John Rawicki, State One Stockbroking
Woodside Petroleum (WPL)
Expect solid production in the 2010 second half to lead to a possible full-year production target of 75 million barrels of oil equivalent. Woodside is well placed to reap the benefits of a renewed energy boom from its LNG projects, including Pluto and Browse. Bullish commodity prices amid growth at Pluto and Browse should result in future revenue and profit growth.
National Australia Bank (NAB)
A gradual improvement in global financial markets after full-year 2010 should see normal growth patterns resume. This bank’s balance sheet is in good shape after placements in November 2008 and July 2009 pushed its tier 1 capital ratio close to a healthy 9 per cent. I anticipate mild growth in operating income for full-year 2010, followed by a strong recovery in cash earnings in full-year 2011.
Toll Holdings (TOL)
Expect subdued dividends while the company pursues an Asian expansion strategy. The company’s capital growth prospects are set to increase, along with the risks associated with moving into offshore markets. Boasting a strong balance sheet amid reliable cash flows put the company in a position to grow organically without resorting to acquisitions.
New Guinea Energy (NGE)
With the oil and gas market set to heat up in the coming year, NGE is perfectly positioned to meet booming Asian demand. A $6 million seismic program will be funded by Talisman and completed by November 2010.
Intoll Group (ITO)
As a spin-out of Macquarie Infrastructure Group (MIG) earlier this year, ITO inherited the “crown jewels” – 30 per cent of the 407 ETR road in Canada and 25 per cent of the M7 Westlink in Sydney. Intoll is fundamentally over valued at this point due to uncertainty surrounding long-term growth and interest rate assumptions. The company recommends investors accept the takeover offer of $1.52 a share from the Canada Pension Plan Investment Board.
With an increase in commodity and energy prices, Amcor may find it difficult to compete and retain reliable cash flows. There’s often a delay in passing on rising input costs to customers, resulting in unpredictable levels of working capital. AMC’s recent large acquisition of Alcan will require a massive $280 million investment to realise synergies, and this may be a distraction to its core business.
James Georges, Patersons Securities
Intrepid Mines (IAU)
Intrepid’s Bukit project in Indonesia has undergone drilling activity. Like other companies in the copper/gold sector, Intrepid is enjoying success. Its recent drilling results show further potential, prior to unveiling more results from the final three holes at the end of September. It holds around US$40 million in cash, half coming from an asset sale. A speculative buy.
Neptune Marine Services (NMS)
The share price of this engineering services provider has declined in response to the company failing to make the most of its opportunities after last year’s capital raisings. The company may be “in play” after confirming takeover approaches with various parties. Buy on a relative valuation to its peers as well as any predatory premium that could take hold.
Toll Holdings (TOL)
Toll’s recent upgrade by consensus research departments, as well as its price hike, lends itself to a hold in the shorter term. The transport and logistics business has put the global financial crisis behind it. Strong cash flows from organic growth are on track. Its traditional premium from a price/earnings perspective was based on ambitions to make acquisitions, which may well surprise on the upside as credit conditions improve. Accumulate on any weakness.
Bendigo and Adelaide Bank (BEN)
The strong full-year 2010 result showed good revenue growth. From a capital adequacy point of view, BEN is well above the provisions required. On a price-to-earnings valuation of 12 times forward earnings, we are increasing our fair value to $12 as we move to full-year 2012.
Dividends may fall after TAH loses its Victorian gaming licence from 2012. Uncertainty surrounds renewal of its Victorian wagering licence from 2012. The major capital upgrade at Star City Casino should attract more punters and an increasing share of premium gamblers. TAH is managing costs better. There is mild corporate appeal. Sell on rallies.
This stock has been highly rated for many years, but has failed to meet our expectations. It faces increasing competition from rival “plastic” pellet offerings, making this company one to avoid at this time. Sell on rallies.
Cary Smith, Alto Capital
QBE Insurance (QBE)
QBE is considered one of the best managed and profitable insurance groups in the industry. Investors are regaining their confidence in the company after a number of profit downgrades earlier this year. Trading on a price/earnings ratio below 10 times and a dividend yield above 6 per cent, we believe the stock is mispriced.
Resolute Mining (RSG)
Resolute Mining is now the second largest gold producer on the ASX, with annual production for 2010/2011 forecast between 360,000 and 400,000 ounces from its three gold mines. The group has reserves of 2.5 million ounces and resources of 9.4 million ounces, which provide significant upside in the current strong gold price environment.
This global provider of business support services operates two key businesses – CHEP Pallets and Recall information management. After experiencing a slowdown in the past 18 months due to the global financial crisis, we believe improving economic conditions across the globe should result in this company returning to profit growth going forward.
Toll Holdings (TOL)
The largest integrated logistics provider in the Asian region operates an extensive network of global supply chain solutions. Toll is very dependent on the health of the global economy, and continuing signs of strength in the Asian economies are providing investors with more confidence in the group’s operations. We believe the risks have been priced into the company at current levels and are happy to hold for the long term.
McMillan Shakespeare (MMS)
Australia’s largest provider of independent salary packaging services has been a top performer since our buy recommendation in April. While the company offers a bright future, we feel a share price rise of about 100 per cent since March is overdone, and believe its sharemarket valuation is now excessive.
This leading global packaging company has experienced a dramatic turnaround in its share price over the past 18 months on the back of a number of successful acquisitions. However, these acquisitions have been dilutive, with 2010 earnings per share down 10 per cent compared to 2009. The market is forecasting a 70 per cent increase in profit for 2012 (compared to 2010) to justify current share price levels. Everything will have to go perfectly to reach the 2012 profit target, leading us to believe the risks outweigh the potential returns.
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