10 Undervalued ASX Stocks to look for in 2019

Fertoz Ltd (ASX:FTZ)

On 13th Mar’19, the company announced signing a Distribution Agreement with Federated Co-Operatives Ltd (FCL), Canada’s largest co-operative servicing food, agriculture, energy and homebuilding members. The company further highlighted that it was gearing up for Spring with over 11,000 tons in storage, starting up crushing, screening and implementing more robust traceability procedures.  Further expansion of sales and dealer networks has been planned with draft partnership agreements out with four new large dealer networks. And, the team is making many calls, meetings and education sessions with existing and potential customers, lining up orders for Spring and all of 2019. The company has a strong balance sheet and was able to fund growth with cash at bank, inventory at cost and receivables totalling approximately $4 million. The company is well positioned to meet 2019 permitting, operational, sales and financial goals, with 11,000 tonnes of phosphate products crushed in dry storage ready for H1 CY19 delivery. Although the stock price of the company has already grown 129% since Veye’s original buy recommendation at $0.105 on 22nd Feb’18 but we reckon that the stock still has substantial upside potential on the back of very strong fundamentals, robust expansion strategy and huge growth potential in Organic Food sector and legalization of recreational Cannabis in Canada late last year. We are Bullish on “Fertoz Ltd” and give it a “Buy” recommendation at the current price of $0.240

Clinuvel Pharmaceuticals Ltd (ASX:CUV)

The biopharmaceutical company focused on developing drugs for the treatment of a range of severe skin disorders announced on 25th Jun’18 that it has completed the submission of a New Drug Application (NDA) for its lead drug SCENESSE (afamelanotide 16 mg) as the first proposed therapy for patients with the rare metabolic disorder erythropoietic protoporphyria (EPP) in the United States. An approved NDA will allow CLINUVEL to make SCENESSE available to adult EPP patients in the US as a first-line therapy. The company had requested a Priority Review by FDA. It is already a EU approved product, awaiting PDUFA (The Prescription Drug User Fee Act – FDA) date for orphan indication porphyria (EPP). The company expects NDA OUTCOME/RISK-BENEFIT from US FDA in 2019-20. The results of using the drug have been really positive with 66.1% increase in patient treatments. Around 98% treatment continuation rate has been reported in EU/CH and a lot of US patients are flying to Switzerland to seek treatment. The company remains Debt free and the Stock has got entry into S&P/ASX 300 Index effective 24th Sep’18 and we reckon that it will never look back once it gets the FDA approval. We are still Bullish on “Clinuvel Pharmaceuticals Ltd” and give it a “Buy” recommendation at the current price of $28.81

Praemium Ltd (ASX: PPS)

The company released its H1 FY2019 results on 11th Feb’19. The key financial highlights for the period were: 

  • • Record underlying EBITDA of $5.1 million, a 19% increase on H1 FY18; 
  • • 7% increase in revenue and other income to $22.9 million; and 
  • • 14% increase in platform FUA to $8.4 billion.
  • • However, the Net Profit After Tax Decreased 13% to $633,647
  • • Debt free with $11.3m cash on hand (Data Source – Company Reports).

The stock price of the company after touching an all-time high of $1.185 on 24th Sep’19 slipped down to $0.58 on 12th Feb’19 following weak results post which it has started recovering. We see this slip as a buying opportunity as there is only dip in profits; the company has not run into losses and it has expanded its platform capabilities and has already launched a campaign to promote it on a larger scale that would drive benefits for the company in the longer run. We give a “Buy” recommendation on “Praemium Ltd” at the current price of $0.570

Computershare Ltd (ASX: CPU)

On 13h Feb’19, the company released its H1 FY2019 results delivering a strong performance across key metrics. The Financial highlights were as follows:

  • • • Revenue for the half-year was $1,146.5 million, up 1.7% over the corresponding period. 
  • • • Net statutory profit after tax attributable to members was $259.4 million, an increase of 51.5%
  • • • EBITDA stood at $334.5m, up 14.3%
  • • • Statutory EPS stood at 47.77 cents,  up 52%

Given the 1H results, the company upgraded its earnings guidance. In FY19, they now expected to deliver around 12.5% growth in Management EPS against the previous guidance of 10%. With their growth, profitability and capital management strategies serving them well, and the optionality inherent in Computershare continuing to convert into profitability, their commitment to deliver multi year earnings growth was intact. The stock price of the company after touching an all-time high of $20.80 on 5th Oct’18 slipped to $16.36 before Christmas but started recovering when the markets picked up and has strengthened its position further with positive results and a Guidance Upgrade. We reckon that the stock still has substantial upside potential to set new records and fetch a higher return on your investment. We are Bullish on “Computershare Ltd” and give it a “Buy” recommendation at the current price of $17.500

Domino’s Pizza Enterprises Ltd (ASX: DMP)

