Steven Hing, Novus Capital
Whitehaven Coal (WHC)
A takeover bid for Centennial Coal means there’s potentially more targets in the coal sector. Whitehaven has significant coal reserves in New South Wales, and recent price action suggests the stock is on an upward move. Having recently pushed through $5.20 and then $5.35 on July 23, initial targets are previous highs of $5.80 a share.
Lynas Corporation (LYC)
Lynas is principally involved in exploring and stgeloping rare earth minerals. The stock has rallied strongly, recently breaking 68 cents – its high in October 2009. The company had undertaken a rights issue at 45 cents in September 2009, and now looks set to reap the benefits, as it’s the most significant rare earths find outside China. The stock looks set to retest 85 cent-to-90 cent levels.
The stock has fallen from $12.80 to $10 support levels. This share registry company continues to grow and appears to have stable revenue streams. While the fall from highs is concerning, it would surprise if the share price fell much further than $8.80, and I feel comfortable holding at around the $10 level.
Downer EDI (DOW)
As I mentioned in my last column for this publication, Downer’s had a particularly chequered history, but usually recovers after a major writedown. The stock dipped below $3.50, but a strong rejection at this level saw it bounce back above $4. It suggests the stock can continue to recover, and our initial target is $4.80.
Centennial Coal (CEY)
Thailand coal producer Banpu made a $6.20 bid for Centennial Coal. The bid is subject to FIRB (Foreign Investment Review Board) approval, but it appears there’s no other party interested in coming over the top at this stage. The bid was made at a 40 per cent premium to the last traded price. The Macarthur Coal bid became complex and eventually fell through, and, depending on FIRB’s outcome, there’s some potential this bid may also fail. I’d take the money and run.
Macquarie Group (MQG)
This stock still looks to be trending down. It’s recently been struggling to trade above $40, but it’s been a volatile market. The company used to rely on buying assets and repackaging them into a listed vehicle before charging corporate and management fees. The company’s business model has changed post the global financial crisis, but, in my view, it constantly needs tweaking to keep pace with the times. As it can’t rely on bank deposit funds and money market operations, I believe it’s unlikely the group can return to previous heights in the short term.
Richard Batt, Shadforth Financial Group
Westpac Bank (WBC)
Westpac operates a sound banking business in Australia and New Zealand, with exposure to the retail, corporate and institutional sectors. Management has a strong focus on capital management and the bank’s position in the Australian market is getting stronger. The recent weakness in WBC’s share price presents a long term buying opportunity.
Woodside Petroleum (WPL)
The largest publicly traded oil and gas explorer in Australia, the company has exposure, among other things, to crude oil and LNG. The primary driver for the business going forward will be its LNG operations, which will lift earnings and provide significant upside for investors.
Dulux recently demerged from Orica and is a market leader in coatings, home maintenance and garden care products. The company has strong brands, which include Dulux, British Paints, Selleys and Yates. Dulux is a well managed and conservatively geared company. It has the ability to generate good cash flows, and investors can look forward to a good fully franked dividend.
Tatts Group (TTS)
Tatts reassured investors it will maintain its final dividend for the year ending June 30. This was after announcing it would reduce the carrying value of its investments in UK gaming machine business Talarius and its Maxgaming software. The clarification goes a long way to calming investor nerves. We are happy to maintain exposure to TTS.
Kathmandu Holdings (KMD)
A retailer of outdoor adventure clothing and accessories. The company has a strong brand, but relies heavily on discretionary spending. Concerns exist that earnings may suffer in response to higher interest rates, a lack of government stimulus payments and a volatile economic environment. Based on this, we believe better investment opportunities exist elsewhere.
A producer of crop protection products sold across the globe, such as herbicides, fungicides and pesticides. The company is currently facing unfavourable climate conditions in North American and European markets, resulting in poor demand for its products. Additionally, the company is facing greater competition, which is putting pressure on margins. We prefer other investments.
Sean Conlan, Macquarie Private Wealth
Domestic capacity has grown recently and is pointing towards 8 per cent growth in the next six months. Internationally, expect a similar if not higher number, suggesting increasing potential for discounting in order to maintain load factors. The airline is trading below its full-year 2010 book value. We like the stock and believe concerns over short-term pricing pressures have been factored into the current share price.
This oil and gas company’s weaker share price is understandable given a general apprehension towards exploration in the current environment, and AWE’s poor recent run with the drill bit. That said, AWE offers an attractive buying opportunity, albeit with a fundamentally altered investment case.
St Barbara (SBM)
This gold producer and mineral explorer delivered a strong set of June quarterly production statistics, providing a strong platform for the next few years. We expect positive news flow from a guidance update later this month and full-year 2010 results in August. Expect an upward adjustment of consensus estimates to probably provide support.
Significant progress on the costs front should help stabilise merchant earnings in what can be described as the bottom of the cycle. We are looking for signs of a real turnaround in the company’s key operational markets (particularly the UK) before turning more positive.
This leading crop protection company has once again downgraded earnings expectations. The negative drivers are adverse seasonal conditions and ongoing competitive pressures. Nufarm now expects to report net profit after tax (NPAT) of between $55 million and $65 million (pre significant items) versus previous guidance of between $110 million and $130 million. The extent of this miss so late in the year (July year-end) is concerning and partly reflects the importance of fourth quarter profits to full-year outcomes.
We have de-rated the CHEP Americas division. Even at current levels, we believe Brambles is still trading at a significant premium to the market. In our view, a structural de-rating may occur in the medium term. This would bring BXB back towards a market multiple, reflecting changing dynamics in the pallet industry, particularly in the US.
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.
Other articles in this week’s newsletter