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Hamza Habib, Patersons Securities

BUY RECOMMENDATIONS

Bradken (BKN)

At its annual general meeting last month, the company reiterated EBITDA (earnings before interest, tax, depreciation and amortisation) growth of between 15 and 20 per cent for the 2011 financial year, which has positive implications for its first half results.  Bradken, a mining products maker, offers a sound business model, strong market position and proven management. This should help it grow organically and by acquisition.

JB Hi-Fi (JBH)

Company plans to open 90 stores in the next six years can be funded through internal cash flow, which gives it a strong growth profile.  Like-for-like sales growth is also strong due to demand for new electronic stgices, such as the iPad. The strong Australian dollar will present cost savings when placing inventory orders for the year ahead.  

HOLD RECOMMENDATIONS

Leighton Holdings (LEI)

The construction giant has reduced its full-year 2011 NPAT (net profit after tax) guidance from $612 million to an operating NPAT of $510 million, representing a 16 per cent downgrade. Although the company says the downgrade is likely to be offset by the sale of its Indian operations, a rising Australian dollar against the greenback will continue to negatively impact its offshore earnings.

WorleyParsons (WOR)

Since releasing results in August, Worley’s share price is up 26 per cent compared to about 9 per cent rise for the ASX 200 index.  In the past two months, the price responded to this engineering services company winning several contracts. However, a stronger Australian dollar may have a negative impact on earnings moving forward.

SELL RECOMMENDATIONS

Mount Gibson Iron (MGX)

Chairman Neil Hamilton’s resignation and the voting down of independent directors may potentially induce others to follow suit.  MGX currently has $374 million in cash and plans to ramp up iron ore production to 10 million tonnes per annum, with the commissioning of Extension Hill in 2012. With management potentially in a state of disarray, successful implementation of growth strategies look doubtful.  Until management stability emerges, the company’s share price is likely to suffer.

Westfield Group (WDC)

The company has decided to divide its asset portfolio into two entities, with the creation of Westfield Retail Trust.  The new entity will meet a growing need for a domestically focused, high quality real estate investment trust, while WDC’s strategy will remain as is. Accordingly, due to WDC’s pure exposure to assets only in the US and UK, the company’s share price seems overvalued and we expect it to fall on the back of lower NTA (Net Tangible Assets) and earnings moving forward.

 

Carey Smith, Alto Capital

BUY RECOMMENDATIONS

Downer EDI (DOW)

The share price of this leading engineering and construction company has fallen by more than 50 per cent since January due to concerns about cost over-runs and low margin legacy contracts. We believe this premier group offers top value, as it’s trading on a price/earnings ratio of less than 9 times forecast 2011 earnings, offering a dividend yield of about 6 per cent.   

Sonic Healthcare (SHL)

The share price of this global diagnostics group appears to be breaking out of its sideways trend since issuing an earnings downgrade in May. With populations in the stgeloped world ageing, demand for SHL’s services will continue to increase. SHL is trading on its lowest PE ratio in more than a decade and offers a dividend yield above 5 per cent.

HOLD RECOMMENDATIONS

OneSteel (OST)
 
This leading metal products maker and distributor is trading close to yearly lows over concerns about a strong Australian dollar and slowing construction activity. While earnings may suffer in the short-term, we believe OST is trading below intrinsic value. Over the long-term, OST should provide an acceptable investment return.  

Metcash (MTS)

The third force in Australian food retailing provides marketing and distribution services to 2500 independent grocery stores across Australia. Metcash’s comparable same store sales and earnings per share are growing faster than Woolworths, yet the stock trades at a 20 per cent price/earnings ratio discount to Woolworths. And Metcash’s dividend yield is better.

SELL RECOMMENDATIONS

Billabong International (BBG)

While Billabong controls one of the top global retail brands, the poor US retail environment and a slowing one in Australia presents strong headwinds. Of particular concern is the strong Aussie dollar, as 50 per cent of the group’s sales are generated in the Americas, which leads to lower earnings in Australian dollar terms.

Riversdale Mining (RIV)

This African coal project stgeloper has enjoyed a stellar run in the past two years, with its share price increasing from $2 to more than $13. While there’s no doubt the company has a world class coking coal project in Mozambique, we feel the market is ahead of itself in valuing the group above $3 billion. Time to lock in some profits.

 

Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

AWE Limited (AWE)

Upside remains from AWE’s growing reserves foothold in the Eagle Ford shale in the US. The potentially large shale gas resource in the Perth Basin may position AWE well for the future. In an ASX announcement, the company estimates that one of three shale intervals alone holds a gross gas in place of 13 to 20 trillion cubic feet.

WorleyParsons (WOR)

We believe the current half represents the cyclical bottom for this engineering services group.  While foreign exchange is an earnings headwind, it’s generally consistent with improving global growth prospects and higher commodity prices, which are likely to encourage customers to move forward on expansion projects.

HOLD RECOMMENDATIONS

Computershare (CPU)

Currency moves have seen Australian dollar translated earnings of CPU decline, leaving the stock trading at a significant premium to the market. While there’s some signs that corporate activity is picking up, this appears to be primarily in Asia.

Brambles (BXB)

We remain comfortable that management is on the right track to improve the underlying business.  However, we believe ongoing flat trading conditions are hampering the earnings recovery for this pallet and container maker. Our revised expectations for a weaker US dollar see a boost to short-term earnings expectations.
 
SELL RECOMMENDATIONS

Tassal Group (TGR)

This Atlantic salmon producer now needs to deliver operating and production efficiencies. In the absence of a viable export market, we remain cautious regarding the implications of an increasing concentration of the domestic customer base.

Suncorp (SUN)

Provides banking, insurance and wealth management products and services. Our underweight stance reflects the risk of discovering further impaired loans in the non-core bank, and that core bank impairments increase given heavy exposure to south east Queensland.

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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