Following our assessment of results and market announcements, here are our two top picks for today (Thursday 16 August 2018):
Bellamy's Australia (BAL) – favourable risk/reward emerges
We believe recent regulatory activity suggests assessment rates for China infant formula registrations are returning to pre-merger levels. In our view, this increases the likelihood of BAL receiving CFDA approval in 1H19 and provides a potential positive near-term catalyst not captured in the stock's current price.
With a favourable risk/reward return profile, we have upgraded to an Add recommendation and revised our share price target (Morgans clients can login to view the revised share price target and detailed research note).
Aveo Group (AOG) – time to retire the discount
An in-line result was delivered, with Development/Non-Retirement profits assisting what was a challenging year for the established business (impact of -ve press). NTA increased 8% to A$3.92 and is expected to rise c18% over the next two years. A strategic review was announced, with the goal of reducing the current c40% discount to NTA which the Board believes to be excessive. FY19 guidance was maintained and is predicated on the Established Retirement business returning to historical turnover rates (on track early in FY19).
We believe there are two key catalysts for this discount to be removed:
- A recovery in sales/turnover rates (management expect a normalised FY19)
- A sell-through of the new product delivered in FY18 - which should ease BS fears in a softening housing market. There is also the potential for a third party to invest at a premium over the coming year.
We maintain our Add recommendation (Morgans clients can login to view our share price target and detailed research note).
Morgans clients can access our further analysis in our latest reports on Bellamy's Australia and Aveo Group. Alternatively, please contact your nearest Morgans office for access.
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.