18 Share Tips – 21 December 2020

Samuel Crompton, Shaw and Partners

BUY RECOMMENDATIONS

Amaero International (3DA)

The company makes large format, complex components in metal with laser-based additive manufacturing processes for the defence, aerospace and automotive sectors. Amaero works with several of the world’s leading manufacturers of aerospace and defence products, delivering design, prototype and manufacturing capability. We expect 2021 to bring a steady flow of positive news that should lead to a significant re-rating.

Whispir (WSP)

The pandemic has provided a tailwind for enterprise messaging. WSP’s cloud based platform enables customers to send multi-channel, programmable communications. In our view, the successful sales execution story at WSP has largely gone unnoticed. We believe the shift in momentum and efficiency that was demonstrated in fiscal year 2020 supports our forecast of 20 per cent a year revenue growth through to fiscal year 2025.

HOLD RECOMMENDATIONS

Fortescue Metals Group (FMG)

The iron ore producer has enjoyed a strong start to fiscal year 2021. First quarter record shipments of 44.3 million tonnes were up 5 per cent on the prior corresponding period. Importantly, production and sales are on track to meet fiscal year 2021 guidance of between 175 million tonnes to 180 million tonnes. But we’re projecting iron ore prices to weaken from recent levels.

WiseTech Global (WTC)

WTC is a leading supply chain software provider to the global logistics industry. The company’s multiple organic drivers boost investor confidence. It also offers long term data upside. The company has signalled a return to operating leverage, which, in our view, is positive. However, we believe the stock is expensive at this level.

SELL RECOMMENDATIONS

AGL Energy (AGL)

We expect materially lower wholesale electricity prices going forward. Most of AGL’s power is generated from coal fired plants. In our view, it leaves AGL over exposed to lower average prices as renewables continue to penetrate the market. The share price has fallen from $17.18 on July 1 to finish at $13.08 on December 17. Better opportunities exist elsewhere, in our view.

ASX Limited (ASX)

Revenue is growing. But so are costs. We expect heightened trading activity to ultimately moderate, while costs remain elevated as the ASX spends on technology. In fiscal year 2021, we expect lower net interest income on derivative balances. Recently trading on a lofty price/earnings multiple of about 34 times, we suggest there is better value elsewhere.

Elio D’Amato, Spotee.com.au

BUY RECOMMENDATIONS

King Island Scheelite (KIS)

KIS is a tungsten explorer and emerging producer. It owns a high grade resource on King Island. KIS has the necessary state and environmental approvals. The mine will be cost effective, particularly as it’s only 2 km from a deep sea port. It has signed an agreement for 70 per cent of its production. The company has just raised $2.5 million, and it offers exploration upside potential.

Imagion Biosystems (IBX)

IBX is developing diagnostic imaging technology that aims to detect cancer and other diseases earlier and with greater accuracy than is currently possible. A recent capital raising will support the phase 1 HER2 breast cancer study using its MagSense technology. While IBX carries risk, the reward is an investment in potentially ground-breaking technology, in our view.

HOLD RECOMMENDATIONS

Pilbara Minerals (PLS)

This lithium-tantalum producer is acquiring the lithium operations of Altura Mining, which recently appointed receivers. PLS is raising $240 million for the purchase. This includes a $119 million placement and a $121 million entitlement offer at a heavily diluted price of 36 cents. Despite the immediate sell down, the acquisition delivers scale and significant synergy benefits.

ReadCloud (RCL)

RCL has a digital platform that delivers e-learning solutions to schools. The outlook for the new school year is bright. The company is expanding into the vocational education and training sector. While new investors may be reluctant to chase the price, holders shouldn’t sell. Look for price support to develop and further sales updates as a guide.

SELL RECOMMENDATIONS

Appen (APX)

The share price of this artificial intelligence and language technology company has fallen significantly from its highs. The Figure Eight acquisition has fallen short of expectations, in our view, and the company is experiencing mounting competitive pressures. Breaking a key $27 support level means finding price support again may take time.

Bendigo and Adelaide Bank (BEN)

The share price has significantly risen in response to investors returning to value and cyclical stocks. However, in our view, wafer thin margins in an increasingly competitive market present challenges. Investors may want to consider taking profits.

Tony Paterno, Ord Minnett

BUY RECOMMENDATIONS

Ramsay Health Care (RHC)

This private hospital operator issued a positive first quarter trading update for fiscal year 2021. We were encouraged by a rise in surgery volumes across all the group’s major markets, which is clear evidence the business is recovering. We remain confident Ramsay is well positioned to benefit from a sustained increase in elective surgery volumes during the next one to two years.

IOOF Holdings (IFL)

This diversified financial services provider believes growth is likely to be driven by efficiency savings in platforms and planning. Benefits from the integration of ANZ’s OnePath pensions and investments business are going to plan, and IFL re-committed to target savings for the MLC wealth business, with clear timelines.

HOLD RECOMMENDATIONS

Transurban Group (TCL)

Our analysis suggests traffic growth for this toll road owner and operator will average about 2 per cent a year over the medium to long term. This is at the lower end of the historical range of between 2 per cent and 4 per cent. On our estimates, Transurban offers dividend per share growth of between 7 per cent and 8 per cent per annum for the next five to seven years.

Oil Search (OSH)

The company detailed several positive outcomes following a strategic review. A sizeable rise in estimated resources in Alaska, with the integration of satellite deposits, has resulted in a material increase to our net present value estimate. The share price has risen significantly since November 20 and is now trading in line with our revised valuation.

SELL RECOMMENDATIONS

Treasury Wine Estates (TWE)

China’s Ministry of Commerce imposed a deposit rate of 169.3 per cent to the imported value of TWE’s wine from November 28. Access to the high growth Chinese market is now limited, reducing prospects for a price/earnings multiple recovery. In our view, the company’s re-allocation plans will take time and be tough to execute.

Worley (WOR)

In our view, this engineering services provider is well placed to capitalise on growth opportunities involving environmental, social and corporate governance related projects. But these projects represent a small portion of current revenue. The near term outlook remains challenging with projects deferred, resulting in a reduced headcount – a key metric, in our view. The stock looks expensive to us and consensus forecasts appear optimistic.

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.