Simon Bond, RBS Morgans

BUY RECOMMENDATIONS

Tabcorp (TAH)

Tabcorp will demerge its casinos and gaming/wagering business. We see the rationale for a demerger as solid and believe it will increase the potential for a takeover. The initial positive momentum at Star Casino is encouraging. TAH still looks cheap on a price/earnings of 11.4 times, given the potential upside in casinos and possible merger and acquisition activity.

Challenger Financial Services (CGF)

Challenger has produced a record quarter for retail annuity sales of $345 million, continuing its strong recent momentum. CGF is now tracking above financial year 2011 retail sales guidance with its annuity run-off in line with projections. With sales growth continuing and a buy-back potentially on the agenda, we retain our buy call.

HOLD RECOMMENDATIONS

Mount Gibson Iron, (MGX)

September quarter sales were below our forecasts due to wet weather impacting Geraldton Port. MGX offers pure iron ore leverage, a significant net cash balance and low near-term price/earnings multiples on our estimates. However, the stock continues to trade around our net present value, so we retain our hold rating.

Perpetual (PPT)

The KKR offer for Perpetual recognises the long-term value of a premium domestic funds management franchise, in our view. We think the KKR bid needs to be at the top of its offer range to get the deal done, so a price of around $40 a share seems likely. However, given the uncertainty, and a share price of $37.35 in early morning trade on October 22, move to a hold.

SELL RECOMMENDATIONS

Avexa (AVX)

This biotechnology company posted a loss of $41.5 million, including a $25.7 million writedown of the marketing licence for ATC. Uncertainty remains, with the company undertaking a strategic review of its assets. Cash at the end financial year 2010 is $24.3 million. Sell.

RiverCity Motorway (RCY)

This company endured a tough time in financial year 2010, as disappointing initial traffic volumes on Clem7 led to a $1.56 billion writedown. Management indicated there are sufficient resources to meet the company’s obligations in financial year 2011, but added that significant uncertainty surrounds its future. Downgrade to a sell.

Mike Bigwood, Patersons Securities

BUY RECOMMENDATIONS

Thundelarra Exploration (THX)

This company is a play on upcoming drilling results at its Red Bore prospect in WA. The Red Bore prospect borders the DeGrussa project of Sandfire Resources (SFR), which has been a standout performer in the past couple of years, consistently reporting high grades from its drilling program. No doubt, a position in THX is based on geography, but the drilling results could be worth it.

Bandanna Energy (BND)

Bandanna is stgeloping three coal projects in Queensland and has just been granted port access of 4 million tones per annum at the soon to be constructed Wiggins Island Coal Terminal. With $22 million in cash and no debt, Bandanna is well funded to continue its exploration program and project stgelopment work. I also expect recent merger and acquisition activity to continue in this space.

HOLD RECOMMENDATIONS

JB Hi-Fi (JBH)

While consumer discretionary isn’t my favourite sector, I believe JBH is the best pick. With a forecast return on equity of about 50 per cent and a dividend yield of between 4.5 per cent and 5 per cent, I think the stock offers something for all investor types.

Ausdrill (ASL)

A diversified mining and services company offering drilling and blast operations to resources companies. The two main commodities the order book is exposed to are gold (68 per cent) and iron ore (18 per cent). With strong free cash flow, a forecast dividend yield of about 7 per cent for 2011 and a strong balance sheet, I view ASL as a good longer term play on continuing commodity strength.

SELL RECOMMENDATIONS

Westfield Group (WDC)

With a significant exposure to US and UK consumers and a non-compelling yield of about 5 per cent, I don’t see any near term upside through a position in WDC. Recent strength in the Australian dollar won’t be helping the translation of offshore earnings and I see a strategy of selling in the high $12 region as the right path to take. The stock was trading at $12.19 on October 22, 2010.

Telstra (TLS)

I continue to be negative about Telstra. The company’s main fixed line business is losing customers every year. A major reason put forward for investing in Telstra is the strong dividend yield, but I struggle to see how the dividend will remain at a fully franked 28 cents. What good is a 13 per cent to 14 per cent dividend yield when the share price loses 26 per cent as it’s done in the past year?

Cleo Nanni, Novus Capital

BUY RECOMMENDATIONS

BHP Billiton (BHP)

We expect commodity prices will continue rising for iron ore, coking coal and copper due to strong Asian demand. Continue to accumulate when the share price shows any weakness on or around the $40 price range, as we believe this represents good long-term value. Analysts are viewing a 12-month price target in the high $40 levels. In early morning trade on October 22, the share price was trading at $41.34.

Fission Energy (FIS)

A mineral exploration company focusing on uranium, cobalt, nickel and manganese. Recently, Fission announced the resumption of a nickel sulphide drilling program at Mt Thirsty in WA. This latest drilling program is another step in evaluating if Mt Thirsty could unearth a significant nickel discovery.

HOLD RECOMMENDATIONS

Bank of Queensland (BOQ)

For the year ending 2010, NPAT (net profit after tax) increased 8.8 per cent to $201 million, reflecting strong lending and deposit growth, each up 11 per cent. A final fully franked dividend of 26 cents a share took full-year dividends to 52 cents. Guidance suggests strong balance sheet growth, dividends and cash earnings next year.

Flight Centre (FLT)

Australia’s largest traditional travel agent. This stock doesn’t suit conservative investors, however, If you love a rollercoaster ride then hold on. The share price has gone from a low of $4 in March 2009, to a high of more than $20 in July 2010. Then it retreated to $16 before rising to $23.15 in early morning trade on October 22, 2010. It’s not a share price for the faint hearted, but hold for more upside from this proven performer.

SELL RECOMMENDATIONS

Duet Group (DUE)

Duet owns a portfolio of energy utility assets, diversified across several geographical regions.
It owns 60 per cent of the Dampier-to-Bunbury Pipeline, 66 per cent of United Energy, 80 per cent of Multinet and 26 per cent of WA Gas Networks. However, Duet falls short when comparing its full year 2010 financial results with its peers. In our view, poor earnings quality is added to a long list of issues, including high gearing, substantial capital expenditure requirements and major upcoming debt maturities.

Nufarm (NUF)

Nufarm is a major producer of crop protection products, such as herbicides, fungicides and pesticides and sells into all major world markets. Full year 2010 revenue fell 19 per cent to $2.2 billion and NPAT slumped 66 per cent to $48.5 million.  Earnings before interest and tax and abnormal items fell 51 per cent to $135 million. With 17 per cent more shares on issue, earnings per share fell 72 per cent to 21.3c. Further issues with funding debt generates continuing uncertainty.

 

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.

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