Scott Marshall, Shaw Stockbroking
Leighton Holdings (LEI)
Leighton aspires to a work-in-hand target of $50 billion and NPAT (net profit after tax) of $900 million within five years. Our recommendation is based on a strong balance sheet, good management and exposure to a resilient infrastructure sector in Australia, Asia and the Middle East. A strong mining sector in Australia and abroad paints a bright outlook for this big project stgelopment and contracting group.
Pharmaxis has released six-month data from a second Phase-3 trial for the use of Bronchitol to assist patients with cystic fibrosis. The key results from this trial included a statistically significant increase in lung function. The positive safety profile of Bronchitol was reaffirmed, as was the significantly lower withdrawal rate from the trial due to the ease of using the drug.
This building materials group has given profit guidance of $123.5 million for full-year 2010. The US market will remain challenging. Chief executive Mark Selway has announced plans to capitalise on the group’s strengths of scale, market positioning and cash flow. We expect Boral to announce growth strategies soon, including capital investment, sale of non-core assets and potentially significant acquisitions.
The Reject Shop (TRS)
We expect a return to mid single digit (like-for-like) growth in full-year 2011. There’s no doubt this is a quality retailer with an impressive growth trajectory. But this may already be reflected in the price so, accordingly, look to buy at a later date.
During the next five years, we expect key demographic trends (especially aging and obesity) and increasing penetration of the potential patient pool to drive 15 per cent compound annual sales growth for this medical products maker. However, at the current price, we believe the growth outlook is more than factored in.
Woodside Petroleum (WPL)
The Sunrise project still requires approval of the stgelopment concept. This involves ongoing negotiations with the East Timor Government. Expectations of $13 billion in Train-1 capital costs for the Pluto LNG project are weighing on the share price. We believe the stock is fully valued at current levels.
Brendan Fogarty, Alto Capital
Hawkley Oil & Gas (HOG)
This company’s at the junior speculative end of the oil and gas sector. It has two exploration and pilot production licences within the Dnieper-Donets Basin in the Ukraine. The Dnieper-Donets Basin contains most of the Ukraine’s current hydrocarbon production, making it a highly prospective area with ample infrastructure to assist in commercialising Hawkley’s prospects should the current exploration program prove successful.
BC Iron (BCI)
This emerging mid cap iron ore producer is set to start production at its Pilbara-based Nullagine joint venture with Fortescue Metals later this year. With initial production targets of 3 million tones per annum – of which BC Iron is entitled to a 50 per cent share – and able management led by Mike Young, expect solid growth from an emerging company in the buoyant iron ore sector.
Downer EDI (DOW)
Downer provides comprehensive engineering and infrastructure management services in rail, road, power, telecommunications, mining and resources. Following recent significant earnings downgrades, largely from its mispriced railcar contract, management has decided to clean up the balance sheet and reform for future growth. Hold and look to accumulate once the risk and negative sentiment subsides, as Downer will more than likely recover when better economic conditions prevail.
Lihir Gold (LGL)
We suggested buying Lihir Gold below $3.90 as an unhedged exposure to the defensive gold sector. The company has recently been trading above $4.30 levels so it’s a hold for portfolio investors, but those with short-term objectives can consider taking profits. The outlook for gold remains robust, and it’s historically traded with such volatility that it enables buying opportunities on weakness.
The Reject Shop (TRS)
This discount retailer has grown very quickly in recent years to establish more than 190 stores Australia-wide. While its high growth strategy will continue – targeting 400 stores in future years – its steep share price rise stems from the market pricing The Reject Shop to perfection despite what is clearly a weak retail environment at present. Sell and wait for a better entry at lower levels.
The agricultural and automotive sectors have proven difficult for many participants in recent years. Elders is struggling with highly seasonal earnings amid difficulties in its MIS (managed investment scheme) forestry markets, where the provision of bank finance to investors was recently rejected. With no dividends forecast until at least March 2012, avoid Elders for the time being.
John Rawicki, State One Stockbroking
Telstra expects to reap an $11 billion windfall for decommissioning its copper and cable networks as part of an agreement to participate in the rollout of the National Broadband Network. The company will also avoid certain service costs. In our view, this agreement is a positive for share holders.
CSL Limited (CSL)
CSL’s Human Papillomavirus vaccine offers a new earnings stream, with royalty revenue from Merck’s Gardasil and GlaxoSmithKline’s Cervarix products. I like CSL’s strong industry position in the recession-resistant plasma business, which enjoys strong organic growth from population increases, more health insurance and rising government spending on healthcare.
News Corporation (NWS)
Cable networks and filmed entertainment contribute more than 70 per cent to overall cash flow. News Corp has stgeloped an attractive collection of cable networks, led by Fox News and its regional sports networks. Its networks will benefit from affiliate fee growth during the next five years.
Sales growth is underpinned by the company’s dominant market position as a growing online intermediary in the tourism sector, and by clear shifts in consumer preferences towards low cost online bookings. The company will seek to leverage its transaction-based platform with other travel services, and further acquisitions may be on the cards.
Higher input costs and inflationary pressures have historically weighed down profit margins. North American volumes are improving, albeit at a slow pace. This packaging group has limited pricing power, and is highly leveraged to movements in commodity prices.
The hearing implants maker has a strong balance sheet and an excellent ability to generate cash. But in our view, disappointing sales growth in full-year 2009 carried through to some extent in the first half of 2010. Although this was offset by strong margin gains, future growth is tempered by lower reimbursement rates, long training times and audiology clinic bottlenecks.
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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