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Jabin Hallihan, Morgans
BUY RECOMMENDATIONS
Westpac Bank (WBC)
Chart: Share price over the year
The company was recently trading on an attractive grossed up fully franked dividend yield of almost 10 per cent for fiscal year 2019. We expect the dividend to be sustained in fiscal year 2020. This is good news for shareholders. WBC remains our preferred major bank as it was recently trading on an undemanding price/earnings multiple of about 10 times.
Credit Corp Group (CCP)
Chart: Share price over the year
CCP has acquired Australasian debt collection agency Baycorp for $65 million. The Baycorp business consists of a sizable purchase debt ledger (PDL), a collection platform and agency collection business. CCP has increased profit guidance by $80 million following the acquisition. This implies the carrying value of Baycorp’s PDL book is more than the $65 million. CCP has an opportunity to scale up its business. There’s potential for more acquisitions during the next 12-to-18 months.
HOLD RECOMMENDATIONS
Netwealth Group (NWL)
Chart: Share price over the year
In our view, the risk is marginal downside pressure to consensus 2020 estimates for this superannuation and investment platform provider. Rate cuts from competitors are likely to heighten competition. However, the company delivered growth across key financial metrics in the 2019 financial year. Hold, until a clearer picture emerges on future performance and all-important margins.
Cochlear (COH)
Chart: Share price over the year
The hearing implants maker reported a net profit of $276.7 million for fiscal year 2019, up 13 per cent, but at the lower end of guidance. The recent launch of the Nucleus Profile Plus implant has been well received and is gaining traction. We expect the implant to recapture market share and offset slowing services growth. COH shares have performed strongly this calendar year and closed at $216.43 on August 22.
SELL RECOMMENDATIONS
NIB Holdings (NHF)
Chart: Share price over the year
We have reduced earnings per share between 5 per cent and 6 per cent for the 2020/21 financial year. We’ve lowered our 12 month price target for this medical and health insurer to $6.85. NHF continues to deliver solid results. However, the stock was recently trading on a price/earnings multiple above 20 times, which we see as fair value at this point of the cycle. Industry margins are still at cyclical highs, and, in our view, unlikely to be sustained. NHF closed at $7.09 on August 22.
Virtus Health (VRT)
Chart: Share price over the year
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The full year 2019 results for this fertility treatment provider fell short of our expectations. A slower than expected performance in international operations impacted the result. Net profit after tax fell 7.6 per cent to $28.4 million. Basic earnings per share also fell by 7.6 per cent to 35.37 cents. The diversification strategy isn’t yet delivering profit growth.
Julia Lee, Burman Invest
BUY RECOMMENDATIONS
Baby Bunting Group (BBN)
Chart: Share price over the year
A combination of strong organic growth and a rollout of stores is a winning combination for this one stop baby shop. In fiscal year 2020, we believe earnings are likely to grow more than 30 per cent, which is a positive anomaly in a difficult retail environment. Watch for a potential upgrade to its long term guidance of opening 80 stores. This would be a positive catalyst for the share price.
Resolute Mining (RSG)
Chart: Share price over the year
This gold producer operates mines in Africa and Australia. It already produces more than 300,000 ounces. It should be able to increase production to 500,000 ounces by 2022, as it ramps up several mines and acquires Toro Gold’s Mako mine. All in sustaining costs are below $US1000 an ounce. The share price should benefit from a rising gold price and increasing production. The risk is a falling gold price. Also, mines in Africa carry operational risk.
HOLD RECOMMENDATIONS
Jumbo Interactive (JIN)
Chart: Share price over the year
Operates online lottery businesses in Australia and Germany. In our view, the stock was sold off harshly despite posting a solid 2019 fiscal year result. The business appears to be in a good position moving forward. It has a substantial cash surplus, and, in our view, some is likely to be returned to investors. We expect the share price to improve from here.
