In this February reporting season, two companies stood out for me as being ready to make big changes to improve their businesses. Their share prices have also been spruced up, and investors are looking at them with new eyes.
Fairfax Media Limited (ASX: FXJ) had a $168.3 million underlying net loss and ended up with a statutory net loss of $970,000 in FY2013 following two years of heavy write-downs which themselves ended in statutory net losses for 2011 and 2012.
Its share price got all the way down to around $0.40 and the market was wondering how it was going to turn things around given its strong connection with print media in a digital world.
This first half of 2014 has begun the turnaround with sales of non-core businesses like Stayz being sold off to build up an investment war chest and the acquisition of companies like Property Data Solutions to augment its online real estate portal domain.com.au.
Excluding proceeds from the sale of three businesses which netted about $221 million, the company's net profit was up 10% from $83.1 million to $93.1 million.
Late last year, the share price was about $0.52, but with the first-half 2014 results, it now is $0.90.
If the company can take a page from the playbook of Telstra Corporation Ltd (ASX: TLS) and embrace digital entertainment with upbeat acquisitions, then it can refashion itself and that is where the investment opportunity lies.
Hills Ltd (ASX: HIL), formerly Hills Industries, has also made moves to cast off lower profit margin business and move into electronics, communications and healthcare. In FY2011 and FY2013 it saw net losses after heavy write-downs, though still making underlying net profits.
It saw that manufacturing was changing in Australia on a first-hand basis being a manufacturer of metal pipes and steel fabrication and it made the move to sell two of its steel product businesses, Fielders and Orrcon. Net cash proceeds are to be about $80 million, with which it can fund acquisitions into the new electronics communications and healthcare spaces.
First-half 2014 underlying net profits were $17.7 million compared to the $71.9 million loss in the pcp.
Investors should watch this company and see how it unfolds its new plans. The market liked the half-year results, sending the share price up to $1.98 and it has been rising over the past 12 months from $1.09. This could be just the beginning.
Foolish takeaway
These two companies are taking that leap to change their businesses enough to change their destinies. Investments take time and money to implement that change, so that gives you time to look over what their strategies are and get behind the move.
