By – Kaivalya Kandarpa
Global equity markets are off to a slow start this year after the US experienced one of the longest bull markets on record. With stocks trading at relatively high multiples, investors fear an economic slowdown in China, falling commodity prices, and uncertainty surrounding Central Bank actions and whether their financial policies can actually boost global growth. Adding to this, investors also seem uncertain about the ‘negative interest rate’ policy introduced in Japan and Europe and what the potential impacts might be.
The Australian stock market is no exception, with most companies and sectors facing downwards pressure. However, as it is often the case, market pull-backs present opportunities. While Australian companies currently release their financial reports, financial analysts and stock pickers are trying to find companies with robust balance sheets and recession proof business models. After all, the stock market is a market of individual stocks and not every single stock will decline in a bear market.
Find below three hot stocks to watch during 2016.
Bulletproof (ASX: BPF): Bulletproof is an Australian software company that provides managed cloud services to various business and government clienteles. Shares of Bulletproof have risen over 66% in the last twelve months. The company expanded its revenues by 59% in FY15. During the 1H16 period, revenue continued to accelerate rising by 90% against 1H15 period. The company achieved strong organic growth, underpinned by improved business operating performance.
Having recently acquired Cloud House Limited, a prosperous cloud services company in New Zealand, Bulletproof is set to position itself as the market leader in the ANZ region. Recognising its historic revenue growth trajectory, we see the potential for the company to further enhance its earnings if acquisitions are starting to materialise in the second half.
Challenger Limited (ASX: CGF): Challenger Limited is one of the largest providers of annuities in Australia. The superannuation provider recently announced a record interim operating result as the company achieved 80% growth in NPAT, boosted by the sale of Kapstream Capital in July 2015. The company improved its cost-to-income ratio coupled with a 12% expansion in its annuities’ Assets under Management.
Challenger’s board declared an interim dividend of 16 cents per share, up 10% and fully-franked compared with a 70% franked dividend last year. We are attracted to the company’s income profile, healthy funding position and appealing dividend yield.
Additional speculative upside could derive from the Australian Government’s recently proposed policy changes that are strongly supportive of comprehensive income products for retirees. While this move is not approved yet, it could potentially amplify demand for Challenger’s products in the near future.
Greencross Limited (ASX:GXL): Greencross is a prominent veterinary services company with 149 vet clinics and 211 retail stores across Australia and New Zealand.
The company’s net profit after tax surged 617.1% to $18.7 million, attributed to strong top line growth and a reduction in exceptional items incurred during the current period. Subsequently, EBITDA grew 16.7% to $48.5 million on the back of underlying business and network expansion through the addition of retail stores and veterinary clinics along with widened gross margins.
The company strengthened its capital management position as the group net-debt declined 6.1% to $220.1 million, reinforced by strong cash conversion and a transition towards self-funded growth outside of one off material acquisitions.
While there is no guarantee that these companies can defy the current downtrend, history has taught us that companies with cash flow, disciplined capital management and an experienced management team will sustain during challenging periods and reward shareholders over the long-term.
Kaivalya Kandarpa is an Equity Analyst and Client advisor at Wise-Owl and is an active member of the Australia India Business Council in NSW.
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The Indian Telegraph Sydney Australia