Brendan Fogarty, Alto Capital
Macquarie Group (MQG)
Despite a sluggish banking sector, Macquarie’s diversified earnings stream, via corporate finance, treasury and commodities, equity markets and funds management, is benefiting from an improving operating environment. The company’s trading brief due to be released on February 8 will set the tone for Macquarie’s trading over coming months.
Universal Coal (UNV)
This South African based coal play offers near term production prospects for its thermal coal operations at Kangala and Brakfontein. The Kangala project is the most advanced, with a current resource of 124 million tonnes, of which 49.1 million tonnes are already at measured and indicated stages and scheduled for production later this year. The company has further speculative upside from its Berenice coking coal project, and is well placed for further South African based acquisitions.
NRW Holdings (NWH)
This civil and mining services contractor is well leveraged to Western Australia’s buoyant iron ore market. The company is aiming to expand its operations outside WA, evidenced by its recent $50 million contract win at Queensland’s Middlemount Coal Project. While NRW’s order book is healthy this year, it’s largely factored into a strong share price.
Macarthur Coal (MCC)
In December, this Queensland based coal miner downgraded full-year 2011 earnings due to flood interruptions, and again last week after a cut in short term production. But earnings implications will be partially offset by rising coal prices due to supply interruptions and strong demand from China.
This large-scale building materials supplier has most of its operations in Australia, with the remainder in Asia and the US. Conditions remain weak, with only modest earnings growth expected for some time. Free cash flow remains limited due to high capital expenditure and low returns prevalent across the building and construction sectors.
Flight Centre (FLT)
Australia’s largest travel agent has experienced good growth over the past decade. Industry conditions continue to tighten as discount airlines and growing competition from online travel agents add margin pressure through the sector.
Michael Heffernan, Austock
Commonwealth Bank (CBA)
Following significant bank bashing in the past few months, the share price fell and offers top value at current levels. Expect an attractive dividend to be announced next month. A generally robust Australian economy is conducive to higher bank lending levels and this will benefit the company’s bottom line.
Incitec Pivot (IPL)
This agriculture/explosives company has done well lately. It has a relatively small exposure to flooded Queensland and New South Wales coal mines, but the impact on profits is expected to be minor. It offers sound growth prospects provided global economies continue to expand.
Coca-Cola Amatil (CCL)
The soft drink bottler has been impacted by cooler seasonal conditions. Nevertheless, it has reiterated a respectable profit growth forecast. Diversifying into alcoholic and other non-coke beverages adds a level of stability to its earnings profile.
A natural health solutions company that weathered recent economic difficulties particularly well. It’s largely cushioned from the effects of challenging times as people will continue to buy vitamins and supplements. It’s primed for steady earnings growth and offers attractive medium-term prospects.
Billabong International (BBG)
A surf wear and sports apparel company generating a substantial amount of its revenue in the US. As a result, a strong Australian dollar has reduced profits and the company share price. The company continues to face headwinds due to the strong Aussie dollar, which will pressure future short-term profit growth.
This agricultural based company has disappointed shareholders for years. Its competitors continue to perform much better. While selling its 40 per cent stake in Rural Bank has lowered net debt, its sharemarket fundamentals remain unattractive.
Richard Batt, Shadforth Financial Group
NRW Holdings (NWH)
This company provides civil and mining services primarily to the Western Australian iron ore market. Significant revenue is generated from several key blue chip clients, including BHP Billiton and Rio Tinto, which places it in a good position to renew contracts and win new ones. The company recently won a $50 million contract at the Middlemount Coal Project in Queensland. Although the contract value is relatively small, it shows the company moving away from its dependence on WA iron ore by broadening its industry and geographical horizons.
Hunter Hall (HHL)
A boutique equity fund manager with an ethical investment overlay. It has a strong track record of outperformance from a sound investment team. Future growth depends on favourable markets – the shares perform best when equity markets rally as funds under management increases. HHL is an ideal exposure for investors with a bullish outlook on the Australian economy.
Ludowici designs and makes mineral processing equipment, including vibrating screens, coal centrifuges and complementary products. The company has built a reputation as an industry leader. It offers a strong balance sheet, enabling it to leverage off its reputation and further grow the business through acquisitions and by stgeloping its overseas operations.
ASX Limited (ASX)
The ASX recently received an $8.4 billion merger proposal from the Singapore Stock Exchange. The proposal is in its early stages, with considerable work ahead to get the merger over the line. ASX shareholders should retain their exposure, benefiting from a good dividend yield and potential upside should the proposal go through.
Ardent Leisure Group (AAD)
Ardent is a leisure property owner and operator of theme parks, including Dreamworld and WhiteWater World in Queensland. It also has entertainment assets in the US. Revenue relies heavily on discretionary spending, and because of Queensland’s bad weather, we expect earnings could soften in the short to medium term. We prefer other investment opportunities.
Specialty Fashion Group (SFH)
This women’s clothing specialist revealed comparable stores sales were down 3.8 per cent for the half year to December 31, 2010. This is in contrast to the prior year’s first half increase of 8.9 per cent. Trading conditions for SFH are difficult, so until there’s a marked improvement in consumer spending, we suggest investors avoid the retail sector.
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