QUANTITATIVE ANALYSIS analysis - Stockbroking Reports/2015/TD… · Technology companies are able to grow through technological step changes, efficient scalability, ... Forward Dividend

BAILLIEU HOLST QUANT RESEARCH

17 August 2015

INTERNAL ONLY

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Please read the disclaimer at the end of this report. Page 1

RESEARCH ANALYST

Mathan Somasundaram

+61 2 9250 8947 [email protected]

Tech Down Under

QUANTITATIVE ANALYSIS

New economy outperforming old economy

Note: The forecast data in this report is based on Thomson/IBES

consensus data.

Slowing growth and underperforming old economy stocks, like banks

and miners, have not taken the wind away from the outperforming

Australian technology stocks. Technology stocks in the US are trading

at historical high multiples with expanding margins and improving revenue,

while Australian counterparts are at the early stages of their global

exposure. We continue to see better growth outlook for global service

providers, while domestic dominant players still offer good value in the long

term. Technology companies are able to grow through technological step

changes, efficient scalability, challenge existing business models and offer

growth globally at a relatively lower cost. Technological innovations

continue to evolve business models and drive down costs faster than ever

before. The online transition of multiple sectors continues to drive cost

reduction and lower prices. We have created a basket of sectors that are

technology dominated in Australia. The MITCH (Media, Information,

Telecommunication, Consumer and Health) universe allows us to sieve

the market for sectors where the growth outlook is heavily aligned to

change in technology and the speed in adapting to this change. The

cyclical sectors in the MITCH universe carry a much higher risk with

slowing global growth outlook and low domestic consumer spending.

MITCH stocks are expected to continue to outperform the market while

small caps offer the best risk/return profile.

MITCH large cap multifactor top ten picks: JBH, EGP, ALL, TLS, FXJ,

FLT, CPU, HVN, CSL and TPM

MITCH large cap growth top ten picks: REA, DMP, ALL, COH, CAR,

CSL, TPM, JBH, TLS and NVT

MITCH small cap multifactor top ten picks: DNA, MYX, CCV, BNO,

SRX, NWS, DSH, PBG, KMD and WEB

MITCH small cap growth top ten picks: IPP, MYX, DNA, CCV, BNO,

ALU, RKN, SRX, IFM and TNE

FIG.1: MARKET AND MITCH PERFORMANCES OVER THE PAST 10 YEARS

750

1000

1250

1500

1750

2000

2250

S&P 300 Index MITCH Index MITCH Small Index

Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson

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mailto:[email protected]



MITCH outlook

MITCH indices and PE bands show that the large caps are trading at pre GFC high

multiples while small caps are back at historical average multiple. We see MITCH small cap

stocks as undervalued on historical long term trends as the new economy growth

outperforms the old economy.

FIG.2: MITCH INDEX WITH PE BANDS FIG.3: MITCH SMALL INDEX WITH PE BANDS

500

700

900

1100

1300

1500

1700

1900

2100

500

1000

1500

2000

2500

3000

Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson Source: ASX, Baillieu Holst, Bloomberg, IRESS, Thomson

MITCH indices and PB bands show that the large caps are trading above pre GFC high

multiples while small caps are back at historical average multiple. We see MITCH small cap

stocks as undervalued on historical long term trends.

FIG.4: MITCH INDEX WITH PB BANDS FIG.5: MITCH SMALL INDEX WITH PB BANDS

400

600

800

1000

1200

1400

1600

1800

2000

400

900

1400

1900

2400

2900

3400





MITCH earnings yield to bond yield gap and indices show that both large caps and

small caps are trading at medium level risk compared to historical trends.

