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Mark Goulopoulos, Patersons Securities

BUY RECOMMENDATIONS

QBE Insurance (QBE)

A recent market update contained positive stgelopments for QBE. Cost estimates of the recent catastrophes in Australia were well within market expectations. Guidance for 2010 earnings was reaffirmed, the acquisition of the Balboa insurance portfolio was announced and strong guidance was provided for the 2011 year.

JB Hi-Fi (JBH)

Despite profit warnings from competitors and a weak retail environment, JB Hi-Fi’s recent result was robust, showing solid earnings growth. This was driven by a continuing focus on cost controls generating an increase in margins. The outlook appears bright.

HOLD RECOMMENDATIONS

Orocobre (ORE)

Orocobre controls and is stgeloping some of the world’s best lithium deposits. Lithium is in high demand due to its use in electric car batteries. Notwithstanding the positive industry dynamics, the share price has enjoyed a strong upward move and is now at fair value.

Fortescue Metals (FMG)

Strong growth plans will be driven organically through stgeloping the company’s vast iron ore deposits. The next stage of growth won’t contribute materially to earnings until 2014. In the interim, we believe the stock is fully valued, even after record iron ore prices are taken into account.

SELL RECOMMENDATIONS

Downer EDI (DOW)

A second provision on the Waratah train project within seven months has increased the estimated loss on the contract from $190 million to $440 million. In our view, Downer is a high-risk investment, and other engineering and mining services companies offer better risk/return profiles.

Mount Gibson Iron (MGX)

The disruption caused by board changes in late 2010 is likely to have a lasting impact and increases the risk of key personnel leaving. Other iron ore companies offer a more compelling investment case.

James Samson, Lincoln Indicators

BUY RECOMMENDATIONS

Western Areas NL (WSA)

Having returned to profit in June last year, WSA has followed this up with a strong result. WSA’s share price performed strongly in the second half of 2010, and with low cost, high-grade operations at Spotted Quoll, there’s more to come. Expect WSA to enter a new growth phase, assuming stable nickel prices.

Decmil Group (DCG)

After doubling its share price in the past 12 months, Decmil may seem to have limited further upside. However, this Perth-based mining services firm has the potential to surprise on the upside as we’ve seen recently with Forge Group (FGE). Our most recent valuation upgrade resulted from DCG’s strong tendering pipeline. The company has a robust order book, supported by existing contracts with major Australian miners, and it’s financially healthy.  

HOLD RECOMMENDATIONS

Reckon Limited (RKN)

This financial software firm has risen by more than 35 per cent in the past 12 months. Nevertheless, having reported annual results that were largely in line with market expectations, including an 18 per cent profit rise, the future still looks bright.

Domino’s Pizza Enterprises (DMP)

Domino’s recently boosted its half year profit expectations by 15 per cent to about $10 million. Although positive, much of this growth has been largely factored in by the market. While DMP’s performance remains solid, the stock is trading on an inflated price/earnings multiple and patience is advised until earnings catch up with price.

SELL RECOMMENDATIONS

Macquarie Group (MQG)

Although MQG’s share price appears to have turned a corner on the back of a mini-boom in merger and acquisition activity, we believe it still has a way to go before its turnaround is complete. MQG remains in an overall share price down trend, and we believe downside risks outweigh the potential for upside earnings surprises.

Billabong International (BBG)

With weakened consumer sentiment already causing the company to decrease profit guidance in mid-December, we believe this sports apparel company is in for a tough time. Given the stock trades on a price/earnings ratio of about 14 times in a difficult industry, we may see a further de-rating of the company’s shares in the future. The harsh reaction to recent retail disappointments from Myer Holdings (MYR) and The Reject Shop (TRS) may be indicative of how investors view results.

Peter Russell, Intersuisse

BUY RECOMMENDATIONS

Bradken (BKN)

A leading supplier of engineering consumables and rail wagons to the mining, energy and rail industries. A recurring and expanding business, Bradken has modern plants in Australia, China, the US and the UK, with advantages in technology and flexibility. All its rail wagons are made in China amid tough local competition. The past half disappointed some, but it saw strong growth and there’s more to come.

FlexiGroup (FXL)

A leading provider of vendor and retail point of sale finance for telecommunications products, electrical equipment, home improvements and other retail markets. Its business nous, innovative management and effective sales and collection teams set it apart, and this should underpin strong growth.

HOLD RECOMMENDATIONS

SAI Group (SAI)

A global player in the relentlessly expanding compliance and training fields, SAI builds margins as it grows. The acquisition of Integrity Interactive was a big step forward for its US business. The half-year results extended five years of strong growth. It offers a robust long-term outlook.

Clough (CLO)

Clough delivers engineering, procurement and construction services to the oil and gas industry. A short term and foreshadowed loss in marine construction dented its first half result. But it’s one third ownership of listed Forge Group excelled. Major projects, such as the Chevron Gorgon LNG Project on the North-West Shelf and the ExxonMobil LNG project in Papua New Guinea, underpin its strong workload. Accumulate.

SELL RECOMMENDATIONS

AXA Asia Pacific (AXA)

The end is drawing closer for AXA Asia Pacific to be acquired by AMP. Should AMP’s share price exceed $5.60 before the likely merger in March, the AXA benefit is only half the excess. So you can just as well sell all your holdings on market now. While wealth management may be attractive, there’s better prospects than AMP, where integration of the two cultures will be a long, tough task.

Crane Group (CRG)

This building and industrial products maker and distributor enjoyed a sound half-year. But its board has recommended a takeover offer by successful New Zealand-based Fletcher Building.  Fletcher is offering $3.50 cash and one Fletcher share for every Crane share. Fletcher is increasing its footprint in Australia, and accepting the offer will enhance your prospects.

 

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