Seven ex 100 opportunities

About the author:

Author name:

By Andrew Tang

Job title:

Analyst - Equity Strategy

Date posted:

10 May 2016, 8:56 AM

Sectors Covered:

Equity Strategy and Quant

Our Research Team has identified a number of small to mid caps we believe to be of value. Many offer both yield and growth and are worthy of closer inspection.

We make two changes this month. We add NEXTDC (NXT) in anticipation of a number of positive catalysts, and we take profits in 360 Capital Industrial Fund (TIX) on the back of the recent strength in the share price.

Here are our seven ex 100 stock picks for May:

APN Outdoor (APO)

APN Outdoor is a leading outdoor advertising operator in Australia and New Zealand.

Reasons to buy APN Outdoor

• Industry revenue growth in January and February running at 17.1% is well ahead of current FY16 guidance of 8-11%. We see the potential for further earnings upgrades. 
• Rate of static to digital conversion remains the best in the industry, with demand remaining solid. We expect APN to continue to capture market share. 
• No major contracts up for renewal this financial year.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for APN Outdoor (APO).

Corporate Travel Management (CTD)

Corporate Travel Management provides innovative and cost effective solutions to the corporate travel market globally.

Reasons to buy Corporate Travel Management

• CTD is looking to leverage its technological competitive advantage into new market segments and diversify its revenue streams into B2B and B2C work.
• Improving corporate travel demand, higher airfares, the benefits of scale and a falling AUD should underpin strong double-digit earnings growth for many years to come.
• CTD is also well positioned to report strong earnings growth over the next few years from consolidating large global corporate travel markets (US is worth US$320bn, Europe is US$500bn and Asia is valued at US$650bn) and winning global tenders.

We retain our Add recommendation for CTD. Morgans clients can login to view our detailed research and share price target for Corporate Travel Management (CTD).

GBST (GBT)

GBST is a provider of fund administration and financial markets systems growing in popularity with major institutions.

Reasons to buy GBST

• GBT has an impressive recent track record of new contract wins with major global institutions. 
• Prospects look good for some existing clients to upgrade from single to multiple applications. 
• Despite heavy investment in new product development, the company generates high levels of free cash flow.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for GBST (GBT).

IPH Limited (IPH)

IPH is a defensive business with growth potential as the market leader in a fragmented market. Its core competencies are providing intellectual property and trade mark services in the Asia Pacific.

Reasons to buy IPH Limited

• Since listing IPH has grown its domestic market share to 20.5% and holds the leading market position.
• IPH, through its number one market share both in Australia and Singapore, is able to leverage its efficient operating system to deliver strong EBITDA margins (c46%), which are above industry standards. 
• News flow is a key share price catalyst which would include: announcing acquisitions with its A$108m war chest; FX weakness; and further cost outs to drive margin expansion.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for IPH Limited (IPH).

NEXTDC (NXT)

NEXTDC is a Data-Centre-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT companies.

Reasons to buy NEXTDC

• In a high barriers to entry business, leveraged to the high growth digital economy and now fully funded, NXT is set up to grow solidly over the next few years. 
• NXT is due to announce secondary data centres in Brisbane and Melbourne shortly and we see the potential for NXT to sign large cornerstone deals in the near future which will have the potential to make new facilities EBITDA positive from day one. 
• It is looking increasingly probable that NXT will be included in the ASX200 index in June (changes to be announced 10 June).

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for NEXTDC (NXT).

RCG Corporation (RCG)

RCH Corporation is a holding company which owns and operates a number of footwear businesses in the performance, comfort and active lifestyle sectors.

Reasons to buy RCG Corporation

• RCG offers a very strong growth profile with EPS growth of 45% in FY16 and c20% in FY17 and FY18. The key Accent business has substantial store rollout potential, leveraging significant global growth trends in key brands.
• The extension of the Skechers agreement removes a key business risk and allows RCG to accelerate the rollout of these stores.
• Despite management recently upgrading FY16 guidance, we still believe it is conservative. Trading on a PEG of <1x and PE of 18xFY17F, RCG is a key retail stock pick.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for RCG Corporation (RCG).

Vitaco (VIT)

Vitaco manufactures and distributes branded products within the nutrition, health and wellness industry.

Reasons to buy Vitaco

• VIT has a diversified portfolio of well-known brands, leverage to favourable industry dynamics, growth opportunities and solid earnings growth.
• Despite FY16 guidance being maintained, we believe this is conservative given the first half trends and the fact that the Musashi integration is ahead of schedule.
• In our view VIT is attractively priced for its growth profile. The global FMCG sector trades on an FY17F PE of about 20x and generates negligible growth and certainly not the EPS growth we believe VIT is capable of achieving in FY17.

We retain our Add recommendation. Morgans clients can login to view our detailed research and share price target for Vitaco (VIT).

More information

Morgans clients can access detailed reports on all our high conviction stock picks. If you would like more information, please contact your nearest Morgans office.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.