Scott Marshall, Shaw Stockbroking
Lend Lease (LLC)
The company’s $806 million share issue is partially complete with $434 million raised from institutional investors. The balance of $372 million will be raised from retail investors. LLC is offering five new shares at $7.70 for every existing 22 shares. In early morning trade on March 12, the shares were trading at $8.68. We recommend LLC shareholders take up their entitlement. We have upgraded our recommendation on LLC after an extended period of underperformance.
This commercial explosives supplier is trading well below our price target. We have forecast relatively flat earnings in 2010 due to a strong Australian dollar, but we have upgraded our 2011 forecasts. Gearing is low and cash flow is very strong. Demand outlook remains strong.
Newcrest Mining (NCM)
The gold producer focused on growth potential at a recent conference. It included O’Callaghan’s tungsten resource, the large copper-gold projects in Fiji, new discoveries at Gosowong and exploration targets near Telfer. Our price target is $33 a share. The share price is exposed to the gold price and international economic stgelopments.
JB Hi-Fi (JBH)
Growth is largely through comparative store sales momentum and new stores. Solid sales growth (historically greater than 10 per cent a year) has resulted from expanding into new product categories. While JBH continues to enter smaller niche markets – a concern is the business has matured and sales growth will slow. We expect future stores will be smaller, limiting organic growth potential and impacting the valuation premium for the stock.
AXA Asia Pacific (AXA)
The Australian Competition and Consumer Commission is due to hand down its decision on the NAB bid for AXA on March 17 (unless it extends the timetable). The ACCC has already flagged concerns with the NAB bid, so a window may open for AMP to launch a new bid for AXA. Irrespective, the current share price seems to factor in a significant takeover premium indicating limited upside.
Hastie Group (HST)
The recently reported half year profit was well below our forecast due to volume and margin pressure. Margins declined in all major divisions. The group believes the bottom of the construction cycle has passed and it now expects growth, but even management notes the outlook is hard to read. Hastie is leveraged to the construction cycle, which has a long timeline and suggests the recovery could be protracted.
Peter Day, Wilson HTM
Bow Energy (BOW)
Focuses on oil and gas field discoveries in several of Australia’s key producing basins. It’s just announced a 60 per cent increase in proven, probable and possible (3P) coal seam gas reserves in Queensland to 2318 petajoules. It’s on track to hit 2750 PJ for 2010.
Tox Free Solutions (TOX)
Provides industrial and hazardous waste treatment, contaminated site remediation and industrial services. With Rio Tinto and the Gorgon project on its books, we believe there’s a significant opportunity for an upgrade and possible new contract announcements.
Arrow Energy (AOE)
This coal seam gas company has received a “non-binding indicative and conditional proposal” from Shell and PetroChina, offering $4.45 cash a share plus a share in AOE’s international business. At this stage, AOE recommends shareholders take no action. We believe the bid undervalues AOE and, at this level, it’s unlikely to attract the support of AOE’s largest shareholder, New Hope Corporation, whose 17 per cent stake will be required to achieve compulsory acquisition.
Asciano Group (AIO)
This transport infrastructure business, focusing on rail and ports, beat forecasts, albeit marginally. Coal haulage operations improved and costs across the whole business were kept under control. We have upgraded our coal forecasts, but these have been offset by lower container volumes and higher interest costs. Asciano has reached our target price.
Incitec Pivot (IPL)
This integrated fertiliser and industrial chemical business is currently trading at a 22 per cent premium to sector peers. We don’t believe CF Industries’ proposal to acquire rival fertiliser maker Terra Industries for $US4.7 billion supports Incitec Pivot’s current valuation.
Fairfax Media (FXJ)
One of Australia’s leading media companies showed some improvement in its recent report. However, we remain concerned that the market has already priced in a robust recovery in revenues that’s yet to emerge without fully incorporating the risks around the structural challenges facing this company.
Richard Batt, Shadforth Financial Group
Sonic Healthcare (SHL)
This pathology services provider has been able to increase domestic profit margins as it cuts costs through technological innovation. The company has been able to roll out this technology in overseas markets as it continues to deliver growth through strategic acquisitions in North America and Europe. These markets then provide the potential to deliver further efficiencies that should lead to increasing revenues.
Gindalbie Metals (GBG)
Gindalbie is stgeloping the Karara Iron Ore Project in a joint venture with AnSteel, China’s second-largest steel maker and largest iron ore producer. The project, which has received state and federal government approvals, has the potential to produce 30 million tonnes of iron ore a year for more than 35 years. With approvals in place amid a positive outlook for the iron ore sector, GBG is an ideal exposure to this sector for a growth portfolio.
Seven Network (SEV)
A leading media company, it’s proposed a merger with Australian Capital Equity and its 100 per cent-owned WesTrac Group. WesTrac is the sole authorised Caterpillar dealer in Western Australia, New South Wales, the ACT and north-eastern China. It also has strategic interests in National Hire/Coates Hire. The proposal is a scrip-for-scrip exchange. Shareholders should retain their exposure to benefit from what this new group can deliver.
GUD Holdings (GUD)
GUD stgelops and produces a wide range of appliances under an array of brands, including Sunbeam, Davey and Ryco Wesfil Goss. Each of these brands has a strong market position and benefits from inventive and successful product design and disciplined capital management. Investors will be rewarded with good fully franked dividends and GUD is a good long-term investment.
Austar United Communications (AUN)
Austar provides subscription television services in Australia. The company recently announced its full year result to December 30, 2009, which indicated that total subscribers increased by 3 per cent. Although this number was positive, it’s well below the 8 per cent increase reported in the previous corresponding period, and the 11 per cent reported in 2007. It appears the global financial crisis and the introduction of new free-to-air channels in Australia is having an effect and, with no dividend, we prefer alternatives.
PMP Limited (PMP)
Australia’s largest magazine and catalogue printer operates in a very competitive industry. The market for PMP is driven by consumer spending. Industry fundamentals remain unfavourable, with limited potential for revenue growth in the short-term. In our view, this company is not suitable for conservative investors.
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.
Other articles in this week’s newsletter