Heralding the arrival of financial year 2018 has been a flood of buy and sell recommendations from brokerage houses and sell side analysts as investors are encouraged to reposition their holdings for the year ahead.
When it comes to investing the best proven strategy is to buy and hold high-quality companies when they are trading on attractive valuations to let time do the heavy lifting for you.
However, it's not impossible to crush the market over shorter time horizons if you are lucky or skilled enough to identify companies that are both undervalued and positioned to perform well over say a 12-month horizon.
This is an extremely difficult task, but brokerage house Bell Potter has named three businesses in the retail and professional services space it thinks are poised to excel in FY 18.
Let's take a look at them as investment prospects.
Super Retail Group Ltd (ASX: SUL) is the retailer behind Rebel Sports, BCF, Supercheap Auto, Rays and Amart sports. It has seen its shares slump 19% over 2017 as investors worry over the arrival of Amazon and weak wages growth holding back consumer spending.
Bell Potter is backing the stock on valuation grounds estimating it trades on an "FY17/FY18 PE of 11.9x/10.4x' with an estimated "FY18 fully franked yield of 5-6%". The stock does look cheap, but only if it is able to withstand the macro headwinds that have prompted a series of recent profit downgrades across the retail sector.
Premier Investments Limited (ASX: PMV) is Solomon Lew's retail conglomerate largely focused in the fast fashion and children's stationery space. Bell Potter is recommending PMV as it thinks investors have an opportunity to get exposure to the "Smiggle global growth thematic". Apparently Bell Potter "believe the Smiggle brand can become a global brand given its leverage to youth education and hence universal appeal across cultures".
Premier Investments is a well run retailer with a strong balance sheet, but I'm not betting on Smiggle becoming a global sensation. In fact the time to jump on the Smiggle growth story was probably FY 15 not FY 18, although Premier Investment shares at $12.95 may still offer good total returns over the next couple of years.
IPH Ltd (ASX: IPH) is the holding company that owns patent law firms Spruson & Ferguson and Fisher Adams Kelly Callinans, among others. The group recently reported EBITDA (operating income) fell 7% to $36.4 million for the six months period ending December 31 2016 in a result it partly blamed on the fact it was cycling off a strong comparative half due to a spike in patent filings caused by regulatory change over the America Invents Act. This is probably correct, but IPH is only recently listed and its most recent result was moderate, which means it has a way to go to prove that it can deliver consistent growth to shareholders over the years ahead.
Bell Potter also note another factor recently affecting the share price may be the overhang of shares released after a post-IPO escrow period. It also cites its belief that the valuation is attractive given it trades on an estimated "FY18 PE of around 15x" with an "attractive FY18 yield of 5-6%".