Macquarie Group (MQG)
Chart: Share price over the year
A diversified financial services group, with operations in 27 countries. Macquarie has a smaller residential mortgage book compared to the major banks, so the negative impact from falling interest rates is less when compared to the big four. Also, given that 60 per cent of MQG’s income is earned outside Australia, a falling Aussie dollar works in its favour. MQG has an enviable track record of under promising and over delivering. A recent dividend yield of 4.8 per cent acts as a buffer against market volatility.
SELL RECOMMENDATIONS
oOh!media (OML)
Chart: Share price over the year
OML is an outdoor advertising company. Reporting season gives us insights into turning trends, new trends and on-going trends. We’ve concluded OML’s outlook during the next one to two years is weaker. OML relies on strong business conditions and spending. Third quarter advertising bookings are down on the previous corresponding period and fourth quarter earnings are looking weaker. It appears this company is now stuck in a downgrade cycle. The time to buy OML is when stronger economic growth appears to be on the horizon.
BlueScope Steel (BSL)
Chart: Share price over the year
BSL has key production facilities in Australia, the US, New Zealand and Asia. Steel spreads – the difference between the steel price and the cost of raw materials – are key to this stock. The company expects steel spreads in the first half of fiscal year 2020 to weigh on earnings. Unless you think steel spreads will improve, we would like elsewhere. The company appears to be locked in a downgrade cycle. BSL can be re-evaluated in six months if steel spreads appear to have bottomed.
Tony Locantro, Alto Capital
BUY RECOMMENDATIONS
Metal Bank (MBK)
Chart: Share price over the year
On a positive note, MBK’s Eight Mile gold project is near Evolution Mining’s Mt Rawdon gold mine in North Queensland. First pass drilling results were most encouraging and deeper drilling is now required to ascertain the potential for a major gold system. With a strong gold price, there’s potential for merger and acquisition activity or a joint venture for the more active juniors with large scale potential in the gold sector. A speculative buy. The shares were priced at a cent on August 23.
AdAlta (1AD)
Chart: Share price over the year
Shares in this drug company were sold off following the sudden resignation of chief executive Samantha Cobb. The company’s lead drug AD-214 is due to enter toxicology trials in the short term and clinical trials in early 2020 for the treatment of idiopathic pulmonary fibrosis. 1AD is also working on partnership opportunities with large pharmaceutical companies. I consider 1AD a very high risk/high reward play.
HOLD RECOMMENDATIONS
Eagle Mountain Mining (EM2)
Chart: Share price over the year
The share price of this Arizona copper and gold explorer explorer continues to languish in the low teens. The shares have steadily declined following a strong start post the initial public offering in March 2018. However, work continues to advance the Silver Mountain project just outside of Phoenix. EM2 is examining other project opportunities to bring into its portfolio. In my view, EM2 offers an attractive risk/reward profile. The shares were trading at 14 cents on August 23.
Nusantara Resources (NUS)
Chart: Share price over the year
NUS is working towards financing the Awak Mas gold deposit in Indonesia, which hosts a 2 million ounce gold resource. In my view, the company’s valuation is substantially discounted due to risk, but there’s considerable exploration potential in the area. If Awak Mas can be successfully brought into production, NUS provides an outstanding longer term growth profile.
SELL RECOMMENDATIONS
Woolworths (WOW)
Chart: Share price over the year
This supermarket giant has taken on rival Coles in the mini collectables battle. But with the shares recently around $36, WOW is now priced as a growth stock trading on a price/earnings multiple around 28 times. In my view, WOW’s valuation is excessive for what is a defensive stock. The shares could be pressured if shoppers curb their spending in response to any slowing in the economy. The shares were trading at $35.87 on August 23.
BHP Group (BHP)
Chart: Share price over the year
The global miner’s recent profit was the best in five years supported by a strong iron ore price. However, the result underwhelmed the market and the stock was sold down. We believe now is an opportune time to take profits given the potential for weaker iron ore prices, the on-going trade war and fears of a global recession.
