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Seven sizzling stocks under 70 cents

Outside the S&P/ASX 200, there are another 2,000 listed companies, which mostly go unnoticed. But there is a myriad of interesting stories down there, for those who take the time to look. Here are seven such stocks, all trading at less than 70 cents.

1. AMA Group (AMA, 33.5 cents)



Listed since August 2006, Queensland-based car parts and panel beating business AMA Group, operates in the wholesale vehicle aftercare and accessories market. Its line-up of businesses includes smash repair shops, automotive and electrical components, vehicle protection bull bars and other servicing workshops for brakes and transmissions.

Despite some pressure from the weakening mining and resources sector in the first half of FY13, AMA reported that revenue rose by 16% and operating profit was up 26%. The company paid a fully-franked interim dividend of 1.6 cents a share: even if AMA only matched last year’s final dividend of 1 cent a share, that would imply a 7.8% nominal yield.

2. Capitol Health (CAJ, 29.5 cents)



Victorian-based specialised diagnostic imaging (DI) company Capitol Health is the only specialised DI company listed on the ASX. Capitol is poised for growth 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, the improving accuracy and capabilities of imaging techniques and government initiatives (growth in the range of Medicare-eligible services). Last week, Capitol reported a 19.5% rise in revenue for FY13 and an 80% rise in pre-tax profit. The nominal historic yield of 1.9% is nothing to write home about at present, but should grow in coming years.

3. Calliden Group (CIX, 33 cents)



General insurance specialist Calliden Group reported a loss of $10.2 million for 2011 (the company uses the calendar year for its financial year), amid one of the most difficult years the global insurance industry had seen in some time. But it used that downturn to transform itself from general insurer to being more of an underwriting agency business: it now writes policies on behalf of three external insurers, as well as itself. Half of the company’s business now comes from policies underwritten by third-party insurers. It also moved back into the reinsurance business.

Calliden returned to profitability in 2012, earning a net profit of $1.1 million, and resumed paying fully franked dividends with a payout of 0.4 cents a share. This year Calliden is targeting net profit of $10 million, and a dividend payout ratio between 60% – 80% of net profit. Having the less-volatile agency business is vital in building the capacity to pay increasing fully-franked dividends. If Calliden could get close to $10 million net profit and pay out 80%, the dividend could be something like 3.5 cents a share – which would start to look pretty attractive on yield grounds, on a 33-cent share price.

4. Red Fork Energy (RFE, 44 cents)



Tulsa, Oklahoma-based Red Fork Energy, listed both on the ASX and the OTCQX international marketplace in the US, is an oil and gas producer developing the Big River Mississippian project in northern Oklahoma. Earlier this month, the company raised $47.7 million from a placement at 43 cents a share to institutional and sophisticated investors, to build further on its holdings of proven production wells and its 70,000 acres of exploration holdings over ground considered highly prospective for both conventional oil and gas and ‘unconventional’ gas (gas found in shale and rock formations), as well as coal-bed methane.

Red Fork Energy is cashed-up, well-poised in terms of production, project development and expansion, and has a great location in one of North America’s most exciting hydrocarbon provinces. The analysts’ consensus estimates for the one-year price target for this stock is 80 cents.

5. Avita Medical (AVH, 14 cents)



Avita Medical is one of the most promising Australian biotechs. It is commercialising its ReCell technology, which involves using a patient’s own skin cells to create a skin graft that takes away the risk of rejection or scarring.

A Phase III Food & Drug Administration (FDA) trial is in process, involving 10 US burns centres, helped by $US2.6 million in grant funding from the US Department of Defence, the US Army, and the US Armed Forces Institute for Regenerative Medicine (AFIRM). Data from the trial is expected next year.

AFIRM believes ReCell is potentially a “transformational” technology in treating wounded soldiers. The treatment also has huge implications in the area of burns and scalds, particularly in children. Given positive results from the Phase III clinical trial, US firm Zacks Investment Research says ReCell has a potential sales opportunity in the US alone of US$100 million a year.

6. Global Construction Services (GCS, 46 cents)



Like many businesses that serve the resources industry, Global Construction Services (GCS) has felt the pinch of the de-booming of the mining-related economy. GCS supplies integrated on-site labour and services – design and engineering, scaffolding, plant and equipment, formwork and concreting, site accommodation and specialised site services – to customers in the residential, commercial, resources and industrial sector. In May, the company reported that earnings before interest, tax, depreciation and amortisation (EBITDA) would likely fall by about 10% in FY13, to about $45 million, but the company was upbeat on expected improvements in financial performance in FY14.

Since the downgraded earnings guidance, GCS won the principal scaffolding contract for all of Woodside Energy Limited’s North-West Shelf projects, including onshore and offshore operations, for three years, with two further 12-month extension options. GCS will also be supplying specialist management and labour resources to work with Woodside. After not receiving a final dividend in FY12, GCS shareholders were heartened to see an interim dividend for FY13 of 4.25 cents, the same as in FY12, and will be looking for further evidence of recovery in the current financial year.

7. Potash West (PWN, 13.5 cents)



Earlier this year, Goldman Sachs identified potash – used in fertilisers – as a boom commodity for the next decade, on the back of growing pressure to feed the world. That theme is good news for Potash West, whose Dandaragan Trough project in Western Australia is potentially one of the world’s largest known deposits of glauconite, a mineral containing potassium oxide, an essential ingredient of potash fertilisers.

Australia has never had a potash producer: the country imports all of its potash needs, but Potash West is looking to change that. Potash West controls almost 3000 square kilometres of glauconite- and phosphate-rich ground in the Dandaragan region in Western Australia. The company is presently working on a scoping study and looking to define its resource base to support a bankable feasibility study (BFS). The plan is to complete the BFS in 2015, with production by mid-2018. Based on expected potash price levels, an April 2013 report from New York-based financial consulting firm, Arrowhead Business and Investment Decisions, reckons the Dandaragan Trough project could ultimately justify a fair share value for PWN in the $0.44–$3.08 range.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Published on: Friday, August 02, 2013

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