It’s a tough business, making share calls, especially in a difficult sharemarket for small to mid-cap stocks. The less said about the likes of Vocation, Titan Energy Services, NewSat or SmartPay the better. But it would be a truly rotten market is nothing was going for you – and I have had some ‘hits’ this year. Here are the highlights.
Liquefied Natural Gas Limited (LNG)
This was the column’s best performer by far. When I wrote about LNG Limited on May 14, it was trading at 71 cents. By September 15, it had rocketed to $4.45.
That is a nice enough return purely arithmetically: it comes to 527%. But over 124 days, that gain annualises out to 22,000%. So, a 20-bagger. But LNG Limited has subsided back to $2.39, so I have to put up with an arithmetic gain of 237%, and an annualised gain of 656%.
LNG Limited is right in the middle of the US shale gas boom: it is developing its $3.5 billion Magnolia project, a four-train LNG export terminal in Lake Charles, Louisiana, that is slated for eight million tonnes a year at full production. Magnolia is among the top five liquefied natural gas export projects being developed in the US, with first LNG expected in 2018, and some very savvy energy-oriented investors like what they see.
At this point LNG Limited has received the engineering data information request from the US Federal Energy Regulatory Commission (FERC), which is usually one of the final information requests sought by FERC before the issue of a notice of schedule, and draft environmental impact statement (DEIS).
LNG Limited has signed an engineering, procurement and construction (EPC) contract with SK Engineering and Construction Group, and the company expects financial close for the project in mid-2015 and first LNG in 2018. Oil price worries brought the stock down from $4.45, but the market is feeling good about LNG Limited again – it is ticking every box as far as Magnolia goes.
Capitol Health Limited (CAJ)
Another of my favourites was specialised diagnostic imaging (DI) company Capitol Health Limited (CAJ), which is attempting to consolidate the non-hospital diagnostic imaging market in Australia.
Capitol was only a recent nomination – the piece was published on November 5 – but the stock has moved from 63 cents to 77 cents. That is a nice little 22% gain, but over just 44 days, that clocks it an annualised return of 428%.
Capitol is enjoying excellent growth conditions in a market estimated to be $3 billion in size, and growing at about 5% a year, driven by demographics (expanding and ageing population), a shift in healthcare focus to early detection and prevention of conditions and the improving accuracy and capabilities of imaging techniques. Government policy is also helping Capitol out, too, as the federal government wants to to improve the affordability and nationwide access to Medicare-funded magnetic resonance imaging (MRI) scans.
We see Capitol as having a highly scalable business, and a healthy growth outlook as it looks to expand out of its Victorian stronghold. Analysts see a bit more upside: the consensus target price is 88 cents. But we think this could be a better performer than that, with rising profits and dividends.
Nearmap Limited (NEA)
Australian web-based aerial imagery company Nearmap Limited (NEA) had a good year in FY14, lifting revenue by 62% and breaking through into profitability.
Nearmap provides geo-spatial map technology for business and government customers, giving them access to frequently updated, high-resolution aerial imagery of most of Australia’s major cities and surrounding areas. Nearmap’s operation is built around its proprietary PhotoMaps aerial imagery technology. In the FY14 year the company expanded into a set of selected markets that need high-resolution aerial imagery for various purposes: the rail, solar, property, insurance and construction sectors.
Nearmap has a commercial licence agreement with Google Maps, by which Google Maps is incorporated into Nearmap’s products, giving its customers access to national satellite imagery. The company also began its expansion in the USA, which is a huge commercial opportunity for NEA.
From 44 cents when we featured Nearmap on May 28, the stock has moved to 65 cents. That is a nice enough 47.7% gain, but over 205 days, it works out to an annualised gain of 100.3%.
Austal (ASB)
Shipmaker Austal has been another strong performer, which it deserves because its work for the US Navy has come under quite a bit of criticism, but the company says that this is par for the course with naval shipbuilding, because the builder learns so much as it proceeds with a program that what are perceived as teething problems are overcome and the end-design strengthened.
Perth-based Austal has more than $US5 billion worth of contracts to build advanced aluminium warships for the US Navy. Its biggest contract is the $US3.5 billion deal to build up to ten littoral combat ships (LCSs), which are lightly-armed vessels designed for missions in the littoral zone, or waters close to shore.
The first two ships Austal delivered were part of a sub-contract with US defence giant General Dynamics: the company’s first ship as prime contractor, USS Jackson (LCS-6), was launched in December 2013: USS Montgomery (LCS-8) was launched this year. Austal has five trimaran LCSs under various stages of construction at Austal’s Alabama yard.
Apart from the LCS contract, Austal also has a US$1.6 billion contract with the USN to build ten 103-metre Joint High Speed Vessels (JSHVs). Three of these vessels have already been delivered, with another three JHSVs being built in Alabama. Austal also has shipyards in Perth and in the Philippines, where it builds its commercial vessels.
I wrote about Austal on March 12, with the shares at 88 cents: they have since moved to $1.44, for a gain of 63.6%. Over 282 days, that equates to an annualised return of 89%. But the analysts that cover Austal see it as fairly valued at present, although they are looking for 47% earnings growth in FY15.
