Simon Bond, RBS Morgans


Bradken (BKN)

This mining products provider reported normalised EBITDA (earnings before interest, tax, depreciation and amortisation) of $175.1 million, dead in line with RBS estimates. Rail division sales and margin levels were the standout performer. Reported NPAT (net profit after tax) of $70.4 million was up 10 per cent on the previous corresponding period, yet it included a $9 million (pre-tax) one-off legal charge in relation to arbitration with ESCO Corporation. Net operating cash flow of $147.4 million was up 34 per cent, driven by working capital gains. The numbers are stacking up.

Australian Agricultural Company (AAC)

New management has a clear strategy to turnaround AAC. However, we believe it will take between two to four years. In the short term, the share price should be supported by an improving operating environment. However, to close a 36 per cent discount to NTA (net tangible assets), profitability and cash flow will need to substantially improve.


Reckon (RKN)

We make no changes to forecasts post another strong result for this business management and solutions company. While the outlook remains positive, we believe the value gap has significantly narrowed after a strong share price performance and we downgrade to a hold.

Gloucester Coal (GCL)

Gloucester Coal proposes to raise up to $455 million in new equity at $9.25 a share. It comprises an accelerated non-renounceable pro-rata entitlement offer on a 3-for-5 basis to institutional and retail investors. The funds will be used to acquire Noble’s interests in Queensland’s Middlemount coal project and to fund ongoing capital expenditure and working capital.


Energy Resources of Australia (ERA)

Despite a recent drop in the uranium miner’s share price, it remains above our net present value and, in our view, looks expensive relative to the rest of the sector. The uranium market appears to be well supplied due to adequate inventory held by utilities amid increasing production. Moreover, the global financial crisis has led to delays in building nuclear reactors in most regions other than China.

Metcash (MTS)

Given a likely improvement in retail activity in late full-year 2011, we expect most consumer staple stocks to underperform their discretionary peers on a 12-month view. Reflecting on historical trading ranges and a below-average earnings outlook for MTS, we set our target multiples at a 10 per cent discount to the S&P/ASX Industrials Index.


John Rawicki, State One Stockbroking


Endocoal (EOC)
This coal explorer has one of the largest landholdings in Queensland’s Bowen Basin. It covers 5000 square kilometres across 10 tenements and a maiden JORC (Joint Ore Reserves Committee) resource of 26.8 million tonnes of export quality coal. Another two years of exploration is fully funded and drilling on other tenements is due to start this year. It appears undervalued.

Bendigo Bank (BEN)

Full-year 2010 cash earnings increased 60 per cent on 2009 in response to strong revenue growth, tight cost controls, lower bad debts and a strong recovery in profit margins. Improving economic conditions in Australia enables the bank to attract new customers from its expanding branch network.


Macquarie Bank (MQG)
Macquarie’s businesses remain leveraged to global equities and debt and commodity markets. The group continues to recover from the recent financial crisis. Despite short term difficulties, Macquarie’s robust business model, built on a diverse income streams, means the group is poised to deliver solid earnings growth over the long term.

Energy Resources of Australia (ERA)

Despite a worse than expected drop in first half 2010 earnings, second half results for this uranium miner are expected to be much stronger due to a sales volume forecast in excess of 11 million pounds.


ResMed (RMD)

After a period of impressive growth and a strong outlook due to the success of new products, the share price has run quite strongly and is now trading on a forecast 2011 price/earnings ratio of 21 times. ResMed faces the risk of healthcare budget cuts as the US focuses on reducing the deficit.

JB Hi-Fi (JBH)

This company’s marathon of impressive profit growth may be running out of steam amid the potential for slower sales growth. Half of the company’s stores are reaching maturity from a growth perspective. While the company is still on track, investors should be wary of slowing sales.


Rob Swarbrick, Novus Capital


Austex Oil (AOK)

A US-based oil and gas producer with acreage in Oklahoma and Kansas. It’s currently producing 200 barrels of oil a day, but I expect that number to increase to 500 barrels by Christmas and 2000 barrels by December 2011. Currently, the margin on producing a barrel of oil is about US$50. The company has no debt and $5 million in the bank.

Macarthur Coal (MCC)

Demand for coal continues to increase, with India and China lifting imports of thermal coal. In addition, the MCC board rejected a takeover bid from Peabody Energy earlier this year, but takeover speculation still exists.


BHP Billiton (BHP)

Demand for commodities will continue to grow across key areas, such as iron-ore, coal, oil and gas. While sharemarkets are trading sideways, BHP will continue to grow and I expect a $45 share price in the medium term.

Woolworths (WOW)

This retail giant will continue to generate significant cash flows from its diverse operations. It’s going to compete against hardware giant Bunnings, which combined with its core businesses will continue to outperform the economy.


Macquarie Group (MQG)

Macquarie recently revised its outlook, effectively a profit downgrade, by warning three divisions may not meet forecasts. Macquarie is highly leveraged to the performance of financial markets and several of its divisions require significant cash flows to service.

Bell Financial Group (BFG)

Bell has performed well in the past 18 months. But in the past two months, market volumes have significantly fallen, affecting revenue for all stockbroking firms. Consequently, I expect BFG’s share price to fall.


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