XPD – Morgans rates the stock as Reduce

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2016 results beat forecasts. The company announced that, because of restrictions on direct investment offshore, the buy-back announced in August has been terminated. The board believes it is more important to preserve capital for potential acquisitions than to pay dividends.

Morgans considers this a major change in strategy. It appears new acquisition opportunities relate to local shoe component manufacturers. No guidance was provided for 2017.

Despite an attractive cash position and exposure to one of the fastest-growing sporting codes in China, Morgans finds it cannot recommend the company as an investment, given the cash is effectively in lock-up and dividends will not be paid for the foreseeable future.

The broker believes earnings multiples have become irrelevant as has revenue/earnings growth from a domestic investor perspective. The broker downgrades to Reduce from Add. Target is reduced to 5.9 cents from $0.15.

Target price is $0.06.Current Price is $0.04. Difference: $0.02 – (brackets indicate current price is over target). If XPD meets the Morgans target it will return approximately 27% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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