Throughout reporting season we highlight companies we are happy to buy following our assessment of results. Here are our three of our top picks from results last week: Motorcycle Holdings, Ramsay Health Care, and Corporate Travel Management.
Very strong result from Motorcycle Holdings
Motorcycle Holdings posted a very strong first half result, beating our EBITDA forecast by 10%. We have incorporated two recently announced dealership acquisitions into our forecasts, which are c7% EPS accretive combined (annualised contribution). We have also revised upwards our organic revenue growth and margin forecasts for FY17, reflective of strong first half sales growth and the resulting operating leverage. While we expect second half sales growth will moderate, given the very strong pcp, we continue to believe the company will outperform buoyant industry growth rates, with additional acquisitions remaining a key catalyst for share price performance. Trading on 14.8x FY18F PE we see this stock as attractively priced for its growth potential.
Corporate Travel: Outperforming no matter what
Corporate Travel reported a strong 1H17 result. Despite lower ticket prices, adverse FX (reduced EBITDA by A$2m), and a tough global economy, its first half result has beaten our forecast by 7%. Underlying EBITDA (+45% growth) was stronger than expected. 29% of underlying EBITDA growth was by organic means, an impressive outcome. The US performance was the highlight of the result with EBITDA up 254%. As expected, strong earnings growth was reported in all regions except Asia which was impacted by materially lower ticket prices following excess capacity in the region. It was also cycling a very strong pcp where operating conditions were near perfect. The 1H17 benefited from record new client wins in all regions due to CTD’s superior technology offering, strong customer service and ROI focus. CTD also benefit from the Montrose Travel acquisition (acquired 1 January 2016) and Travizon Travel (acquired 1 July 2016) in the US. Cashflow conversion was 135%. Also, pleasingly the dividend (12.0cps) beat our forecast. CTD remains on the Morgans high conviction list.
Ramsay: The course is set despite leadership change
Ramsay Health's first half underlying results were solid and in line, underpinned by broad divisional performance and expanding group margins. Encouragingly, domestic admission growth remains solid and is tracking to the long-term average (c5%), despite industry volatility, with funding secured and leverage evident and due to increase on the back of brownfield projects, procurement gains and rapid expansion of retail pharmacies. While CEO Christopher Rex surprised the market announcing his retirement this year, we are confident that the leadership team, with clear goals, a solid strategy in place and a guided succession plan, will help RHC remain on-track. This stock remains a core portfolio holding that offers defensive earnings, with growth optionality against a subdued economic environment.
Contributed by Andrew Tang, Analyst - Equity Strategy and Quant