**This is an extract from the Market Matters Morning Report from 8 October. Subscribers have the opportunity to ask questions of the Market Matters team throughout the week. Click here to get access to the full report and more
“Hi, just checking your thoughts on Transurban and Newcrest” – Tim W.
Two topical stocks over recent weeks and as subscribers know the later we own in the MM Growth Portfolio while the former resides in our Income Portfolio:
1. Transurban (TCL) $14.69 – TCL is one of the classic “yield play” stocks on the Australian bourse and although the shares appreciation over recent years has taken its yield to 4.2%, slightly franked it remains a lot more attractive than a term deposit!
MM remains bullish TCL targeting a break of the 2019 $16.06 high.
NB We are likely to take our $$ if anticipated this move unfolds.
Transurban (TCL) Chart
2. Newcrest Mining (NCM) $36.03 – this major gold producers shares are not surprisingly highly correlated to the underlying precious metal price. Although the sector is likely to fall ~1% this morning we remain bullish targeting fresh 2019 highs – sounds like TCL!
MM remains bullish NCM targeting the $40 area.
Newcrest Mining (NCM) Chart
“I hold shares in NXT–loss this year, f/cast loss, next year and (per Commsec) f/cast PE in 2021 of 180! My question is, will the uptake of blockchain affect the uptake of NXT facilities and ,if so, how and why? I could be displaying my ignorance.” – Regards, Chris J.
“Hi Quick question on NXT -and having come out of a dip & on consensus data at market index rated a ‘strong buy ‘ -would you also recommend a buy at current price? I went back through the daily reports to see if you had a view on the stock. Is there a search function using tickers on your website?” – Thanks Gayle C.
There’s a lot of water to go under the bridge for this data centre business in the next few years but last Augusts full year results didn’t help the share price which fell almost 10% on the day i.e. a $10m loss on a 15% lift in revenue with forecasts for 2020 of further revenue growth of up to 15%.
The issue as is often the case with growth stocks is valuation, what do you pay for optimism and future growth with no yield while say CBA is paying 5.5% fully franked albeit with little to no growth – the question, is NXT worth over $2.1bn when its losing money? The other issue we see is the market is long this stock already, making it hard to identify the marginal new buyer without any meaningful change to the outlook. Below shows 11 analysts covering, with 10 buys and just one hold.
NXT broker Consensus
We believe with so many “what if’s and buts” technical’s are very important with these style of stocks to enable us to quantify a degree of risk / reward – technically NXT looks ok around $6 with a potential “abc” target under ~$5. Hence fans of the business could accumulate here with ammunition to average into further weakness.
MM is neutral to positive NXT with stops below $4.40 unfortunately unattractive risk / reward.
NEXTDC (NXT) Chart
“Hello, I notice NEA has been on a slide since reporting. August broker targets are around $4+. Would this be a good time to add more NEA to my portfolio? I expected volatility through to early December but it is difficult to see that NEA could go much lower from here.” – Thanks Paul M.
Mapping business Nearmap (NEA) has fallen well over 40% from its 2019 high, I’m sure many investors thought that was unlikely at the time, as we repeat at nauseum remain open-minded. NEA has been sliding since June but since it reported an increased loss of almost $15m on revenue above $77m the declines have slowed, the business should be nicely profitable in a few years’ time if it can maintain its US expansion but does this potential expansion make NEA worth over $1.1bn? The main issue is the pace of growth has now slowed and this is a red flag for a growth stock.
Brokers remain largely bullish NEA but at this point in time its feels a 50-50 play to MM. I’d prefer to wait to see the next update from NEA before buying, they have their AGM on the 14th November in Sydney.
MM is neutral NEA.
Nearmap Ltd (NEA) Chart