Simon Bond, Morgans
BUY RECOMMENDATIONS
Ramsay Health Care (RHC)
Chart: Share price over the year to versus ASX200 (XJO)
Underlying results for this private hospital operator were solid and in line with our expectations, underpinned by broad divisional performance, operating leverage and strong cash flow generation. Although we’re wary of cost pressures, we see little reason to remain cautious, with underlying growth drivers intact and earnings consistency supporting continuing momentum.
Primary Health Care (PRY)
Chart: Share price over the year to versus ASX200 (XJO)
A medical services company that recorded double-digit adjusted earnings growth, margin uplift across the main divisions and increased capital management. While cash flows were softer, impacts appear to be one-offs and we retain our confidence for continuing growth.
HOLD RECOMMENDATIONS
Coca-Cola Amatil (CCL)
Chart: Share price over the year to versus ASX200 (XJO)
We view the recent result as transitional in nature given the new CEO Alison Watkins will need to reset group strategy in coming months. Nonetheless, the Indonesian division has encountered some significant headwinds that will put long term assumptions under question.
Origin Energy (ORG)
Chart: Share price over the year to versus ASX200 (XJO)
The result was in line with expectations, but surprised in the mix of earnings. The energy markets business significantly trailed our expectations, while the exploration and production business outperformed. We expect the electricity business to remain pressured over the medium term amid subdued demand and fierce competition. The gas side should benefit from gas sale contracts and improved pricing.
SELL RECOMMENDATIONS
Tabcorb Holdings (TAH)
Chart: Share price over the year to versus ASX200 (XJO)
While the results were ahead of our expectations, they only further confirmed our cautious thesis on the stock. It’s clear to us that retail and tote betting is in permanent structural decline as the market shifts to fixed odds and digital betting. This new product and channel are two areas where the new entrants are global market leaders and innovators. The odds of Tabcorp being able to grow profits in a new world of digital and fixed odds betting while competing with the global leaders in this space will be a challenge.
Tatts Group (TTS)
Chart: Share price over the year to versus ASX200 (XJO)
Recent results were bang in line with our expectations. It confirmed our cautious view regarding the ability of incumbent wagering operators to maintain market share and grow revenue. While we believe Tatts is in a better position than its major competitor – given its strong resilient lotteries business – it isn’t immune to these themes.
Richard Batt, Shadforth Financial Group
BUY RECOMMENDATIONS
Carsales.com (CRZ)
Chart: Share price over the year to versus ASX200 (XJO)
CRZ recently announced it had signed a binding agreement to acquire a significant shareholding in the online assets of SK Encar, South Korea’s leading automotive trading business. This provides long term growth opportunities and makes CRZ a global leader in automotive classifieds. It offers great exposure to the IT sector for long term portfolios.
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Transpacific Industries Group (TPI)
Chart: Share price over the year to versus ASX200 (XJO)
TPI provides waste management, recycling and industrial cleaning services in Australia and New Zealand. Debt management and operational issues have plagued the company since the global financial crisis. The company recently announced it had agreed to sell its New Zealand waste business for NZD $950 million (AUD $880 million). Proceeds from the sale will go a long way to reducing the company’s debt and could lead to the resumption of dividend payments in the near term.
HOLD RECOMMENDATIONS
Orora (ORA)
Chart: Share price over the year to versus ASX200 (XJO)
ORA was spun out of Amcor in December 2013 and consists of two divisions. The Australasian business makes and recycles fibre and beverage packaging within Australia and New Zealand, while the packaging distribution business group is located in North America. Both are relatively defensive businesses, which will withstand economic downturns, but also enjoy some benefits from any uplift in the economy. We recommend long term portfolios continue to hold.
SMS Management and Technology (SMX)
Chart: Share price over the year to versus ASX200 (XJO)
SMX recently reported a disappointing first half result, which was inline with company guidance. It reflects weak demand for IT services due to declining business confidence and cost cutting by firms. The company, however, did indicate it’s seeing some early signs of improving demand, which is consistent with comments from other IT services firms.
SELL RECOMMENDATIONS
Aurizon Holdings (AZJ)
Chart: Share price over the year to versus ASX200 (XJO)
The company transports coal along Australia’s east coast. High fixed costs and large capital expenditure requirements limit profitability and free cash flow. This, in turn, can also limit the company’s ability to pay reasonable dividends. We suggest taking advantage of a stronger share price and lock in some profits.
Skilled Group (SKE)
Chart: Share price over the year to versus ASX200 (XJO)
Provides staffing solutions to the public and private sectors. Margins are low and earnings are highly leveraged to the economic cycle. Any project delays and deferrals of maintenance expenses can adversely impact revenue. Based on the current economic environment, we prefer alternative investments in the sector.
Peter Russell, Russell Research
BUY RECOMMENDATIONS
FlexiGroup (FXL)
Chart: Share price over the year to versus ASX200 (XJO)
Flexi provides diverse vendor and customer financing via its 12,000 vendor and retail partners. Its track record of sound and profitable growth reflects product innovation and off-balance sheet debt funding. A 20 per cent half year profit rise sets up continuing high double digit revenue and earnings growth, with franked yields above 4 per cent.
M2 Group (MTU)
Chart: Share price over the year to versus ASX200 (XJO)
M2 provides a full suite of telco, power and gas services to businesses and consumers, and has delivered a 70 per cent per annum total return to shareholders over five years. Overall growth amid integrating the latest major acquisitions should deliver another earnings rise of between 30 per cent and 40 per cent. The yield is above 4 per cent.
HOLD RECOMMENDATIONS
Iress (IRE)
Chart: Share price over the year to versus ASX200 (XJO)
Provides information and trading systems to financial firms in Australia, New Zealand, Canada and South Africa. A base in the UK has been significantly expanded and Asian operations are under development. With a solid franked yield, the UK prospects and improving equity markets, the stock offers upside.
McMillan Shakespeare (MMS)
Chart: Share price over the year to versus ASX200 (XJO)
McMillan is a leading provider of salary packaging and vehicle leasing. It’s a sound performer. The shares were slashed when the former Labor Government planned to cut fringe benefits tax on leases. The Coalition’s reversal has enabled McMillan to return to business as usual. Sentiment is cautious so we don’t expect any rapid changes, but prospects in the UK and Australia are attractive.
SELL RECOMMENDATIONS
ASX Limited (ASX)
Chart: Share price over the year to versus ASX200 (XJO)
ASX is a sole clearer of securities and derivatives trades. Rising equity markets are building ASX’s listing, issuer and trading fees. But, in our view, the shares are fully priced and earnings growth is limited. Better opportunities exist elsewhere.
Cochlear (COH)
Chart: Share price over the year to versus ASX200 (XJO)
Cochlear is at the cutting edge, which isn’t easy. Delays in regulatory approval of new hearing implant products impacted half year results. Cochlear also faces tough US and Chinese competitors. A great product, but revenue and profit growth have stalled since 2009. The shares are fully priced and at levels seen between 2007 and 2009.
Click on the links below to read other articles from this week’s newsletter
18 Share Tips – 17 March 2014: 18 Share Tips to BUY, SELL & HOLD from…
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.