FIG.6: MITCH EARNINGS TO BOND YIELD GAP AND INDEX FIG.7: MITCH SMALL EARNINGS TO BOND YIELD GAP AND INDEX

500

700

900

1100

1300

1500

1700

1900

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Earnings Yield to Bond Yiled Gap (%) - LHS Price Index - RHS

500

700

900

1100

1300

1500

1700

1900

2100

2300

-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Earnings Yield to Bond Yiled Gap (%) - LHS Price Index - RHS


MITCH dividend yield and bond yield show that both large caps and small caps are

trading at a premium to bond yield. Large caps offer a premium yield in line with their model

maturity and historical trend.

FIG.8: MITCH DIVIDEND AND BOND YIELD FIG.9: MITCH SMALL DIVIDEND AND BOND YIELD

2.00

2.50

3.00

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

Forward Dividend Yield 10Year Bond Yield Average DY Average BY

1.50

2.50

3.50

4.50

5.50

6.50

7.50

Forward Dividend Yield 10Year Bond Yield Average DY Average BY


MITCH earnings growth shows that both large caps and small caps are close to the long

term growth average while small caps keep their premium growth outlook to support their

higher risk profile.

FIG.10: MITCH EARNINGS GROWTH FIG.11: MITCH SMALL EARNINGS GROWTH

5.00

10.00

15.00

20.00

25.00

30.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00





MITCH ROE shows that large caps are delivering historical high levels while small caps are

at historical average levels. Small caps offer ROE improvement with scale while large caps

need to expand revenue through new product or increase customer base.

FIG.12: MITCH ROE FIG.13: MITCH SMALL ROE

18.00

20.00

22.00

24.00

26.00

28.00

30.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

22.00

24.00


MITCH earnings and price revision show that both large caps and small caps have

endured slight downgrade cycle with markets overreacting on the downswing.

FIG.14: MITCH EARNINGS AND PRICE MOMENTUM FIG.15: MITCH SMALL EARNINGS AND PRICE MOMENTUM

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

3mth Avg Earnings Revision 3mth Price Momentum

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

3mth Avg Earnings Revision 3mth Price Momentum





MITCH large cap picks

FIG.16: MITCH LARGE CAP MULTIFACTOR TOP TEN PICKS

Code Name

Market

Capital

($b)

Value

Rank Now

Value

Rank Last

Month

Growth

Rank Now

Growth

Rank Last

Month

Yield Rank

Now

Yield Rank

Last

Month

Momentum

Rank Now

Momentum

Rank Last

Month

Muti

Factor

Rank Now

Multi

Factor

Rank Last

Month

JBH JB Hi-Fi 2.06 9 8 8 9 5 5 3 1 1 1

EGP Echo Ent 4.25 4 2 13 20 10 9 1 6 2 6

ALL Aristocrat 5.36 13 13 3 5 13 13 6 4 3 3

TLS Telstra 74.33 11 12 9 10 6 7 9 10 3 10

FXJ Fairfax 2.15 1 1 17 19 4 2 13 15 3 6

FLT Flight Ctr 3.51 5 3 12 13 3 3 18 19 6 9

CPU Cshare 5.47 3 6 14 12 2 4 19 13 6 3

HVN Harvey 5.12 7 5 16 15 12 11 4 5 8 5

CSL CSL 43.30 16 15 6 7 8 8 11 7 9 6

TPM Tpgtelecom 7.21 17 18 7 6 11 12 7 11 10 14


FIG.17: MITCH LARGE CAP GROWTH TOP TEN PICKS

Code Name

Market

Capital

($b)

