Thirty Five Years of Independent Information and Unbiased Advice on the Australian and NZ Stockmarkets Market Analysis Issue No. 526 www.stockmarket.co.nz April 11, 2016 Inside Market Analysis AJ Lucas Group cash issue ....................................... 2 Insider Trades in New Zealand shares ...................... 8 Ellex Medical Lasers and Melbourne IT raise capital through share placements .............................. 4 Insider Trades in Australian shares ................. 8, 9, 10 TFS Corporation: share placement and Share Purchase Plan ................................................. 5 Founder: James R Cornell (B.Com.) Summary and Recommended Investment Strategy. What is going to happen to the price of Oil or the exchange rate or the stockmarket next week? Who really cares? We are here to build our portfolio 4-10 fold over the next decade! Remain fully invested in the recommended shares. Investment Outlook. This “Market Analysis” newsletter was 35 years old last Stockmarket Forecasts month. When we started this business, academic research One-Month One-Year stated that no-one can out-perform the stockmarket over Australia: 42% (Neutral) 54% (Neutral) the long term. Academics still believe that to be New Zealand: 79% (Bullish) 72% (Bullish) absolutely true! For three and a half decades we have demonstrated with real money, in real time, that it is possible to do the impossible! But are academic researchers knocking at our door to learn our “secrets” of success? Of course not! They know what we have done is impossible. They know that our (and many subscribers') success at building 7-figure and 8-figure investment portfolios from nothing is just a very, very long run of very, very good luck! New Zealand Furthermore, we don't have any secrets. This NZX 50 Index newsletter has always been very open about its investment strategy, its investment goals and its share selection methods. We simply set out to analyse the stockmarket in an intelligent, scientific and logical manner. Anyone, at any time, has been free to copy what we do. For example, we have always sought to invest in smaller and medium sized companies, rather than the very largest company shares. The main reason is that smaller companies tend to have better growth potential than larger, mature companies. Just think of M2 Group rather than Spark (Telecom) or Telstra. What's that? I hear academics saying smaller company New Zealand shares are riskier? Maybe so - although an embarrassingly For All Shares large number of “safe” blue chip companies have failed Total Return Index over the last 3½ decades! More importantly, we are focused on growing our portfolio 4-10 fold (15-26% per annum) over the next decade, not where it might fluctuate to next month or next year. We invest for the long term! Another example is Insider data (published quarterly in this newsletter and weekly through our Online Share Selection database), where we spend a few hours each week extracting this information from company announcements. Anyone could duplicate our work - or subscribe to our Online Share Selection database for a few dollars per week - but for the last two decades all Australia other investors have chosen to ignore this valuable data! All Ords Index This gives us a huge competitive advantage, simply as other investors continue to refuse to act in an intelligent and logical manner! Page 2 Market Analysis Recommended Investments Michael Hill International lifted total revenues 9.1% existing shares, plus the option to apply for up to an to A$420.8 million over the nine months to 31 March. equal number of additional shares (i.e. those not taken Michael Hill stores lifted same store revenues 4.8%, up by other shareholders). with new stores lifting total revenues 8.3%. Emma & The two largest shareholders will subscribe for their Roe same store revenues were up 39.9%, with total full entitlement. Kerogen subscribing $11.1 million revenues up 87.0% - although this is still only 1.6% of and Paul Fudge $2.6 million. total group revenues. This cash issue is near the market price of AJ Lucas New stores boosted revenues by 19.5% in Canada. Group shares, so there is little value in this issue. AJ Canada now generates 18% of group revenues - just Lucas Group potentially owns valuable gas exploration short of the 20% from New Zealand - and is a growing assets in the UK. Recovering just 10% of its shale gas source of profits. The United States revenues rose would supply the UK market for 100 years but the 28.5%, but that is still an insignificant 3½% of group company will also likely need to raise further equity revenues. capital at some stage in the future. So while we would Our investment in Michael Hill International has like to maintain our interest in the company, the share