The company released its H1 FY2019 results on 20th Feb’19 delivering a solid performance. The key highlights for the period were:

  • o Global food sales lifted +14.6% to $1.43 billion, driving a +12.1% lift in EBIT to $108.3m.
  • o Overseas markets contributed more than half of the Company’s EBITDA with $71m EBITDA contribution from Europe and Japan.
  • o Online sales increased +16.5%, +$132.2 million higher than PCP.
  • o Online platforms processed 32.4 million orders in the Half, more than two orders every second.
  • o Global Network Sales growth, +3.3% higher on a Same Store Sales basis, reflected strong performances from Japan, Germany, Benelux and New Zealand, with softer performance in Australia, and lower than expected performance in France.
  • o Significant store milestones achieved in the Half Year – surpassing 1,000 Domino’s branded stores in Europe, 700 stores in Australia and 300 Domino’s branded stores in Germany, opening 77 organic new stores and converting 72 Hallo Pizza stores.

As part of its outlook, the company highlighted that its sales have been positive in the first seven trading weeks of H2 19. Management expected same Store Sales for the Full Year to be within guidance, at the mid-to-lower end of the +3- 6% range; EBIT was expected to be at the lower end of guidance of $227m-$247m. And, as a result of renewed confidence in Japan and updated modelling in Belgium, Domino’s upgraded its Group future store outlook to 4,900 (+250 stores) by 2025-2028. The stock price of the Group slipped 33% between end of Aug’18 until 21st Dec’18 post which it started recovering along with the Christmas rally only to slip again during mid-Feb’19. But looking at the growth of the company in terms of number of stores globally and strong sales from Japan and Germany, we reckon that the stock has substantial upside potential and is currently under-valued. We give a “Buy” recommendation on “Domino’s Pizza Enterprises Ltd” at the current price of $41.000.

Bank of Queensland Ltd (ASX: BOQ)

On 18th Feb’19, the bank released a trading and earnings update highlighting that based on January year-to-date performance, 1H19 cash earnings after tax was expected to be in the range of $165-170m, compared to the 1H18 cash earnings after tax result of $182m. A reduction in income from 1H18 was primarily contributed by Non Interest Income which was expected to be $8-10m lower than the 1H18 level of $75m. This was due to continued downward pressure across fee, trading, insurance and other income lines. The bank highlighted that the market conditions are expected to remain challenging and regulatory costs were likely to increase. 

The stock price of the bank slipped 28% during the last 1 year and the major contributors have been the Interim Banking Royal Commission Report, market slump and weak results especially lower non-interest income. We reckon that the banks will be bearing regulatory costs which may have impact on their stock prices as highlighted by Bank of Queensland but we see the current slip in price as a buying opportunity especially on the back of consistent dividend pay-out coupled with slow but steady growth for mid to long-term. We give a “Buy” recommendation on “Bank of Queensland Ltd” at the current price of $9.210

Galaxy Resources Ltd (ASX: GXY)

The company released its H1 FY2019 results yesterday, 28th Feb’19 delivering a solid performance. The key highlights for the period were:

  • o Group EBITDA of US$281.2 million (which includes a gain on sale of US$223.0 million (pre-tax) arising from the POSCO transaction), an increase of 818% compared to FY2017
  • o Group EBITDA of US$58.1 million from operations, an increase of 90% compared to FY2017
  • o Group net profit after tax of US$150.2 million (which includes a gain on sale of US$146.8 million (post-tax) arising from the POSCO transaction)
  • o Group net profit after tax from operations of US$3.5 million, compared to US$0.1 million in FY2017
  • o Earnings per share (undiluted) of ~US$0.37 for FY2018
  • o • Total lithium concentrate production and sales volumes of 156,689 (growth of 1%) and 159,255 (growth of 4%), respectively
  • o • After the reporting date Galaxy announced the final settlement of the POSCO transaction with resulting increase in the Company’s cash balance of US$271.6 million
  • o • Nil borrowings as at 31 Dec’18 

As part of its outlook, the company is bullish about the global lithium demand outlook and was aiming to become a major producer of lithium. The stock price of the company after touching an all-time high closing price of $4.46 on10th Jan’18 slipped 57% until 19th Feb’19 post which it has started picking up.We reckon that the stock has substantial upside potential to recover and head north on the back of very strong fundamentals and strong revenue and profit generation from its existing operations. We are Bullish on “Galaxy Resources Ltd” and give it a “Buy” recommendation at the current price of $2.050

Cochlear Ltd (ASX: COH)

The company released its H1 FY2019 results on 19th Feb’19 delivering an increase in in sales revenue of 11% and net profit of 16% for the half. The key highlights were:

