James Georges, Patersons Securities
BUY RECOMMENDATIONS
Westpac Bank (WBC)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
The bank just delivered an interim cash profit of $3.168 billion, up 7 per cent on a year ago. It lifted the interim dividend to 76 cents, 11 cents higher than last year. We retain a positive view and believe re-introducing the Bank of Melbourne brand will be a plus for Westpac.
Atlas Iron (AGO)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
Atlas has operational mines producing 6 million tonnes of direct shipping iron ore a year. Production of 12 million tonnes a year is targeted by 2012. An excellent track record of resource growth and low capital expenditure requirements instils confidence. However, single commodity exposure dependent upon Chinese demand increases risk. The shares are only suitable for risk tolerant investors.
HOLD RECOMMENDATIONS
Newcrest Mining (NCM)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
As a low cost quality gold producer, this stock has offered good returns amid a buoyant gold price. At the right price, Newcrest is a cornerstone gold stock for any portfolio. Buy on dips.
Bank of Queensland (BOQ)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
Natural disasters in Queensland and tougher credit conditions are making it more difficult for BOQ to compete with its bigger peers. But the bank does have a strong presence in Queensland to assist in meeting challenges. So hold.
SELL RECOMMENDATIONS
Mincor Resources NL (MCR)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
The March quarter was poor in our view. Nickel production from its Kambalda operations were 34 per cent lower than our forecast. Its cash costs at $8.64 a pound were higher than our estimate of below $7 a pound. On the positive side, it still has $96 million in the bank and continues to search for growth options.
PaperlinX (PPX)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
This paper merchant remains leveraged to European and other struggling overseas economies. Earnings are unlikely to recover until there’s an economic recovery in those markets. Its recent removal from the S&P/ASX 200 Index in the March quarter adds insult to injury. Avoid.
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Michael Heffernan, Austock
BUY RECOMMENDATIONS
Decmil Group (DCG)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
Designs and constructs accommodation villages in Western Australia’s mining regions. The stock has strong fundamentals, is in the right sector at the right time and is likely to be a significant beneficiary from further development of the huge LNG Pluto project.
Ramsay Health Care (RHC)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
The private hospital operator reported a 30.8 per cent increase in net profit after tax to $102.8 million for the six months to December 31, 2010. This company should continue doing well in light of the immense pressure on the public hospital system and an ageing population. Its sharemarket fundamentals are attractive.
HOLD RECOMMENDATIONS
McMillan Shakespeare (MMS)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
This salary packaging business has been a strong sharemarket performer in recent times. It has low debt, a reasonable dividend and attractive growth prospects. McMillan Shakespeare is well placed to benefit from the increasing trend towards outsourcing of “logistics” involved with employee salary and financial benefits.
Blackmores (BKL)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
This maker of natural healthcare products has weathered economic difficulties particularly well in the past few years. The nature of its business means that it’s largely insulated from the worst effects of seasonal and economic adversity. With expectations of continuing steady earnings growth, BKL is attractive for investors with a medium term investment horizon.
SELL RECOMMENDATIONS
Aristocrat Leisure (ALL)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
It faces pressure from US competitors entering the Australian gaming market on top of its struggling US and Japanese operations. In addition, its second largest major peer WMS (formerly Williams), recently downgraded its guidance due to soft gaming revenue conditions across its major US markets.
Billabong International (BBG)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
Australia’s iconic surf wear/apparel retailer has been recently doing it tough, mostly due to the slowdown in the US economy and a strong Australian dollar. While the company is sound, adverse economic conditions are restraining its short term outlook.
www.austock.com
Peter Day, Wilson HTM
BUY RECOMMENDATIONS
The Reject Shop (TRS)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
A retailer with strong store rollout plans, targeting 400 stores from its existing 210. An aggressive plan has been made possible through the opening of a new distribution centre in Queensland. Management has proven itself immensely capable of implementing projects to meet challenges and improve the business. It should benefit from capital expenditure, and an opportunity exists here as the stock is way off its highs.
Cabcharge Australia (CAB)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
Operates a national charge facility for paying taxi fares. The market is materially undervaluing the earnings and strategic value of Cabcharge. CAB is undervalued on a stand-alone basis, and also offers significant corporate value.
HOLD RECOMMENDATIONS
GrainCorp (GNC)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
We moderate our rating from a buy to a hold due to recent share price gains. Favourable seasonal conditions and high grain prices will underpin a cyclical uplift in domestic earnings for the next two years. This is currently offsetting foreign exchange related headwinds facing malt earnings. We continue to assess potential upside to our forecast, which may provide further modest share price gains in the near term.
QR National (QRN)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
Voluntary redundancies should deliver significant cost reductions and productivity improvements over time. Given share price gains, we believe the company is fairly priced, so our rating has been reduced to a hold. Investors may choose to take profits, but we recommend maintaining a stake in the company as we expect it to continue delivering healthy returns over time.
SELL RECOMMENDATIONS
Boral (BLD)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
We believe Boral’s announcement to acquire the Wagners construction materials business in Queensland for $173 million is expensive given its full-year price/earnings multiple. For Boral to achieve satisfactory returns from the acquisition, we believe an earnings increase of 67 per cent is necessary. We retain our sell recommendation.
Charter Hall Office Reit (CQO)
Chart: Share price over the year to 06/05/2011 versus ASX200 (XJO)
A listed property trust with $5.6 billion in assets under management, consisting of commercial office properties in Australia, the United States and Europe. CQO has outperformed the property index by about 50 per cent since announcing plans to divest half its US assets via a wholesale joint venture. We see register rotation as a key risk and have downgraded to a sell.
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