Richard Batt, Shadforth Financial Group
AGL Energy (AGK)
AGL offers credible management and a strong list of upcoming projects, which have the potential to provide organic growth going forward and better returns for shareholders. The recent result was impressive, with a 22 per cent increase in underlying profit, which was well above expectations. The retail energy division was a standout, as it delivered growth in customer numbers and gross margins in response to better regulatory and contract price outcomes. AGK is a suitable long-term investment.
Avoca Resources (AVO)
Avoca is a mineral exploration and stgelopment company focusing on its Higginsville gold project in Western Australia. The company recently announced it had recorded its third successive quarter of more than 50,000 ounces at this project. This is in line with its goal of achieving its forecast gold production estimate of more than 190,000 ounces for 2010. With current merger and acquisition activity in the gold sector, AVO is an ideal exposure for a growth portfolio.
Incitec Pivot (IPL)
An integrated fertiliser and industrial chemicals business that also provides support services to a wide variety of cropping and livestock enterprises. The company has a clear competitive advantage through its product knowledge base, and utilises its vast distribution network to deliver products to the market. Investors should retain their exposure.
Bright Food, a Chinese state owned group, has upped its conditional bid for CSR’s Australian sugar business, Sucrogen, to $1.75 billion. CSR had previously rejected an offer from Bright Food Group, and was toying with possibly demerging its sugar business. CSR intends to explore this proposal with Bright Food Group so investors should retain their holding.
The company’s share price recently hit an all time high, as its second quarter result beat analysts expectations. The main driver of the result was strong new medical product launches, leading to higher than expected sales. Investors should take advantage of the current high price to lock in profits, with a view to re-establish a holding on weakness. As the US accounts for about half of RMD’s sales, a strong Australian dollar could hamper profitability, which could lead to share price weakness.
Sigma Pharmaceuticals (SIP)
Sigma recently reported a full-year loss of $389 million for the 12 months to January 31, 2010. It included write-downs of $424 million in goodwill and a decline in underlying profit of 15.5 per cent to $67.7 million. Sales revenues, however, increased by 4.5 per cent to $3.22 billion, but market pressures in generic pharmaceuticals hurt margins. No final dividend will be payable. We believe there are better opportunities elsewhere.
Sean Conlan, Macquarie Private Wealth
Caltex Australia (CTX)
We have revised global refining margin forecasts and expect growth to outpace consensus estimates. Our more bullish outlook drives material changes to CTX forecasts. We are raising 2010 RCOP (replacement cost of sales operating profit) forecasts by 50 per cent to reflect our more optimistic short-term outlook. We are raising our price target to $14 a share in response to a more positive outlook for margins. In early morning trade on April 9, Caltex shares were trading at $12.29.
Ten Network Holdings (TEN)
Posted 2010 first-half net profit after tax of $58.7 million. Second quarter TV revenue was up 12 per cent on the previous corresponding period. More importantly, TV revenue is tracking 20 per cent above the previous corresponding period, with a strong second half to drive value. We remain bullish on full-year 2010 earnings per share and expect consensus upgrades of at least 10 per cent.
We like the Orica story – the company’s earnings resilience has been hard to fault in the downturn and the focus is now on recovery. Orica’s leverage to the upturn will be largely driven by an eventual recovery in European and US explosives demand, which is a full-year 2011 and 2012 story rather than 2010.
Fortescue Metals Group (FMG)
We retain our neutral recommendation with an increased price target of $5, recognising the option value of its Solomon project in Western Australia. We believe FMG is fully valued – short-term iron ore price upside and expansion to 95 million tonnes a year is already priced in.
Sigma Pharmaceuticals (SIP)
We have downgraded the pharmaceuticals maker to underperform (from neutral). We expect it to do a capital raising (with a large discount), which will go a long way to placating the banks. At the same time, a capital raising would provide some much-needed breathing space, particularly if operations deteriorate in response to stiff competition, or it finds it difficult to sell non-core assets, or the Government contemplates further funding cuts.
Stockland continues to trade above our valuation and we think rising interest rates pose a threat to the duration of a recovery in residential markets, although we believe it’s already priced in.
Michael Heffernan, Austock
Oz Minerals (OZL)
A major Australian copper and gold producer, which had a near death experience during the global financial crisis in 2008. Following its restructure, it now has low debt, and its mature Prominent Hill resource is expected to produce strong cash margins. Expect Oz Minerals to benefit as it’s leveraged to an increase in the copper price.
Iress Market Technology (IRE)
A leading information services provider primarily to broking houses and other financial firms. It’s weathered the global financial crisis in fine shape and we expect improving sharemarket activity to reward investors.
QBE Insurance Group (QBE)
A quality Australian insurer and re-insurer with a diversified business and geographical base, which helps cushion it from one-off events. While its recent lacklustre report hurt the share price, its market credentials are very attractive.
ANZ Bank (ANZ)
Its recent positive trading update together with an increasing footprint in Asia positions it well for future growth. The improving local economy should provide a sound base for continuing strong profit growth.
Aristocrat Leisure (ALL)
This poker machine maker continues to face headwinds from government regulation and the threat of foreign competitors encroaching on the Australian gaming market. Conservative investors should look elsewhere.
A disappointing performer in the agricultural sector. It recently lost Australian Agricultural Company’s feed supplement business to Landmark. As Elders is moving through its low earnings point in this half, other agricultural stocks are more appealing.
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.
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