Elio D’Amato, Spotee.com.au
Image Resources (IMA)
IMA is a mineral sands producer in Western Australia. Projects at Boonanarring and Atlas are within highly prospective regions. Results are soon expected from the Atlas project amid recent extensions at Boonanarring North. Positive results could add to an impressive reserve base. IMA is profitable and growing. The cycle is working for IMA, but the potential for further resource upside is appealing.
Orbital Corporation (OEC)
OEC provides integrated propulsion systems and other components for unmanned aerial vehicles like drones. OEC is the main supplier to Boeing’s Insitu business. The company recently announced it had signed a new engine development and supply agreement with a Textron subsidiary, which supplies several defence and aerospace organisations. We believe the company’s outlook is bright and the shares offer value.
EX1 is a clinical stage biopharmaceutical company involved in regenerative medicine. Pre-clinical data from an osteoarthritis animal study found plexaris and cevaris to be safe and well tolerated after multiple dosing in rodents. The manufacturing process is sound. Recent share price weakness caused by incomplete data from a recent trial may provide an opportunity to gain exposure, or for existing holders to accumulate.
PSC Insurance Group (PSI)
This diversified insurance group acquires brokers to feed its network in Australia, New Zealand and the UK. Underlying revenue of $93.8 million in the 2021 first half was up 25 per cent on the prior corresponding period. Underlying earnings per share grew by 36 per cent to 5.9 cents. It re-affirmed underlying EBITDA guidance at the top end of its $65 million to $70 million range.
Vocus Group (VOC)
This specialist fibre and network solutions provider has received a highly conditional offer for the business at $5.50 a share from a consortium comprising of Macquarie Infrastructure and Real Assets and Aware Super. The Vocus board has endorsed the scheme implementation deed in the absence of a superior offer. However, previous suitors for VOC in 2019 withdrew their offers. Investors should consider selling now. The shares finished at $5.47 on April 8.
TPG Telecom (TPG)
Founder and chairman David Teoh has resigned from the TPG board. While Teoh will retain a significant stake in the business, I believe his insights, drive and vision will be sorely missed. The company’s price had been making a series of lower highs and lows since June last year. Without Teoh at the helm, I believe the longer term outlook remains unclear. In my view, it’s time for investors to consider moving on.
Samuel Crompton, Shaw and Partners
Boss Energy (BOE)
BOE has entered into binding agreements to buy 1.25 million pounds of uranium on the spot market at around $US30.15 a pound. We believe the acquisition of a strategic uranium inventory will provide longer term benefits. The company says it’s been proactively positioning its Honeymoon project to be Australia’s next uranium producer of up to 3.3 million pounds a year. Honeymoon is fully permitted. We believe the outlook for nuclear power is bullish, particularly if it’s classified as green energy by the European Union, as recent rumours and speculation might suggest.
Top Australian Brokers
Zip Co (Z1P)
This buy now, pay later company offers multiple products and is enjoying strong growth. Since acquiring Quadpay in August 2020, blended group revenue yields have risen more than 56 per cent in six months and capital efficiency has doubled. Our valuation is $15.31. The shares finished at $8.28 on April 8.
This multinational software corporation delivered weaker than expected first half 2021 results, in our view. While fiscal year 2021 guidance implies a strong second half recovery, it’s still 2 per cent below our forecast and 4 per cent below consensus. Fiscal year 2025 targets have been maintained. ALU’s long term goal of industry transformation remains appealing, but we continue to remain cautious about the timing of a COVID-19 recovery, which keeps ALU on hold for now.
Mincor Resources NL (MCR)
MCR is making solid progress towards re-establishing nickel mining operations and offers exploration upside. In our view, management is doing a top job in progressing the Kambalda project that’s largely reflected in the share price. MCR is now entering the higher risk construction phase.
Nickel Mines (NIC)
The company enjoys a strong growth profile, and has outperformed in the past year. We’re concerned that increases in nickel pig iron prices will impact nickel demand for use in electric vehicles. We downgrade our recommendation to a sell.
Woodside Petroleum (WPL)
The energy giant is ramping up investment expenditure. However, its joint venture restructure at the Burrup Hub gas processing project and Sangomar oil project are delayed, while the search continues for a new chief executive to replace the retiring Peter Coleman. In my view, the risks appear skewed to the downside. We believe investors may be able to buy the stock at lower levels moving forward.
Tony Paterno, Ord Minnett
Qantas Airways (QAN)
The airline is cutting costs and likely to save about a $1 billion a year from fiscal year 2023. We expect the business to return to cash flow positive from the June quarter of calendar year 2021. About 70 per cent of domestic passengers fly Qantas. Internationally, Qantas remains strong. It has limited start-up costs, and can rapidly add incremental capacity to the market. It can capitalise on the relatively soft competitive landscape and gain market share.
ANZ Bank (ANZ)
ANZ holds a 24 per cent stake in Malaysia’s AMMB Holdings Berhad (AmBank). ANZ will take a profit hit of $212 million after AmBank was fined $A900 million for failing to detect and prevent a corruption scandal. ANZ has consistently denied any involvement in the scandal. The changes to our financial model have resulted in a 3.4 per cent decline in anticipated fiscal year 2021 cash earnings. Still, we believe the company offers value after a positive update during the recent reporting season regarding revenue and net interest margins.
Westpac Bank (WBC)
Westpac confirmed it’s assessing the appropriate structure for its New Zealand business and whether a demerger would be in the best interests of shareholders. In our view, Reserve Bank of New Zealand changes to funding, capital and operational independence in recent years have made spin-offs of New Zealand banking arms more realistic and palatable. Such a move would enable Westpac to focus more on improving the performance of its Australian business.
In our view, capital expenditure forecasts across Worley’s three key segments – energy, chemicals and resources – are the best indicator of current business conditions and future revenue growth. According to our analysis, capital expenditure forecasts imply Worley’s revenue will decline 7 per cent in fiscal year 2021, but increase 7 per cent in fiscal year 2022 and 3 per cent in fiscal year 2023. Margin expansion driven by cost reductions and operating leverage could also drive further earnings growth. However, we remain cautious given an uncertain outlook amid potential for market conditions to rapidly change.
This accounting software company has acquired Swedish e–invoicing provider Tickstar that enables users to integrate with Pan-European Public Procurement On-line (PEPPOL) infrastructure. PEPPOL enables cross border e-procurement and e-invoicing. We see this as a strategic move that could assist Xero’s subscribers to become PEPPOL compliant. However, we don’t expect the acquisition to provide material growth, or be an earnings contributor in the medium term. XRO shares have performed strongly in the past month, so investors can consider taking a profit.
The building products maker has set an earnings before interest and tax improvement target of $300 million under a transformation program. Australian earnings should improve from here given 2020 was impacted by COVID-19 and bushfires. Nevertheless, we believe BLD’s valuation appears stretched at this point.
The above recommendations are general advice and don’t take into account any individual’s objectives, financial situation or needs. Investors are advised to seek their own professional advice before investing. 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.