Simon Bond, RBS Morgans
Reckon Limited (RKN)
A business management and solutions company, with operations in Australia and overseas. Despite delivering again in 2009, the 2010 outlook appears even more attractive given price rises, rebounding retail and company formations, fixed cost leverage, an under geared balance sheet and support from the buyback.
Origin Energy (ORG)
Next year seems to be loaded with a range of positive earnings drivers, so we expect Origin to deliver solid profit growth. In our view, the biggest risk revolves around how the Darling Downs power station will interact with the company’s retail business. In isolation, the short-term outlook for the generator wouldn’t appeal, but we’re hoping that any downside is offset by improving retail margins.
Computershare should benefit from increasing corporate activity in full-year 2011 as confidence builds amid an economic recovery. Further upside could come from additional cost out and rising global interest rates, but we believe this potential upside is factored into the share price.
Sonic Healthcare (SHL)
Following the Hamburg site tour, we continue to see potential for ongoing synergies from the integration of SHL’s German laboratories. Also, we believe the effects of last year’s reimbursement changes have become clearer and, to a large extent, have been offset by several factors.
REA Group (REA)
It appears Google is moving more aggressively into the real estate advertising market. We doubt Google will threaten REA’s number one position, but it may disrupt the market and affect REA’s ability to push through significant price rises. Trading on a forecast full-year 2011 price/earnings ratio of 24 times, this risk is yet to be factored into the share price.
Virgin Blue Holdings (VBA)
We believe momentum is against Virgin, and see uncertainty surrounding future earnings and strategy adding to short-term weakness. We see no risks as a going concern, but we believe the next three-to-six months will be tough for the company.
Alex Beer, State One Stockbroking
National Australia Bank (NAB)
The bank’s 2010 first half (adjusted) cash NPAT (net profit after tax) of $2.193 billion was up 8.2 per cent on last year’s first half, primarily due to a reduction of $581 million in bad debts. Its key banking business division generated $1.09 billion, up 33 per cent on last year, while MLC generated $263 million, up 28.9 per cent. NAB is trading on an attractive 2010 price/earnings ratio of 11 times and a dividend yield above 6 per cent.
Downer EDI (DOW)
The share price has fallen 35 per cent after a $190 million provision against its $10 billion Waratah PPP (public private partnership) rail project with the NSW Government. Downer is otherwise a large-scale Australian engineering business trading on a lower price/earnings ratio than sector competitors Leighton Holdings and UGL and offers substantial upside in its mining unit.
Given the risks surrounding its retail businesses in the second half of 2010, this industrial giant is fairly priced on a 2011 forecast P/E of 14 times and a dividend yield of about 5 per cent.
Foster’s Group (FGL)
The brewing giant expects EBIT (earnings before interest and tax) of between $1.050 billion and $1.080 billion for full-year 2010, broadly in line with consensus estimates. It will recognise a non-cash impairment of between $1.1 billion and $1.3 billion (pre-tax) to the carrying value of its wine assets in full-year 2010.
The company’s US brick and tile plants were operating between 15 per cent and 30 per cent of capacity, with an EBIT loss of $49 million. It reported underlying NPAT of $ 68 million in the first half of 2010, down 9 per cent on the previous corresponding period. Boral looks expensive compared to its peers.
Transfield Services (TSE)
Transfield recently secured new contracts in the US via asset management subsidiary USM . Company revenue of $3.406 billion in full-year 2009 is big, but margins are low. This essential services provider is trading on a full-year 2010 forecast P/E of 14.4 times, which looks expensive compared to competitors.
Sean Uldridge, William Shaw Securities
Newcrest Mining (NCM)
Newcrest Mining is Australia’s biggest “pure-play” gold producer. It’s currently locked in a friendly takeover/merger process with smaller rival Lihir Gold. The merged company will have a market capitalisation of $24 billion and low debt. Also appealing is a production profile of low costs and a long mine-life. Our price target is $40. In early morning trade on June 11, the share price was trading around $34.
Asciano Group (AIO)
Asciano is the biggest port and rail owner/operator in Australia, with assets including Pacific National Rail and Patrick’s ports. Both businesses are trading well, and the assets are irreplaceable and monopolistic in style. Despite the company’s low debt, the share price hasn’t escaped recent market weakness. AIO is worth every bit of $2. On June 11, the share price was trading at $1.58.
General Property Trust (GPT)
Owns blue chip property assets across Australia. On recent price weakness, the stock has been trading at a 22 per cent discount to NTA (net tangible assets). Gearing is now at a very conservative 20 per cent, building occupancy is at 99 per cent and the average lease expiry period is one of the longest in the industry. For a super fund this is a buy, for the rest of us, it’s a hold. Buy at cheaper levels if this weak market continues.
National Australia Bank (NAB)
National Australia Bank is Australia’s second or third largest bank, depending on what metric you use to measure them. It’s also the cheapest among the big four banks to buy on a price/earnings ratio basis, and offers the highest dividend yield. If market weakness continues, these factors will ensure NAB’s share price falls the least in percentage terms. Don’t push the sell button on this one yet.
We’re concerned about the performance of Crown’s City of Dreams casino in Macau amid tougher economic times. Getting punters through the door is a challenge. In my opinion, the major share price support at $7.50 won’t hold, and we expect the price to retreat to $6 unless a global recovery emerges.
Despite global market turmoil, the share price action of Cochlear has been nothing short of stellar. Finally, the share price is failing to maintain upward price momentum and, technically, I like selling stocks that appear, on the face of it, to be holding up when the market just isn’t. We expect the share price of this hearing implants maker to retreat in this uncertain global environment.
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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