Value

Rank Now

Value

Rank Last

Month

Growth

Rank Now

Growth

Rank Last

Month

Yield Rank

Now

Yield Rank

Last

Month

Momentum

Rank Now

Momentum

Rank Last

Month

Muti

Factor

Rank Now

Multi

Factor

Rank Last

Month

REA REA Group 5.78 18 17 1 1 17 17 14 18 16 19

DMP Dominos 3.57 20 20 2 4 20 20 2 3 12 14

ALL Aristocrat 5.36 13 13 3 5 13 13 6 4 3 3

COH Cochlear 4.85 19 19 4 2 19 19 10 12 19 18

CAR Carsales 2.36 15 16 5 3 18 18 12 8 16 12

CSL CSL 43.30 16 15 6 7 8 8 11 7 9 6

TPM Tpgtelecom 7.21 17 18 7 6 11 12 7 11 10 14

JBH JB Hi-Fi 2.06 9 8 8 9 5 5 3 1 1 1

TLS Telstra 74.33 11 12 9 10 6 7 9 10 3 10

NVT Navitas 1.56 12 10 10 8 7 6 17 16 14 11





MITCH small cap picks

FIG.18: MITCH SMALL CAP MULTIFACTOR TOP TEN PICKS

Code Name

Market

Capital

($b)

Value

Rank Now

Value

Rank Last

Month

Growth

Rank Now

Growth

Rank Last

Month

Yield Rank

Now

Yield Rank

Last

Month

Momentum

Rank Now

Momentum

Rank Last

Month

Muti

Factor

Rank Now

Multi

Factor

Rank Last

Month

DNA Donaco 0.58 8 12 3 4 4 23 8 8 1 1

MYX M Pharma 0.91 46 44 2 3 2 1 10 5 2 3

CCV Cash Conv 0.24 4 7 4 12 9 8 52 52 3 5

BNO Bionomics 0.18 13 5 5 1 5 52 56 24 4 6

SRX Sirtex Med 1.88 57 57 8 7 14 58 1 1 5 32

NWS News Corp 0.96 16 14 57 58 3 37 13 41 6 54

DSH Dicksmith 0.48 22 20 18 18 20 13 29 19 6 4

PBG Pacbrands 0.39 11 13 51 51 18 21 12 18 8 17

KMD Kathmandu 0.31 14 15 37 41 27 20 14 10 8 8

WEB Webjet 0.33 40 41 14 13 32 40 9 14 10 20


FIG.19: MITCH SMALL CAP GROWTH TOP TEN PICKS

Code Name

Market

Capital

($b)

Value

Rank Now

Value

Rank Last

Month

Growth

Rank Now

Growth

Rank Last

Month

Yield Rank

Now

Yield Rank

Last

Month

Momentum

Rank Now

Momentum

Rank Last

Month

Muti

Factor

Rank Now

Multi

Factor

Rank Last

Month

IPP Iproperty 0.58 58 58 1 2 5 52 32 49 11 58

MYX M Pharma 0.91 46 44 2 3 2 1 10 5 2 3

DNA Donaco 0.58 8 12 3 4 4 23 8 8 1 1

CCV Cash Conv 0.24 4 7 4 12 9 8 52 52 3 5

BNO Bionomics 0.18 13 5 5 1 5 52 56 24 4 6

ALU Altium Ltd 0.54 51 51 6 5 52 38 44 36 54 36

RKN Reckon 0.23 38 36 7 6 30 27 26 16 13 7

SRX Sirtex Med 1.88 57 57 8 7 14 58 1 1 5 32

IFM Infomedia 0.33 50 52 9 9 54 41 40 22 54 34

TNE Tech One 1.19 55 55 10 10 58 54 33 38 57 56



BAILLIEU HOLST RESEARCH

Baillieu Holst Ltd ABN 74 006 519 393 www.baillieuholst.com.au Page 7

This document has been prepared and issued by:

Baillieu Holst Ltd

ABN 74 006 519 393

Australian Financial Service Licence No. 245421

Participant of ASX Group

Participant of NSX Ltd

Analysts’ stock ratings are defined as follows:

Buy: The stock’s total return is expected to increase by at least 10-15 percent from the current

share price over the next 12 months.

Hold: The stock’s total return is expected to trade within a range of ±10-15 percent from the

current share price over the next 12 months.

Sell: The stock’s total return is expected to decrease by at least 10-15 percent from the current

share price over the next 12 months.

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QUANTITATIVE ANALYSIS analysis - Stockbroking Reports/2015/TD… · Technology companies are able to grow through technological step changes, efficient scalability, ... Forward Dividend