grown to become a 30-bagger, simply as a result of the price could remain depressed in the short to medium company's steady store expansion, revenue growth and term. profit growth. Over the last 25 years, that growth rate The closing date for the entitlement issue is 26 April, has averaged around 12½% per annum. That growth, so shareholders paying by BPAY have two weeks before compounding year after year, plus accumulated and making a final decision. growing dividends, has increased our initial investment AJ Lucas Group has also been ordered to pay an 30-fold in value. additional $4.2 million (over the $1.8 million previously Canadian operations have grown to a stage where lodged as a security deposit) relating to a dispute with they have become profitable and where economies of the Gladstone Area Water Board and Gladstone scale are lifting profit margins. This will result in net Regional Council dating from June 2012. profit growth exceeding revenue growth as the Canadian A decision in Cuadrilla Resources' appeal over operations achieve their full profit potential - with Preston Road and Roseacre Wood, which will be decided further growth from continuing store expansion. by the UK Government (i.e. the Secretary of State), is The new Emma & Roe branding also holds the expected to be announced in May or June. potential to contribute to revenue and profit growth in AJ Lucas Group future years. So it is very likely that Michael Hill International will steadily continue to grow profits over future years, just as it has over the last quarter of a century. On a year to year basis, 10-15% growth may look rather boring. Over a decade it will increase your wealth 4-5 fold in value! “Buy” and Hold for both an attractive current income and even more attractive growth in both income and capital. Michael Hill International AtCor Medical has received a R&D tax incentive refund of $461,916. Brickworks Six Months to 31/1/2016 Latest Previous Change Revenues $360.0m $349.6m +3.0% Net Profit $75.0m $62.8m +19.4% Net Cash Surplus $92.0m $67.9m +35.6% Earnings per share 50.4c 42.3c +19.4% Australian Shares Dividends per share 16.0c 15.0c +6.7% (This section is in Australian currency, unless stated.) Building Products earnings were 25% higher at $46.2 AJ Lucas Group is seeking to raise $21.1 million from million, Property earnings rose 17% but Investment a non-renounceable cash issue. Shareholders are being earnings were down 11% at $26.8 million. offered three new shares at 21 cents for every eight The currently mothballed Cardup brick plant will be Copyright © Securities Research Company Ltd April 11, 2016. Page 3 refitted and fully automated and will deliver “significant improvements to operations efficiency”. improvement in product quality and a lower Building Products sales remain buoyant in Sydney manufacturing cost”. Brickworks also has an “exclusive and Melbourne, but further sales growth is limited as the agreement” in Australia to the new “Skate-Kiln” brick building industry is operating at capacity, with trade and making technology which would lower manufacturing product shortages, but building activity in Western costs by 30% owing to “reduced energy consumption, Australia is deteriorating. Overall the outlook for this improved productivity and lower maintenance costs”. business is “very positive” with the 25% higher first half The capital cost of constructing a new plant is also 30% earnings “expected to be maintained over the full lower. The company will build a new brick plant, financial year”. utilising this technology in Western Australia, which The Property division's largest land site is at should begin production in the September 2018 quarter. Craigieburn, Victoria, where it is seeking to rezone part Brickworks has also purchased the “previously shut for residential use. This would generate the highest down” but “low cost modern Whittakers timber mill in increase in value. At Oakdale Central, two additional the southwest of Western Australia”. The Deanmill DHL facilities (of 27,000m2 and 31,000m2) will be operations will be transferred to this site, with “significant completed in May (Continued on Page 4) Portfolio of Recommended Investments CURRENT Perform- Issued Vola- Price/ Price/ Gross Recent Cash Total ADVICE Company Initial Recommendation mance Shares tility Sales Earnings Dividend Share Dividends Return Code - D a t e - P r i c e Forecast (mil.) Ratio Ratio Ratio Yield Price Rec'd % NZ Shares BUY CDL Investments Ltd CDI 12/01/99 25 E 275.5 1.2 4.00 12 4.8 64 27.6 +266% HOLD Cavalier Corporation CAV 05/12/95 156 *B 68.7 1.3 0.21 41 Nil 65 282.0 +122% HOLD Colonial Motor Company CMO 10/11/92 128 *B 32.7 0.6 0.25 11 7.5 609 473.3 +746% BUY Michael Hill Int'l Ltd MHI 11/06/91 5 *D 383.2 1.3 0.76 14 5.0 100