Why Bell Potter has boosted price targets for these 4 stocks

Broker Bell Potter published a package of re-rates on Thursday looking at an eclectic series of ASX-listed stocks. 

Equities for all companies covered are on the entry-level side of town with prices below $10/share. 

Bell Potter has had a busy few recent weeks, updating where it stands on a number of equities throughout the reporting season. 

Today, we’ll be looking at where the broker stands on the following four companies: 

• DGL Group (ASX: DGL) 

• NextEd Group (ASX: NXD) 

• PSC Insurance (ASX: PSI) 

• Nickel Industries Ltd (ASX: NIC) 

DGL Group (ASX: DGL)

• Bell Potter has rated DGL a BUY, giving the stock a 12-month price target of $2.15. 

• This is higher than the previous target of $2.00. Using a close price of $1.80, the new target reflects a total return of 19.4%. 

DGL is a specialty chemicals and dangerous business with an interesting backstory. Listing in 2021 at $1.00, the company shot to huge gains in April 2022. However, in September last year, the share price fell nearly 50% in one week.

In short, Bell Potter analysts are bullish on DGL due to the company’s impressive 1HFY23 earnings beat. EBITDA was ahead of the broker’s expectations at 30% growth YoY. 

DGL reported Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) of $29.7m, higher than the broker’s expectations for $28.2m. 

Analysts also believe DGL’s cash position is strong, and the company is paying off its debts faster than analysts predicted. 

DGL’s debt position exiting 1HFY23 was $79.8m, Bell Potter was expecting a higher $88.3m.

DGL has previously forecasted its FY23 earnings growth to flatten back in September 2022, indicating analysts were caught out by less inflationary impact than forecast by DGL. 

The broker noted ongoing seasonal headwinds affecting agricultural chemicals and analysts see room for further upside, especially if DGL boosts its sales portfolio. However, they expect DGL has enough cash to fund an upcoming series of acquisitions. 

DGL one year chart

NextEd Group (ASX: NXD) 

• Bell Potter has rated NXD a BUY, giving the stock a 12mth price target of $1.70. 

• This is higher than the previous target of $1.50. Using a close price of $1.43, that reflects a total return of 19.2%.

NextEd, formerly iCollege, is an Australian tertiary education provider with 9 businesses on its books across English language, vocational studies and higher education sectors. It also owns an international student recruitment agency. 

Another strong 1HFY23 report has Bell Potter analysts taking a more confident approach to NXD. The company’s result did not beat internal expectations but did match the middle-upper range of initial estimates. 

Bell Potter has, nonetheless, boosted its earnings and revenue upgrades for FY23 (though has made slight downgrades to gross margins, expected to remain flat until FY26). 

Recovering international student numbers have been a tailwind for the company’s performance. The increased intake offsets any lower domestic vocational revenue. 

Operating leverage improved over the first-half with margins growing by 626 basis points to 15%, driven by higher campus attendance and utilisation, effectively at 80% capacity in December CY22. 

These utilisation rates are expected to keep performance strong, even as NextEd launches into planned expansions. 

NXD one year chart

PSC Insurance (ASX: PSI) 

• Bell Potter has rated PSI a BUY, giving the stock a 12mth price target of $6.23. 

• This is higher than the previous target of $6.07. Using a close price of $4.98, that reflects a total return of 27.7%. 

PSC is a diversified insurance provider that acquires, grows and operates general insurance businesses in Australia, NZ and the UK. The insurance sector has been something of a safe haven during recent turbulence on the ASX (driven by higher premiums), even as Australia’s insurance majors are hit by climate change related cost payouts. 

PSI posted revenue growth +15% YoY in its 1HFY23 result, as well as underlying EBITDA growing 19% to $48.6m, 2% higher than Bell Potter’s expectations. 

The company also grew its dividend by 16%. 

PSI has increased its full year FY23 guidance “by about 2.5%” and net profits by 3%. Analysts expect the recent acquisition of three businesses (Charter-Union Hong Kong, Trade Credit Risk, and Aviation Marine) as delivering around 3% to annualised group EBITDA.

Earnings Per Share (EPS) growth is expected to be 7% for the full-year FY23. 

PSI one year chart

Nickel Industries Limited (ASX: NIC)

• Bell Potter has rated NIC a BUY, giving the stock a 12mth price target of $1.87. 

• This is marginally higher than the previous target of $1.85. Using a close price of $98.5c, this reflects a total return of 99%.

NIC is an established nickel producer (market cap $3bn+) still hot on the back of strong results (for NIC, this was technically its full-year CY22 report). The company’s revenue jumped 88% to US$1.2bn vs. US$645mn in 2021. 

Gross profits of US$293m (A$434m) were up 35% YoY (US$216m in 2021). 

NIC beat Bell Potter’s expectations on every front: revenue, earnings, and net profits. This was driven by “higher withholding tax payments and higher bond issue costs.”

The company has also hit record levels of nickel production at the same time nickel prices remain firmly elevated over pre-COVID levels (though down from April 2022 peaks). 

Bell Potter analysts expect nickel production to nearly double through CY23 and further earnings growth driven by improved stable margins brought about by NIC’s production of Class 1 products including high-grade nickel and concentrates. 

High-grade nickel matte sales clocked in at 4,740 tonnes across CY22, with the December quarter seeing a margin of US$5,950/t. Concentrates are expected to provide further EBITDA growth in CY23 as the company’s acquired 10% interest in a nickel-cobalt is expected to go live in the coming months (pending shareholder approval).

NIC one year chart