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Darren Jackson, Calibre Investments
BUY RECOMMENDATIONS
News Corporation (NWS)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Prior to the phone hacking scandal, News Corporation was trading at a discount to its sum-of-parts valuation and its peers. Since phone hacking emerged into a big story, News is even more heavily discounted. In the short-term, expect share price volatility. But over the longer-term, the saga could be a catalyst in bringing about positive changes at News Corp and assist in unlocking additional value.
Phoenix Gold (PXG)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
This junior gold explorer and development company is grossly under valued in our view. Since listing in December 2010, the company has been going about its business, but doesn’t seem to have attracted much investor attention. In the past seven months, this Western Australian-based firm has increased its gold resource from 977,000 ounces to 1.39 million ounces. The company is looking to further expand upon its resource. The share price was trading at 24.5 cents on July 28.
HOLD RECOMMENDATIONS
Beach Energy (BPT)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
The domestic unconventional gas sector (shale and coal seam) has the potential to be a major beneficiary of the carbon tax. Within the sector, BPT, an oil and gas producer, has an attractive balance sheet, a strategic position in the Cooper Basin and successful exploration results.
Sundance Resources (SDL)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Sundance has recently been trading at a modest premium to the lowball takeover bid at 50 cents a share by Hanlong Mining. The proposed acquisition price of 50 cents a share values Sundance at $1.44 billion. There should be continuing interest at higher levels in SDL’s strategic African iron ore assets. Wait for the company’s true value to be realised and offered. Sundance was trading at 53 cents on July 28.
SELL RECOMMENDATIONS
Austar United Communications (AUN)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
A decision on the Foxtel takeover bid for this rival pay TV operator has been delayed until September due to competition concerns raised by the Australian Competition & Consumer Commission. The Greens party is also seeking a parliamentary inquiry into media ownership. This may reduce the chances of another media company launching a bid if Foxtel is rejected.
Qantas Airways (QAN)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
The airline business is tough at the best of times. Qantas is vulnerable to potential ongoing strike action, the planned carbon tax and higher oil prices. Qantas faces strong headwinds going forward. We suggest investors consider reducing their holdings in the national carrier.
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James Cooper, Morningstar
BUY RECOMMENDATIONS
Billabong International (BBG)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
This surf wear and sports apparel company is reasonably priced for a business that has weathered multiple headwinds over the past three years from a stronger Australian dollar to a global downturn in retail spending. The stock is primed for potential earnings upside if the Australian dollar slides, or revenue accelerates from retail expansion in the US and Europe.
Hunter Hall International (HHL)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Unloved due to weak equity markets, but HHL is a proven, skillful and unconventional fund manager with much experience and the courage of its convictions. It applies an ethical investment policy to all its products. This is a stock that should deliver a strong dividend yield at a share price below $5.50. On July 28, it was trading at $5.25 a share.
HOLD RECOMMENDATIONS
APA Group (APA)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
APA is an industry leader in gas infrastructure, with interests in transmission and distribution assets across Australia. It’s responsible for delivering more than half the nation’s domestic gas usage. Its unfranked distribution yield above 8 per cent at a trading price of $4.03 on July 28 is attractive.
CSL Limited (CSL)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
A pharmaceutical and blood plasma giant that operates in 27 countries. Control of supply, scale of operations and integration of services from blood collection to product manufacture gives CSL a competitive advantage that’s difficult to replicate. Industry consolidation has led to favourable pricing and increased returns.
SELL RECOMMENDATIONS
Amcor (AMC)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
A global packaging company serving 43 countries, including the Americas, Asia, Europe and the Middle East. But it has limited industry pricing power and few competitive advantages despite its scale and product innovation, which require upfront investment.
Geodynamics (GDY)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
A geothermal exploration and development company, with resources in South Australia’s Cooper Basin. On an energy equivalent basis, the company’s granite reservoir equates to a 50 billion barrel oil field, but profitable extraction is unproven. GDY is early stage, with no cash flow.
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James Samson, Lincoln Indicators
BUY RECOMMENDATIONS
Hansen Technologies (HSN)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Provides billing solution software and has a strong recurring revenue stream. Its unique and effective intellectual property provides solid barriers to entry. Our number crunching shows it to be in strong financial health. We expect it to report strong profit margins and add new customers via organic growth as well as targeted acquisitions. The share price has quadrupled in the past four years, with the stock consistently yielding above 6 per cent.
Ausdrill (ASL)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
A drilling and blast services supplier to the resources and energy sectors in Australia and Africa. We expect it to perform marginally better than guidance and consensus in the reporting season. We also believe full-year 2012 earnings per share growth of 16 per cent or more is realistic given the expected return to profitability of some previously underperforming divisions. A full-year contribution from acquisition Connector Drilling and additional returns from new invested capital will assist the bottom line.
HOLD RECOMMENDATIONS
Campbell Brothers (CPB)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Campbell Brothers provides laboratory-testing services to the resources sector, and is well leveraged to mining growth. Given the strong share price performance since the global financial crisis, CPB is currently trading on a relatively high multiple, suggesting the market may have fully priced this otherwise financially healthy company.
Fleetwood Corporation (FWD)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Makes caravans and other portable accommodation. While FWD offers proven management and a bright future, we’re concerned about the short-term effects flowing from subdued consumer spending. Trading on a forward price/earnings ratio of about 13 times, the stock looks fairly priced at this time.
SELL RECOMMENDATIONS
Harvey Norman (HVN)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
After a dreadful period for the retail sector, we expect sentiment for discretionary retailers to remain poor, particularly for those selling consumer electronics. Consumers are wary about spending, especially on big-ticket items. We believe downside risks are prominent.
Reece Australia (REH)
Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)
Reece provides bathroom and plumbing fixtures and associated products. Businesses with exposure to construction starts (mostly building products and fixtures providers) have endured a tough period – similar to retail for weakness. In our view, the downturn in construction starts is a leading indicator that revenue may be soft. If so, it will have an impact on Reece’s share price.
>>Back to the newsletter to view other articles – July 30th 2011
Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.
