Grant Dwyer, Patersons Securities

BUY RECOMMENDATIONS

Jabiru Metals (JML)

Jabiru Metals has strong operating cash flow from the low cost Jaguar zinc and copper mine. The Jaguar plant now has a five and-a-half year life after the recent discovery at Bentley, which is within easy trucking distance. Jabiru has strong cash reserves – $30.6 million at the end of March 2010. The company continues to move the Stockman project in Victoria forward, with a scoping study on this 12 million tonne resource to be completed in the 2010/11 year.

Independence Group (IGO)

This high-grade nickel miner reported a first half profit of $12.6 million and declared a dividend of 2 cents a share. The result was in line with our expectations and came from producing 4237 tonnes of nickel concentrate. Progress at the Tropicana gold deposit could lead to a higher share price.

HOLD RECOMMENDATIONS

Riversdale Mining (RIV)

Riversdale announced it had signed a memorandum of understanding with Chinese steel producer Wuhan Iron and Steel, with Wuhan to acquire a 40 per cent stake in Riverdale’s Zambeze project for a total of US$800 million over three tranches. Wuhan will also have the right to 40 per cent of Zambeze’s coking coal and 10 per cent of Benga’s coking coal. Hold for further stgelopments.

Mount Gibson Iron (MGX)

Mount Gibson’s strong share price performance reflects solid production and an increasingly positive outlook for the iron ore price. Mount Gibson has committed to a second operation, which will add four million tonnes of high margin production after a 12-month build period.

SELL RECOMMENDATIONS

Transpacific Industries (TPI)

Prior to the global financial crisis, management had promoted Transpacific Industries as a relatively recession proof business with a stable revenue stream due to the long-term nature of its contracts. Businesses with stable cash flows are able to sustain higher levels of gearing. After the GFC, revenue fell 10 per cent in the 2009 second half (on the previous corresponding period) and 15 per cent in the 2010 first half, leading to a 36 per cent fall in EBIT (earnings before interest and tax). Interest cover has fallen to an unacceptably low 1.5 times. In our view, the business is more high risk than management believes, with only the municipal waste collection providing stable cash flows.

Intoll Group (ITO)

This toll road operator inherited the M7 and the 407ETR from Macquarie Infrastructure Group. The toll roads provide long term cash generation underpinned by population growth and CPI (consumer price index) linked toll increases. However, we believe corporate activity provides an opportunity to exit at a reasonable price.

 

Peter Addison, Intersuisse

BUY RECOMMENDATIONS

QBE Insurance Group (QBE)
           
This leading provider of general and re-insurance services operates in 45 countries, including the Americas and Europe. Recently, the company announced an acquisition in Belgium, which will be earnings accretive in its first year. QBE has been trading on a price/earnings ratio of about 8.5 times, with a running yield above 7 per cent.

Woodside Petroleum (WPL)
 
An Australian-based oil and gas entity, producing crude oil, condensate, domestic gas and LNG.
Expect significant value from the North West Shelf Project after the Federal Government clarified tax issues in the resources sector. A profit of about $2 billion is projected this year.  

HOLD RECOMMENDATIONS

David Jones (DJS)
           
Australia’s leading upmarket retailer with 35 department stores across Australia and two warehouse outlets. The company focuses on selling premium brands and exclusive lines. Single digit sales and profit growth is expected this year and investors can look forward to a fully franked dividend yield above 6 per cent.  

Panaust (PNA)    

A copper and gold producer with major operations in Laos and Thailand. Earlier this year, the company announced it had acquired a 56 per cent interest in a copper/gold project in Chile. As a significant low cost producer, Panaust is considered an attractive takeover target.

SELL RECOMMENDATIONS

Neptune Marine Services (NMS)
           
Provides integrated engineering solutions to the international oil, gas, marine and renewable energy industries. First half results were disappointing although an improvement is expected. In our view, this company is one to avoid at this point.

CBH Resources (CBH)

Produces silver, lead and zinc in New South Wales. Directors have recommended shareholders accept a takeover offer from Japan’s Toho Zinc. Shareholders can get 24c a share immediately by selling on market, or, alternatively, wait and accept a takeover offer as the acquirer holds more than 80 per cent of shares.

 

James Cooper, Morningstar

BUY RECOMMENDATIONS

Alesco Corporation (ALS)

Management has typically shown strong portfolio skills. It creates value and improves productivity by acquiring growth businesses with key positions in niche markets. It also sells underperforming businesses. However, cash flows are cyclical as it’s exposed to housing, commercial construction and the resources markets.

Boart Longyear (BLY)

One of the world’s largest drilling companies, competitive advantages include a strong brand, global scale and solid relationships with blue-chip customers. Demand for drilling products and services is highly leveraged to mining and resource-related expenditure, which is slowly starting to improve following the recent contraction. A highly dilutive re-capitalisation program removes near-term debt issues.

HOLD RECOMMENDATIONS

Ansell (ANN)

An industry leader in protective healthcare products. Its products compete in a fierce price market, although Ansell continues to increase contributions from more differentiated higher margin products. Products are predominantly made of natural and synthetic latex, exposing Ansell to price fluctuations in rubber and latex concentrates.

Newcrest Mining (NCM)

A low cost gold producer, offering growth and strong exploration upside. The biggest operations are Telfer and Cadia. Value has been mostly created through exploration, although managing director Ian Smith has broadened the growth strategy to include advanced project acquisitions, which cleverly expands the range of exploration opportunities. Predominantly Australian based, sovereign risk is low. The lack of quality ASX-listed gold alternatives sees the shares trading above valuation.
Many offshore peers trade on even loftier multiples.

SELL RECOMMENDATIONS

Transpacific Industries (TPI)

Provides waste management, recycling and industrial cleaning services and distributes premium-end, heavy-duty commercial vehicles. Earnings dived in full-year 2009 as the Australian economy weakened. It negotiated a dilutive equity raising, but, in our view, TPI remains a high risk prospect in light of poor interest cover and lack of transparency on debt covenants.

Amcor (AMC)

Amcor is redefining its global packaging businesses. The key revenue driver is still consumer spending on food, beverages and healthcare. With limited industry pricing power, there’s little competitive advantage. An unfranked dividend yield of 5.2 per cent is too low given the business challenges. Reduce holdings.

Other articles in this week’s newsletter

Portfolio Watch: Must Have Stocks That Are Going Cheap

18 Share Tips – 19 July 2010

Is the market dead or alive?

Why Housing Market Bubbles Pop

Trading Multiple Time Frames In FX

Five Things To Do Before Interest Rates Go Up

Top 10 CFD stocks

Market Data

Breaking News

 

 

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.