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Michael Heffernan, Austock

BUY RECOMMENDATIONS

Decmil Group (DCG)

Provides and constructs accommodation villages for the mining sector in WA. It has first mover advantage on imported accommodation, which resource companies are turning to due to higher cost local product. Decmil offers strong fundamentals and is in the right sector at the right time.

Wesfarmers (WES)

The retail giant recently announced a $600 million Bunnings hardware expansion in NSW. Add this to the Coles turnaround to arrive at sound growth prospects as the economy improves. Its coal and insurance businesses also add a healthy measure of diversity to the overall operation.

HOLD RECOMMENDATIONS

Leighton Holdings (LEI)

The construction giant has performed strongly amid share price tension caused by a planned takeover of its major shareholder Hochtief by Spanish listed ACS.  As local and international economies start to gather momentum, Leighton is primed to benefit.

ANZ Bank (ANZ)

The only Australian bank with a significant footprint in Asia and its latest report on October 28 was most impressive. Hold on a bright outlook.

SELL RECOMMENDATIONS

Alesco Corporation (ALS)

This construction supplies company has suffered in recent times and is likely to be a late beneficiary of an improving economy. Better prospects exist elsewhere.  

AXA Asia Pacific (AXA)

The share price has been floundering since National Australia Bank was knocked out of the takeover game. A deal with AMP remains uncertain and AXA’s short term outlook appears clouded. However, if the sharemarket continues to gather pace, the medium term outlook may be more rewarding.

 

John Rawicki, State One Stockbroking

BUY RECOMMENDATIONS

New Guinea Energy (NGE)

In a revised deal with Talisman Energy, the company is set to drill between three and six exploration wells in Papua New Guinea starting in early 2011. The share price took a strong hit this year due to a dry well and at current levels appears undervalued. PNG is under-explored. Of particular appeal is the geographic proximity to China, Japan and India and the lower drilling costs available in PNG.

Cockatoo Coal (COK)

Cockatoo’s Wonbindi and Baralaba coal projects in Queensland’s Bowen Basin have put the company in a position to reap the rewards of a strong market for PCI (pulverised coal injection) coal and thermal coal. Cockatoo recently raised $150 million to acquire coal assets from AngloAmerican in a move to drive the company to the next level of coal producers.

HOLD RECOMMENDATIONS

Rio Tinto (RIO)

Rio is a well-diversified, top-tier resource leader with global operations and an extensive portfolio of aluminium, coal, copper, diamonds, gold, iron ore, industrial minerals and uranium assets.  Most assets are in Australia, the US, Europe and Canada and that reduces sovereign risk. A US$15.2 billion equity raising and asset sales have strengthened the balance sheet, and kept debt-to-equity at a low 25 per cent.

Centaurus Metals (CTM)

The company recently raised $18 million to progress its three iron ore projects in Brazil. Drill results have been promising, so it will help the company decide which projects to pursue. Additionally, the company has strengthened its management team by hiring experienced iron ore executive George Jones as a consultant.

SELL RECOMMENDATIONS

Tap Oil (TAP)

Tap is raising $82 million to acquire 75 per cent of Northern Gulf Petroleum. This transaction will significantly increase the shares on issue and dilute existing holdings. The acquisition appears too expensive considering none of Northern Gulf’s concessions have defined 2P (proved and probable) reserves.

Duet Group (DUE)

Owns a portfolio of energy utility assets, diversified across several states, energy types and regulatory jurisdictions. Poor earnings quality compared to its industry competitors justifies our negative outlook. Other concerns include high gearing levels, substantial capital expenditure requirements, major upcoming debt maturities and regulatory risk. Better value at lower risk exists elsewhere.

 

Brendan Fogarty, Alto Capital

BUY RECOMMENDATIONS

Macquarie Group (MQG)

When the share price was $50 in somewhat bearish conditions earlier this year, we suggested reducing exposure. Now, we are recommending the opposite. Macquarie primarily relies on ASX activity and tends to outperform as market conditions improve. This scenario is happening now as shown by recent merger and acquisition proposals for ASX Limited and Perpetual. Macquarie Group was priced at $35.75 a share during intra day trading on October 29.

Woodside Petroleum (WPL)

After reporting strong first half earnings in August, market and operating conditions for our preferred oil and gas exposure are continuing to improve. Woodside is likely to be re-rated in the short term given the quality of its assets in a strong energy market.

HOLD RECOMMENDATIONS

Energy Resources Of Australia (ERA)

ERA operates in the Northern Territory and is currently the world’s fourth largest uranium producer. Its recently released third quarter report was expected to show a rebound in grade and production, but it disappointed on both fronts. Short term, the stock is unlikely to move too far until these issues are rectified, but the medium term outlook for uranium producers remains robust.

Oz Minerals (OZL)

This merged entity out of Zinifex and Oxiana operates as a single mine company, focusing on its high quality copper and gold project at Prominent Hill in South Australia. The September quarter was strong, with copper production at 26,841 tonnes, about 10 per cent above forecasts. Despite solid growth prospects, Oz Minerals is trading at or above most analyst valuations at present.

SELL RECOMMENDATIONS

ASX (ASX)

The merger proposal between ASX and the Singapore Exchange came at a 37.3 per cent premium to ASX’s last traded share price and 47 per cent above its three-month VWAP (volume weighted average price). I favour taking profits as the merger isn’t a done deal given it needs to pass both regulatory and shareholder approvals.

Virgin Blue (VBA)

The airline industry is a tough commercial proposition at the best of times, where even leaders like Qantas have delivered little to no growth for more than a decade. Virgin’s high overhead costs and gearing limits its growth prospects in a very price competitive operating environment.

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