18 Share Tips – 2 July 2011

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Cameron Bell, Intersuisse

BUY RECOMMENDATIONS

Seymour Whyte (SWL)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

This engineering and construction company is likely to benefit from increasing spending on civil infrastructure and from work associated with the Queensland floods and cyclones. We expect SWL to generate significant revenue relating to the rebuilding in full-year 2012 and 2013.

Stock code: SWL

Charts: Seymour Whyte Limited

More news: Seymour Whyte Limited

Syndicated Metals (SMD)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

An emerging copper company with projects in Queensland.  A recent acquisition has increased value and potential. SMD presents a rare opportunity to get in early – at a low price – in what should grow into a major development. But trading at 15 cents on June 30, 2011, SMD does carry risk and can be considered a speculative buy.

Stock code: SMD

Charts: Syndicated Metals Limited

More news: Syndicated Metals Limited

HOLD RECOMMENDATIONS

Boart Longyear (BLY)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

This drilling services company is leveraged to commodities volumes and minerals exploration, which we think will remain strong over the medium term. Recent comments by BLY’s peers suggest that utilisation rates and pricing have improved. Boart continues to trade on attractive multiples.

Telstra (TLS)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

Telstra looks like a solid long-term investment. Regulatory and political risks remain, but we believe Telstra presents a good defensive opportunity, currently generating a dividend yield of about 9 per cent.

SELL RECOMMENDATIONS

Virgin Blue (VBA)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

The airline has experienced a tough run recently and we don’t expect things to improve anytime soon. Competitively, it’s struggling against Jetstar, Tiger and even Qantas. The sector remains under pressure given the lacklustre domestic travel market and high oil prices.

Pacific Brands (PBG)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

The company has been trying to turn things around for a while now, but it’s stuck in a struggling retail sector and is exposed to a possible retreat in the Australian dollar and higher costs in China. Uncertainty surrounding the restructure and a reliance on acquisitions to boost revenue also concerns us.

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Peter Rae, Morningstar

BUY RECOMMENDATIONS

Southern Cross Media Group (SXL)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

SXL is a leading regional radio and television broadcaster. Following the takeover of Austereo, it also has a major presence in metropolitan radio with the high rating Today and Triple M networks. In TV, its primary affiliation is with the Ten Network. Despite subdued advertising conditions, the stock is trading well below our $2.19 valuation and offers a high, fully franked dividend yield. The stock was priced at $1.53 on June 30, 2011.

Stock code: SXL

Charts: Southern Cross Media Group Limited

More news: Southern Cross Media Group Limited

Westpac Bank (WBC)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

The share prices of the four Australian major banks have been battered in recent weeks due to concerns about weakening economic activity, subdued loan growth, intensifying competition and increasing residential loan arrears. In our view, these concerns are overdone and we remain confident in WBC’s earnings outlook. The fully franked dividend yield is very attractive at 7 per cent levels.

Stock code: WBC

Charts: Westpac Banking Corporation

More news: Westpac Banking Corporation

HOLD RECOMMENDATIONS

GrainCorp (GNC)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

GNC owns significant key grain-handling infrastructure along Australia’s eastern seaboard. Full year 2011 earnings will be strong given a bumper wheat crop and, with forecasts of another good winter crop in 2011, full-year 2012 is also shaping up to be a good year.  However, the malt division acquired in 2009 isn’t performing particularly well due to weak beer demand. At current prices, the stock looks fully valued.

Spotless Group (SPT)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

In our view, services company Spotless has a poor earnings track record. It operates in a cyclical industry and margins are slim despite big market share. Earnings should recover in full-year 2012 on the back of several significant contract wins over the past 12 months. In May, a takeover approach at $2.50 a share was rejected by Spotless as inadequate. It’s possible another higher offer will emerge, but apart from this, the stock has little appeal.

SELL RECOMMENDATIONS

PaperlinX (PPX)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

A major fine paper distributor and wholesale merchant, which also owns the well-known Reflex brand. The paper industry is particularly unattractive. Performance, in our view, has been very poor in recent years and the company almost collapsed under a mountain of debt following the GFC. Profitability won’t improve significantly until global economic conditions improve.

Retail Food Group (RFG)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

RFG is a franchisor and brand manager within the retail food industry. Major brands are Donut King, Michel’s Patisserie and Brumby’s Bakery. While it faces high levels of competition, demand for low value food items has proven resilient and delivered solid earnings growth. But the recent, now withdrawn, takeover offer for Oaks Hotels and Resorts raises serious questions about strategy and increases business risk.

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Richard Batt, Shadforth Financial Group

BUY RECOMMENDATIONS

Premier Investments (PMV)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

Owns Just Group, which includes brands such as Just Jeans, Jay Jays and Portmans among others. Premier recently bolstered its retail arm with four senior appointments to support new chief executive officer (and former David Jones CEO), Mark McInnes. The appointments are positive for the company as they bring experience and credentials, which should help grow the organisation and enhance shareholder wealth.

Stock code: PMV

Charts: Premier Investments Limited

More news: Premier Investments Limited

Perpetual Limited (PPT)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

The company’s share price has fallen about 30 per cent since takeover discussions with private equity firm Kohlberg Kravis Roberts failed in December 2010. Although operating conditions are difficult, the company offers a sound wealth management business. At these levels, you can’t rule out the possibility that another suitor may make a bid for the company, providing potential upside for investors. On June 30, 2011, the company was trading at $24.50 levels.

Stock code: PPT

Charts: Perpetual Limited

More news: Perpetual Limited

HOLD RECOMMENDATIONS

DuluxGroup (DLX)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

This paint group recently reported a NPAT (net profit after tax) of $48.7 million for the half year ending March 31, 2011. It declared an interim, fully-franked dividend of 7.5 cents a share. This is a solid result given the Queensland floods caused interruptions to production. Investors should retain their exposure.

Foster’s Group (FGL)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO) 

SABMiller recently bid $4.90 a share for the brewing giant. FGL rejected the bid, indicating the proposal significantly undervalued the company. Investors should retain their holding and see if a better offer eventuates. The shares were trading at $5.16 on June 30, 2011.

SELL RECOMMENDATIONS

Alesco Corporation (ALS)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO)

Most of Alesco’s earnings are generated from selling products for housing construction and renovations. Expect trading conditions in these markets to remain challenging for the rest of this year given cost of living increases. A potentially subdued sector next year would adversely impact earnings. Lighten holdings and monitor housing data for signs of an upturn and a potential buy.

Treasury Wine Estates (TWE)

Chart: Share price over the year to 01/07/2011 versus ASX200 (XJO)

TWE is a premium wine business that was recently demerged from Foster’s.  The portfolio includes well-known brands, such as Penfolds and Wolf Blass. But discretionary spending is soft, which is easing demand for wine. Australia’s wine export industry is under competitive pressure due to a high Aussie dollar. Until conditions improve, we prefer alternative investments.

>>Back to the newsletter to view other articles – July 2nd 2011

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