Mike Bigwood, Patersons Securities
MACA Limited (MLD)
A mining services company leveraged to mid-tier WA miners. The company listed in November 2010, and its share price surged to $2.73 on February 16. The company recently announced its first contract win outside WA. Earnings guidance is expected to exceed prospectus forecasts. With a forecast return on equity of between 25 and 30 per cent in coming years, I believe the stock is undervalued at current levels.
Forge Group (FGE)
Forge provides engineering and construction services to mining and civil clients. Both revenues and earnings have grown strongly in the past few years, and the company has managed to maintain a high return on equity over the same period. A recent earnings upgrade shows the business is well managed. The shares appear undervalued at current levels.
Ausdrill provides mining, drilling, blasting and exploration services in Australia and Africa. With the Brandrill acquisition bedded down, ASL has recently announced the acquisition of hydro-geological contractor, Connector Drilling. ASL currently trades above my valuation, but I am happy to hold as mining companies continue expanding existing projects and stgeloping new ones.
DLX holds a market leading position in paints and home care products. With return on equity above 70 per cent, I believe DLX is a high quality company offering capital growth and the potential for income from a growing dividend profile.
CSL Limited (CSL)
This recommendation is more from a shorter-term perspective as I continue to rate the company highly. Any retreat in the Australian dollar will be beneficial as the company generates 85 per cent of its sales offshore. Closing at $37.02 on February 16, I see limited upside and believe there’s better opportunities elsewhere in the market.
BlueScope Steel (BSL)
I calculate the return on equity for BSL of between 2 and 5 per cent over the next two years, with a resulting valuation well below $2. The stronger Australian dollar has increased competition from cheaper imports and high raw material costs will continue to impact margins.
Steve Collette, Calibre Investments
Commonwealth Bank (CBA)
The bank has just reported a profit of $3.33 billion, up 13 per cent on last year’s corresponding period. It’s continually reported good earnings irrespective of broader economic conditions and difficult credit markets. Buy on any weakness.
Strong results were reported by this building materials supplier, beating consensus expectations.
Profit was up 28 per cent to $98 million, while debt’s been halved and the loss making scaffolding operations have been discontinued. Recent flooding in Queensland and an improving US housing and construction industry also work in Boral’s favour.
Newcrest Mining (NCM)
A world class gold miner with a burgeoning interest in copper. A retreat from highs across $43.50 and a subsequent test and hold of supports across $36 dictate that NCM is a hold at current levels. A move up above $38 implies higher levels to come. The stock finished at $38.25 on February 16.
A quality and diversified retailer with a robust operating model. The company continues to expand aggressively, and with significant barriers to its captive markets, Woolworths is also ideally positioned to retain market share. Despite modest price weakness of late, it remains a hold.
Earnings guidance from this mining and rail equipment supplier wasn’t in line with market consensus. A high Australian dollar and floods in Queensland will continue to hamper future earnings. Now is an opportune time to take profits over any gains made in the past 12 months.
Myer Holdings (MYR)
The department store giant is operating in a changing and challenging retail environment. A high Australian dollar means Myer is losing out to shoppers importing directly. Spending more than $42 million on acquiring fashion label sass & bide, and restgeloping its flagship store doesn’t guarantee the desired returns in the short term. Yet the share price has dipped on lower profit guidance.
Simon Bond, RBS Morgans
Iluka Resources (ILU)
An increase in our zircon price forecasts reflects sustained market tightening, and what we see as a preliminary pricing response. Iluka will provide an update on mineral sands markets as part of its full-year result on February 25, which we expect to be positive. We move to a buy recommendation.
Cardno Limited (CDD)
Despite adverse weather and currency effects, CDD’s first half result demonstrated how robust its business is. This consulting engineering services company has increased geographical diversity, with almost 60 per cent of earnings made in North America. Undemanding valuation metrics and strong dividend yield highlights there’s still further upside.
AXA Asia Pacific (AXA)
The recent result beat our expectations with net profit after tax of $602 million. Looking forward, we conclude that the life/wealth operating environment in Australia is challenging, but AXA is confident about achieving $40 million in platform synergies.
ASX Limited (ASX)
ASX Limited and the Singapore Stock Exchange have made several new concessions and commitments in a bid to gain regulatory and political approval. While we view these adjustments as relatively minor, and further may be required, the chances of a successful deal have increased.
Upside potential is large, but risks remain. Hold.
Sims Metal Management (SGM)
Ferrous scrap prices to Turkey have fallen about 8 per cent since early January, and heavy snow in the US has persisted since the start of 2011. With near-term margins likely to remain impacted by harsh weather conditions in the current quarter, we see few signs of a significant improvement in margins in the 2011 second half.
James Hardie Industries SE (JHX)
We believe the market is looking for signs that the company’s recent market share losses have stabilised and will be reversed. Historically, market share gain has been key to the company’s growth thesis. However, this has been challenged by recent results.
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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