Peter Russell, Intersuisse
ASG Group (ASZ)
A domestic leader in IT managed services, winning outsourcing contracts against multinational competitors. A decade of earnings growth and three acquisitions in 2010 made it truly national. It has a strong east coast presence, with capabilities in SAP and Oracle software to build on its many reference sites across corporate and public sectors. For full-year 2011, it flags 40 per cent revenue growth.
McMillan Shakespeare (MMS)
MMS is Australia’s biggest provider of salary packaging. It acquired Interleasing (Australia) comprising of Holden Leasing, and is also involved in vehicle procurement, finance, insurance, fuel card programs and administration of car servicing. Five years of rapid earnings growth are set to continue, with well-priced diversification adding scale and cross-selling.
Data #3 (DTL)
Growth never stops for Data #3. For three decades, it’s supplied IT systems, software, hardware and support services to the public and private sectors. With no debt, its leading position with clients and suppliers, such as Microsoft, HP and IBM amid productivity expertise, generate impressive returns and yield. Add.
Queensland’s floods currently impact its contract mining activity, but its leadership in niche growth fields of equipment supply provide the major part of profit growth. Sales of specialist mining vehicles and equipment to China are growing rapidly as China focuses on safety and efficiency in its mines. It’s now significantly under priced. Also add.
Sigma Pharmaceuticals (SIP)
Sigma’s move into generics disappointed. Its terms for bringing pharmacists into its network hurt profits and increased debt. Expect its pharmaceutical division to be sold. The Federal Government’s determination to contain healthcare spending is a major threat. Pfizer will deliver all its prescription products direct to pharmacies from the end of this month. What’s next?
Transpacific Industries Group (TPI)
A waste management, recycling and industrial cleaning services company also involved in commercial vehicle distribution. Hit by high debt during the global financial crisis, TPI hasn’t recovered despite major equity restructuring. The debt burden remains high and dividends may be deferred to 2012 or 2013. Much better prospects exist elsewhere.
Mark Goulopoulos, Patersons Securities
This life insurer and wealth manager is trading at a significant discount to its historical average and to the broader market. This is due to concerns regarding changes to the fee structure of superannuation. Notwithstanding these concerns, AMP remains a very strong wealth management franchise in a strongly growing market.
National Australia Bank (NAB)
The share price begins 2011 considerably below where it began 2010, yet the balance sheet is stronger and bad debts are lower. The spread between dividend yield and government bonds is at a historically high level, reinforcing the value on offer.
The strong Australian dollar will probably continue to be a headwind over the medium term for this engineering services company. However, the underlying business is likely to show robust growth as capital expenditure on energy and mining projects increases substantially over the next two years.
The Queensland floods have impacted the Curragh coal mine, which will cut production significantly for the full year. Bunnings Warehouse growth has slowed as the business matures, although this is somewhat offset by the continuing recovery at Coles. These stgelopments appear to be reflected in the current share price.
The recent strength in its share price provides an opportunity to exit a long term underperforming stock. Brambles isn’t cheap on any valuation metric and there’s better value and growth opportunities in other industrial companies.
Premier Investments (PMV)
Competition from online shopping is unlikely to subside; rather it’s poised to increase in coming years. The debate about GST and duties ignores the point that online competitors have prices at considerable discounts even after accounting for these additional costs. The company needs to formulate an effective online strategy.
Nicholas Brooks, RBS Morgans
JB Hi-Fi (JBH)
After an extremely challenging period for retail stocks, value is finally starting to emerge in JBH. We suspect it’s a company many have wanted to own, but have been concerned about paying higher multiples. A recent share price retreat presents a good opportunity to buy this electronics giant that’s benefitting from a higher Australian dollar amid an expected strong store roll-out program in 2011.
CSR has been under pressure from rain delaying building starts in all major cities on the east coast. Ironically, the rain has caused enough damage to lift demand for building materials in the latter part of 2011. Now a pure building play, CSR will appeal to those looking for exposure to Australia’s housing recovery.
Huge volumes are flowing to storage sites along the east coast, which should translate to handsome profits this financial year. While much of the crop quality has been rain-affected, GNC is more volume driven and this year stands to be historically outstanding in terms of volumes. Hold on through the rally.
QR National (QRN)
This recently listed haulage company started better than most investors could have hoped. Profit taking would seem tempting with half of Queensland under water. But with index inclusion assured early this year amid cost saving measures, holding could see rewards compounded for investors.
James Hardie Industries SE (JHX)
The US housing market is likely to remain difficult for some time, with eventual improvement probably gradual rather than rapid in our view. Investors learned that James Hardie had lost some market share – a rarity for this building materials company, but something the market will closely monitor, wary of it becoming a habit.
This CHEP pallet and Recall company is heavily exposed to the US and European markets – both showing a slow growth rate. Brambles is facing stiff competition in the US and, as a result, may miss several new or renewable contracts. The company looks expensive on full-year 2011 multiples and is also trading at a significant premium to the ASX200.
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