Alex Beer, State One Stockbroking
SP AusNet (SPN)
A diversified energy infrastructure business, operating Victoria’s primary electricity transmission and distribution network in the state’s east. It also operates a gas distribution network in western Victoria. SPN provides an attractive, relatively low risk dividend (via regulated revenue streams). Management has forecast a full-year 2010 dividend yield above 8 per cent. SPN is forecast to trade on an attractive full-year 2010 price/earnings ratio of 11.8 times.
Tatts Group (TTS)
Tatts has won the New South Wales lotteries contract for a purchase price of $850 million. Assuming TTS can achieve technology benefits from 2012 onwards (when current licence technology agreements end), EBITDA (earnings before interest, tax, depreciation and amortisation) is expected to increase to $120 million by 2014, somewhat offsetting the loss of the Victorian pokies business from 2012.
Myer Holdings (MYR)
Since last year’s initial public offering, the stock has lost about 25 per cent during a difficult full-year 2010. While first half 2010 sales were up 2 per cent to $1.18 billion, second half sales are expected to be either flat or modestly positive. Value is starting to appear given the stock is forecast to trade on a modest full-year 2010 price/earnings ratio of 11.2 times and a dividend yield of about 6.6 per cent. But we’re cautious about the outlook for retail spending.
Woodside Petroleum (WPL)
This oil and gas company reported a 5 per cent decline in 2010 first quarter production compared to the fourth quarter of 2009. The Pluto LNG 1 project is on schedule and is almost 87 per cent complete. First LNG from the Pluto field is due in early 2011. WPL is forecast to trade on a neutral full-year 2010 price/earnings ratio of 26 times and a dividend yield of 2.2 per cent.
The company has completed its exit from paper manufacturing by closing its remaining operations at the Burnie Mill in Tasmania. While global economic conditions are showing signs of improving, PaperlinX has a large exposure to the competitive UK and European paper markets. PPX is forecast to trade on an expensive full-year 2011 price/earnings ratio of 21 times. It cannot pay ordinary dividends until two consecutive step up preference distributions are paid.
Sigma Pharmaceuticals (SIP)
Sigma reported a net loss of $389 million with underlying NPAT (net profit after tax) of $68 million. While the result was mostly due to non-cash impairments, margin pressure was evident with flat or negative movements in both pharmaceuticals and healthcare distribution. Expect a dilutive capital raising or asset sales given $100 million must be repaid before March 2011.
Mark Goulopoulos, Patersons Securities
JB Hi-FI (JBH)
Recent statistics indicate that only 20 per cent of Australian households own a high definition television. This, and the imminent introduction of 3D televisions, will drive strong sales. Additionally, JB Hi-Fi plans to open about 90 new stores over the medium term, which will drive further sales growth.
UXC is a services company focusing on the IT and utilities sectors. A poor first half profit result, due to the environmental arm of the field solutions division, caused a sharp share price fall and a top buying opportunity. Recent contract wins, a stronger balance sheet and a strategy aimed at maximising shareholder value in the short term should result in a stronger share price performance in the second half.
Westfield Group (WDC)
Commercial property appears to have bottomed in key US and UK markets, so expect Westfield to resume a solid growth path in coming years. Expect a strong stgelopment pipeline to be tapped as financial market conditions improve. That, in turn, should provide long-term growth.
Woodside Petroleum (WPL)
The LNG stgelopment pipeline during the next decade is enviable as Woodside seeks to increase production by about 400 per cent. Notwithstanding this impressive growth, exploration risks remain, including obtaining sufficient gas for expansion plans and then in construction and execution. The current share price captures the upside and fair risk levels at this time.
Rio Tinto (RIO)
The extremely strong iron ore price has been the predominant factor driving up the Rio Tinto share price. The company is now trading at a premium to BHP Billiton despite its weaker balance sheet and less diversified product mix. At current prices, consider a switch to BHP Billiton.
Foster’s Group (FGL)
This group is a perennial underperformer. The recent interim profit result revealed a poor performance by the beer division and a continuing underperformance in wine. A preference for imported boutique beers by younger consumers is a worrying trend and highlights the limited growth potential for Foster’s in the medium term.
Richard Batt, Shadforth Financial Group
A major Australian oil and gas explorer and producer offering a solid balance sheet amid stronger energy prices that should support earnings. The company is pursuing a strategy of stgeloping four liquefied natural gas projects. If these LNG projects are successful, investors will reap the rewards.
National Australia Bank (NAB)
The ACCC (Australian Competition & Consumer Commission) has opposed NAB’s acquisition of AXA Asia Pacific Holdings. This may have come as a surprise to some, but the market reacted positively to the news. Although the ACCC decision may be a hiccup, the core business is strong and investors should look to buy or top up holdings on a bright outlook.
Coffey International (COF)
Coffey provides professional consultancy services focusing on physical and social infrastructure. The company’s strategy is to grow through acquisitions, particularly in overseas markets. Coffey’s competitive advantage is its specialist knowledge, putting it in a good position to benefit from continuing strong activity in the infrastructure and resource sectors.
The blood products group’s share price has recently slipped over concerns that could be attributed to a recent profit downgrade by one of CSL’s major competitors. We believe this is an over-reaction and investors should retain their holdings. CSL recently upgraded profit guidance, expecting full-year earnings of more than $1 billion.
Foster’s Group (FGL)
The brewer delivered a disappointing first half 2010 result that was well below consensus forecasts. Key drivers of underperformance were its wine operations in the Americas, where a combination of foreign exchange and consumer sentiment saw earnings disappoint. The company has suffered severe margin decline in many of its wine markets. It appears the underlying operating momentum at Foster’s has slowed. The company is losing share in the Australian beer market and we believe other companies offer greater upside.
Challenger Financial Services Group (CGF)
Challenger issues annuities in Australia. It also provides listed and unlisted investment products and services. Unlike many companies in the financial sector, CGF doesn’t pay a fully franked dividend. The share price is trading close to a new 12-month high. Based on this, we recommend investors consider reducing their holdings with a view to investing in financial sector companies that do pay fully franked dividends.
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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