  • • Reported sales revenue up 11% (6% in constant currency) to $711.9m
  • • Cochlear implant units up 5% to 16,740
  • • Reported net profit of $128.6m, up 16% (up 16% in CC), up 11% (11% in CC) adjusted for the impact of the deferred tax asset revaluation in HY18
  • • Strong cash flow generation supports the 11% increase in the interim dividend
  • • AMF patent dispute disclosed as a contingent liability
  • • Maintaining FY19 net profit guidance of $265-275 million, an 8-12% increase on FY18

As part of its outlook for FY19, the company reaffirmed its expectations of delivering reported net profit of $265-275 million, an 8- 12% increase on FY18. Cochlear’s CEO & President Dig Howitt stated that they expected to deliver growth in revenue and earnings in the coming years, underpinned by the significant investments made in product development and market growth initiatives. The company also released an update on its patent dispute liability stating that in Nov’ 18, the US District Court awarded damages of US$268 million against Cochlear in the long running patent dispute with Alfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics LLC (AB). Cochlear had appealed the decision, including the damages award.  After touching an all-time high of $218.93 on 4th Sep’18, the stock price of the company slipped 29% to $156 by 19th Dec’18 post which it has started picking up only to slip again on the back of weak results. We reckon that the stock has substantial upside potential to head north and see this dip as a buying opportunity. We maintain a “Buy” recommendation on “Cochlear Ltd” at the current price of $181.08

Super Retail Group Ltd (ASX: SUL)

On 14th Feb’19, the company released its H1 2019 results delivering a strong performance. The following were the highlights:

  • • Total Group sales of $1.4 billion up by 6.0% on pcp
  • • Total Segment EBITDA of $166.2 million up by 11.3% on pcp
  • • Normalised NPAT of $81.6 million up by 8.9% on pcp
  • • Profit attributable to owners of $71.7 million down by 0.7% on pcp
  • • Operating cash flow of $235.4 million, $69.2 million above Segment EBITDA
  • • Half year dividend of 21.5 cents per share consistent with pcp

As part of its strategy, the company highlighted that its core businesses was delivering solid sales growth with strong contribution from Macpac. In addition, the company’s investment in omni-retail capabilities was underpinning growth and it had successfully re-platformed core websites. The company delivered a strong performance in team member and customer metrics. As part of itus trading update for H2 FY2019, the company had plans to open 6 new stores, close 2 stores and undertake 11 relocations and extensions under Auto Retailing Segment and open 1 store and undertake 1 store relocation for BCF; Open 1 new store and relocate 2 stores. Integration of 9 Rays stores will occur in February to April 2019 for Macpac under its Outdoor retailing segment and; no new stores, 3 relocations and 3 refurbishments planned for Rebel under Sports Retailing Segment. The company also highlighted Net debt improvement since June due to period cash flows. The stock price of the company after touching the 2018 high of $10 on 22nd Aug’18 slipped 35% until the 3rd Jan’19 post which it started recovering only to slip again following H1 results released by the company during mid-feb’19. It has started picking up again yesterday and we reckon the stock has strong growth prospects and an excellent dividend yield and the investors should not be baffled by this uncertainty. We are Bullish on “Super Retail Group Ltd” and give it a “Buy” recommendation at the current price of $7.810

Platinum Asset Management Ltd (ASX:PTM)

The company released its H1 FY19 results on 22nd Feb’19, delivering a solid performance. The key highlights for the period were as follows:

  • • Total revenue up 28.49% to $132.9m
  • • •Profit from ordinary activities after income tax up 37.71% to $65m
  • • Net profit attributable to members up 26.72% to 74.8m
  • • Net inflows of $0.7B led by Platinum Trust Funds.
  • • Average Dec-18 AuM of $25.2B, down 1% on Dec-17.
  • • Management Fee revenue up 3% with a positive mix change towards retail.
  • • Pre-tax profit (excluding performance fees) from Funds Management activities up 6%.
  • • Overall profit after tax down 27%, due to negligible absolute return performance fees and mark to market losses on seed investments.
  • • Expenses generally well controlled, with a 7% decrease in overall costs driven by a 13% decrease in staff costs (mostly variable remuneration).
  • • Earnings per share down 27% on prior comparative period.
  • • Interim fully franked dividend of 13 cps (~ 5% annualised yield).

As part of the outlook, the company highlighted that it was well placed with a strong position in Australian retail market underpinned by a highly differentiated product. It added that desire for higher foreign equity exposure was continuing to increase in Australia. And, New offshore initiatives were providing a platform for growth over the medium term. The stock price of the company slipped 46% during 2018 and it started recovering only in Jan’19. We reckon that the stock now has the upside potential to head north on the back of diversifying and expanding into foreign equities and appears undervalued. It has gone up 23% since 31stJan’19.  We are bullish on “Platinum Asset Management Ltd” and give it a “Buy” recommendation at the current price of $5.520


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