Heavy-hitting asset managers are jumping on the PMP bandwagon, encouraging investors to buy its shares now before the price goes up.
The recommendations follow forecasts last month that Australia’s biggest printer will triple profit in the 2015 financial year and pay dividends for the first time in three years.
Executives quoted in several Australian Financial Review articles say now the company is turning it around after many years of turmoil its stocks are vastly undervalued and will only go up.
Erik Metanomski says he got a bargain with PMP that has made his company, Lanyon Asset Management, a heap of money in the past year.
“Last year we outperformed the market with [close to] 55 per cent in cash; the only reason we did that was we only had a few companies in there and those companies were incredibly cheap,” he told the newspaper.
“One of them, PMP, was trading at twice free cash flow, which is a 50 per cent earnings yield. We still own that.”
[Related: Ups and downs of PMP]
Harness Asset Management chief investment officer Nigel Littlewood told AFR that PMP has delivered him a 300 per cent return on investment because of the low entry point.
He says while PMP has a poor history thanks to management who tried to buy growth with debt at time when the real problem was structural change in the sector, cost cutting and debt repayment plan by the current management has helped the business.
"The stock is trading at less than five times free cash flow. In the event this cash was used to pay dividends, the yield would be 20 per cent,” he says.
“But let's not get ahead of ourselves as there is still some water to go under the bridge before that can happen.”
Littlewood says stocks like PMP have ‘Warren Buffet appeal’ in that while they are small they have great return on investment for lower risk.
“He’s a value opportunist,” he says of the maverick American billionaire investor. “I think it’s bullshit to say he won't buy something – maybe if it's too small that may be true, but if it's trading cheaply, he will potentially buy anything.”
The brokers at Bell Potter are also getting in on the action, targeting a 66c price for PMP, though this is considered conservative by some analysts who last month said it could be worth as much as 70-80c.
According to AFR, the firm expects PMP’s revenue line will at least stabilise and likely increase modestly over the next few years.
“This will mainly be driven by catalogues, which Bell Potter highlights accounts for approximately 80 per cent of earnings.”
The firm says data indicates the catalogue sector remains resilient and prices appear to have increased in recent months. Bell Potter is also one of the two firms advising Ive Group on its planned ASX float.
PMP’s share price sits at 55c, the same value it skyrocketed 18.3 per cent to after releasing its forecast last month. It presents its full-year results on August 25.
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