Robert Swarbrick, Novus Capital
This blood products company delivered a half-year profit of $457 million. Currency has moved against CSL as sales are in US dollars. But we believe this is a short-term problem and expect full-year net profit after tax of between $810 million and $850 million. As a result, the stock is cheap with earnings per share of $1.89. The stock is trading on a price/earnings ratio of about 17 times. Historically, it trades on a PE above 20 times. Our share price target is $40. In early morning trade on March 27, the stock was trading at $32.60.
Woodside Petroleum (WPL)
Woodside Petroleum is Australia’s premier oil and gas play. It has vast assets of LNG, natural gas, crude oil and LPG. Assets are in Africa, the Middle-East and Australia’s north-west shelf. While commodities have fallen from their peak, prices are showing signs of a recovery, particularly crude oil. A strong balance sheet and good management is behind our recommendation.
National Australia Bank (NAB)
While financials have been hit hard in the past 18 months, the NAB offers a great domestic brand. A lot has been said about its troubled UK exposure, but exposure has been over-provisioned, which is a sound strategy. The stock is trading on a price/earnings ratio of 8.5 times. It offers an attractive dividend yield of about 7 per cent. Its 52-week high was above $34. NAB was trading at $21.26 in early morning trade on March 27.
Woolworths is Australia’s leading food and liquor retailer. Strong management has led to cost-savings in excess of $8 billion, with another $1.5 billion yet to flow through. This is a great stock to hold for all portfolios in all markets. It offers a dividend yield of 4 per cent. A recession-proof stock.
ANZ Bank (ANZ)
With equity markets bouncing more than 10 per cent in the past two weeks, the ANZ has bounced 25 per cent. But problem loans, especially to hedge-funds and institutions, may still be a challenging issue. There are safer financial stocks in the market.
Macquarie Group (MQG)
Macquarie has bounced almost 40 per cent off its lows. I still believe the company model carries too much risk despite asset sales. Expected earnings per share is $3, so the price/earnings ratio is about 8 times. Time to lock in some profits, and look to buy at lower levels.
Scott Marshall, SHAW STOCKBROKING
CSL Ltd (CSL)
This blood products group is a defensive investment, and holds a significant position in the global immunoglobulin market. The company has made an offer for US-based plasma company Talecris, which, if approved, could boost profits between 15 per cent and 20 per cent. CSL is our preferred healthcare stock.
Westpac Bank (WBC)
Westpac is our number one pick of the major banks, having the most conservative loan book, strong capital ratios and low exposure to offshore assets. Net interest margins are expanding, reversing a five-year declining trend. The St George Bank acquisition provides cost savings of $400 million a year over the next two-to-three years, thereby underpinning earnings growth.
Expect a sharp deterioration in first half profits to continue in the second half, and to spread across most operations. While BXB has a new sales strategy, this may be offset by a downturn in existing customer businesses. BXB hasn’t provided an update to profit guidance, but we’re not expecting it to meet previous guidance of a flat operating result. The share price has been hit hard, so hold for the longer term.
The food distributor recently reaffirmed its full-year 2009 profit guidance between 28.3 cents to 29.3 cents a share. Metcash remains a well-managed business within a resilient segment. Expect revenue growth to be strong, and anecdotal evidence suggests the group continues to experience comparable store sales growth ahead of its main competitors.
The half-year result was at the low end of expectations, down 9.5 per cent before one-off items. The half was characterised by weaker and more volatile conditions in customer demand, lower raw material input costs and exchange rate volatility. Operations were hit by customer de-stocking and changes in behaviour. Expect this trend to continue at a greater rate, so we see continuing volume pressure.
Qantas has recently confirmed guidance of profit before tax of about $500 million, down 61 per cent for the 2009 full year. This suggests a 50 per cent drop in the second half. This is an effective 5 per cent-to-6 per cent downgrade by the company. The result will be impacted by lower passenger numbers, particularly at the premium end, and by higher fuel costs, expected to be up by $486 million. This will be partly offset by a foreign exchange hedging gain of $180 million and cost cutting of $2 billion. We see better value and less risk in transport company Toll Holdings.
Sean Conlan, Macquarie Private Wealth
ASX Ltd (ASX)
Daily average traded value on equities was $3.4 billion in February 2009. Although bouncing back from a seasonal low of $2.9 billion in January 2009, average daily traded value is down 46 per cent on the previous corresponding period, reflecting a decline in market capitalisation. Similarly, Sydney Futures Exchange activity rebounded 37 per cent from its January lows. While part of this can be attributed to seasonal factors, the increase is also likely to reflect government and bank-guarantee debt issuance, and expectations of more secondary market liquidity following the second stimulus package.
AMP remains our preferred wealth management exposure. It potentially faces more short-term market headwinds, but cost efficiencies, strong revenue growth and de-risking of policyholder and shareholder assets will limit earnings and capital downside risk to further market declines.
Sigma Pharmaceuticals (SIP)
This stock does not stand out as being particularly cheap. Razor sharp margins appear precarious in light of competitive profile and potential structural changes around the pharmaceutical benefits scheme. Improvements in scale via consolidation, or a faltering competitor could provide an effective insurance policy to the above challenges.
At current levels, the airline remains fundamentally attractive on a valuation basis and should reward investors taking a longer term view. But we believe the next six-to-12 months will remain challenging, particularly for the core international business, with traffic likely to fall in the short term prior to it stabilising.
Aristocrat Leisure (ALL)
The gaming machine maker is yet to emerge from the almost perfect financial storm affecting capital expenditure and significant product issues. We expect considerable earnings pressure ahead, making the company difficult to recommend. We retain an under-perform rating, with an 8 per cent valuation downgrade to $3.31.
Virgin Blue (VBA)
While the airline is trading at a significant discount to book value, this book value is likely to come under further pressure due to continuing losses in its Australian operations through to 2011. There doesn’t appear to be a catalyst on the horizon for a positive, short-term re-rating due to demand pressures, combined with intense international competition on the Trans-Pacific and Trans-Tasman routes.
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