18 Share Tips – 24 October 2022

Jabin Hallihan, Morgans

BUY RECOMMENDATIONS

Treasury Wine Estates (TWE)

This global wine company has more than 70 brands in its portfolio, including the iconic Penfolds brand. We believe the company is trading at a discount. Our 12-month price target is $15.71. The shares closed at $12.83 on October 20. According to our forecasts, we expect a dividend yield of about 3 per cent in fiscal year 2023. We have an add rating.

AGL Energy (AGL)

AGL Energy’s fixed fuel costs leaves the company in a good position, as electricity prices remain high across all states. The company is exiting coal-fired generation by 2035, accelerating the closure of the Loy Yang A power station by 10 years. It’s also delivering positive near term earnings. We see upside from October 20 to our 12-month price target of $8.81. We have an add rating.

HOLD RECOMMENDATIONS

ANZ Bank (ANZ)

The bank’s net interest margin should benefit from rising interest rates. Higher near term rates should generate favourable margins on deposits. We see upside on October 20 to our 12-month price target of $30. Based on our forecasts, we expect a fully franked dividend yield of 8.4 per cent in fiscal year 2023.

Origin Energy (ORG)

The energy giant is divesting its interests in the Beetaloo Basin in the Northern Territory. It also intends to exit its upstream exploration permits over time. It will focus on growing cleaner energy solutions. We retain our hold rating as a result of ongoing uncertainty in energy markets amid the transition to cleaner energy sources.

SELL RECOMMENDATIONS

Commonwealth Bank of Australia (CBA)

On financial metrics, we believe the CBA is expensive compared to local and international peers. The share price was partially driven higher by an on-market buy-back. Our 12-month price target is $77. Investors may want to consider cashing in some gains.

Fortescue Metals Group (FMG)

Capital expenditure guidance to decarbonise its iron ore business by 2030 is $US6.2 billion. Our estimate was $US5.5 billion, highlighting the inflation risk. Our 12-month price target is $15. There’s much to play out in decarbonising the business. Other stocks appeal more.

Christopher Watt, Bell Potter Securities

BUY RECOMMENDATIONS

South32 (S32)

South32 is a diversified mining company with aluminium, alumina, manganese, nickel, silver and coal assets in Australia, South America and Africa. These resources play a vital role in the energy transition to renewables. South32 is a beneficiary of continuing global population growth, urbanisation and increasing demand for commodities. S32 offers attractive fully franked dividends.

Life360 Inc. (360)

Features of this online family platform provider include location sharing and driving safety. The company has more than 30 million active users a month and is becoming a dominant brand in the US and internationally. We believe there’s potential for Life360 to increase monthly prices for existing customers.

HOLD RECOMMENDATIONS

Telstra Corporation (TLS)

Telstra’s earnings are resilient. The $2.7 billion cost-out program under the T22 plan has been delivered. Management is now focusing on a $500 million cost reduction target under the T25 plan. The future sale of its infrastructure assets is the next key catalyst in determining the strategic direction of the business going forward.

Domino’s Pizza Enterprises (DMP)

Despite a 12 per cent earnings decline in fiscal year 2022, DMP is starting to look much more attractive given recent share price weakness. At the group level, sales have increased at a compound annual growth rate of 14 per cent in the past four years, with a similar growth trajectory expected in coming years.

SELL RECOMMENDATIONS

Reliance Worldwide Corporation (RWC)

The company designs, makes and supplies water delivery control solutions for the plumbing and heating industries. Stamp duty concessions in the UK housing market should be positive for the renovation and repairs markets. But more than offsetting this is higher interest rates, which we expect to negatively impact housing activity.

Reece (REH)

Reece distributes plumbing products in Australia, New Zealand and the US. The company delivered a strong performance in the US. However, according to our analysis, the Australian and New Zealand businesses have experienced margin compression. We believe REH looks expensive at recent levels given downside risks of higher costs and further margin pressure in Australia and New Zealand.

Angus Geddes, Fat Prophets

BUY RECOMMENDATIONS

Rumble Resources (RTR)

Zinc and lead is attracting more attention, as Rumble Resources proves up its Earaheedy zinc-lead project in Western Australia. The latest drill results confirm the prospective nature of Earaheedy, with high-grade zinc-lead assays reported. Feeder zones are likely to improve the future value of Earaheedy. There’s much more exploration ahead.

Westpac Bank (WBC)

The bank has a quality loan book, which is benefiting from increasing borrower repayments. Recent stress testing of its loan book shows borrowers still have the capability to meet higher loan repayments, reducing the possibility of significant bad debts. A rising net income margin and lower provisioning levels should sustain Westpac’s earnings.

HOLD RECOMMENDATIONS

Amcor PLC (AMC)

The packaging giant continues to report increasing sales and organic growth despite turbulent trading conditions. Focusing on sustaining good relationships with customers assists in driving good results. Amcor’s loyal customers generally accept higher prices when Amcor’s unit costs increase.

Sandfire Resources (SFR)

The acquisition of the MATSA copper operations in Spain is part of a transformational year for Sandfire Resources. Confirming the planned expansion of its Motheo copper mine in Botswana to 5.2 million tonnes of ore a year adds another piece to its growth strategy.

SELL RECOMMENDATIONS

InvoCare (IVC)

Stretched household budgets may result in families choosing basic funeral packages as opposed to more expensive premium options. Rising costs may exert pressure on margins. Tight labour markets may also present challenges. We prefer other stocks at this point of the cycle.

Magellan Financial Group (MFG)

The fund manager experienced net outflows of $3.6 billion in September 2022. Total funds under management of $50.9 billion in September 2022 fell from $57.6 billion in August 2022. Ongoing uncertainty has been driving down equity market values. We expect inflation and market volatility to persist into 2023.

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.