Peter Russell, Intersuisse
Mermaid Marine Australia (MRM)
Mermaid Marine is at the centre of massive oil and gas projects on the North West Shelf, with supply bases at Dampier and Broome and more than 30 specialist support vessels. Work on Gorgon is ramping up and drilling on other key projects is intensifying. The recent $64 million capital raising generates growth opportunities.
This leading specialist in design, construction and operator of mineral plants, particularly for coal handling and preparation, is building projects in Africa, Asia, South America and Australia. Its record workload and global expansion should provide strong growth in 2011 and beyond. It has sound finances and offers a franked dividend yield above 4 per cent.
Envestra is the largest distributor of natural gas in Australia, with networks in South Australia, Victoria, Queensland, NSW and the Northern Territory. Half owned by APA Group and Cheung Kong, 90 per cent of its business is regulated, giving stable but predictable earnings growth. We expect a 10.5 per cent partly franked dividend yield, grossed up to above 11 per cent.
Tatts Group (TTS)
Tatts offers a strong portfolio of diversified, long-term lottery and wagering licences across Australia. Its Victorian gaming licence runs to 2012 and Tatts has possibly the best prospects for renewal. Regardless, we expect a franked dividend yield of almost 9 per cent and rising.
Primary Health Care (PRY)
This pathology, radiology and medical centre group has struggled since acquiring Symbion Healthcare in 2008. Federal Government funding cuts of 5 per cent for pathology services have led to additional costs for industry players. We prefer Sonic Healthcare as it offers stronger growth and dividend yield from operations diversified across the US and Europe.
Telecom Corporation of New Zealand (TEL)
The “Telstra” of New Zealand, with a remnant of Australian operations in AAPT. New Zealand’s ultra fast Broadband (the equivalent of Australia’s NBN) is likely to reshape the industry. Telecom’s 7.7 per cent dividend yield, unfranked at that, is its appeal. For those wanting exposure to this sector, switch to M2 Telecommunications Group and iiNet.
Andrew Inglis, Shadforth Financial Group
Fairfax Media (FXJ)
Fairfax is trading on a modest price/earnings ratio of about 10 times. Earnings are recovering due to the economic upturn, cost/debt reductions and strong growth in digital media. Fairfax is well managed. Regional and rural media publications are benefiting from improving conditions in the bush. The digital media division is growing rapidly with a sensible growth strategy in place. iPads present a growth opportunity for newspaper companies.
Macquarie Group (MQG)
MQG is trading on a modest price/earnings ratio of 9.6 times full-year 2012 forecast earnings. MQG has been repositioning itself since the GFC to become a global investment bank with several well-priced acquisitions. Macquarie has a strong presence in Asia, where it has a large funds management business, and it’s the number two investment bank for IPOs (initial public offering) in the active Hong Kong market. Globally, Macquarie has a massive $317 billion in funds under management and about $3 billion in excess capital. Macquarie is a high leverage bet on global equity markets continuing to recover.
ANZ Bank (ANZ)
Banks are currently out of favour due to concerns about a housing slowdown and increasing regulation. ANZ and the other three majors currently offer strong fully franked dividend yields above 6 per cent and share prices reflect a low growth outlook. ANZ offers solid medium term growth potential from its Asian strategy, which isn’t reflected in today’s share price.
Seek’s share price has been in a downtrend due to problems in its education business, which contributed 20 per cent of profit last year. The slowdown in education may last for a while. However, expect strong long-term growth from its core internet job advertising business amid a strong employment market and continuing migration to online advertising. So it’s worth holding.
Transpacific Industries (TPI)
This waste services and industrial solutions company still has debt of $1.8 billion (including preference shares as debt) even after its big capital raising. Gearing is 107 per cent and interest cover is very tight at 1.4 times. While revenues from waste management and industrial cleaning are quite resilient, TPI’s balance sheet is over-burdened with debt.
Redflex Holdings (RDF)
This red light camera operator has received an indicative non-binding $2.50 a share takeover offer from Macquarie Group. Redflex is shopping around for higher offers and says it has higher indicative non-binding offers from other interested parties. The money’s there to be taken.
Shawn Uldridge, William Shaw Securities
AMP’s bid for AXA Asia Pacific provides an ideal opportunity to buy a high-yielding stock at a steep discount to valuation. In any bid, there’s an automatic arbitrage, where the bidding company’s stock is sold, creating an opportunity to buy at a temporary discount. Buy AMP now for a share price recovery in the next few months.
Westpac Bank (WBC)
Once again, Westpac is trading close to 12-month lows due to concerns over Federal Government initiatives to reduce bank fees and because of overseas sovereign debt problems. However, Westpac was very resilient during the GFC, and it’s highly profitable, well capitalised and offers an excellent dividend yield. Expect WBC to continue trading in a range and buy at the lows.
Woodside Petroleum (WPL)
Royal Dutch Shell selling a partial stake in Woodside has put pressure on its share price. But the crude oil price has been rising and is now steady in the mid $US80 range for a barrel, while WPL is range trading near its two year lows. Hold for share price gains.
The market appears to be concluding that the supermarket giant’s profit growth profile looks flat for the next two-to-three years. The share price has fallen from highs of about $30 to $26.60 levels. We don’t see significant further downside, and with a yield of 4.3 per cent and an oligopoly style business, the share price should be well supported at these levels.
To us, it’s always a concern when a company consistently pays a 10 per cent dividend yield and the share price still goes down. In this case, it’s because the market believes that Telstra will, sooner or later, need to cut the yield to invest more in new technology. Telstra owns an ageing copper wire network, and although it currently serves as the backbone of Australia’s telecommunications system, this could easily change if the National Broadband Network really gets up and running. On top of all this, Telstra has been in a terrible downtrend for years, and we would take any share price rally as an opportunity to sell.
From issues with its A380 fleet to rising oil prices and a price war, which just won’t go away, Qantas can’t seem to get above $3 a share. There’s currently no dividends, and earnings per share are under immense pressure. Over and above that, previous Qantas high-flyer John Borghetti now heads up rival Virgin Blue and is embarking on a strategy to move that airline into a more competitive position with Qantas by offering a proper business class for domestic customers. No value here. Sell.
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