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James Samson, Lincoln Indicators
BUY RECOMMENDATIONS
Tox Free Solutions (TOX)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
Involved in waste management services and enjoys leverage to the resources sector via its Western Australian and Queensland operations. The company reported stronger results than expected for the 2011 financial year, with revenue up 45 per cent to $143.56 million and net profit after tax up 49 per cent to $11.87 million. Growth looks set to continue on the back of strong business investment and improving cash flows.
Carsales.com (CRZ)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
Dominates the online market for vehicle sales in Australia, with the company’s 2011 financial results showing it has an 80 per cent market share. Net profit after tax was up 35 per cent to $58.3 million and total operating revenue climbed 26 per cent to $152.5 million. Increases were achieved in an environment of increasing competition, and we believe growth will continue as web traffic rises and overall vehicle inquiries trend up.
HOLD RECOMMENDATIONS
Coca-Cola Amatil (CCL)
After reporting another solid result for the 2011 financial year, CCL is a stable company with an established dominant position in the carbonated drinks market. Investors may seek an investment in CCL to provide exposure to the consumer staples sector. Earnings growth marginally dipped in the past 12 months as bad weather impacted sales.
Coal & Allied Industries (CNA)
After a takeover bid from Rio Tinto, CNA looks fully valued at current levels. The takeover bid represents a total consideration of $123.30 a share. Given the takeover is still only at proposal stage, shares are trading at a discount to the takeover price. Whichever way it goes, CNA looks well placed, but fully priced in the current market. The shares were priced at $117.83 on August 25.
SELL RECOMMENDATIONS
James Hardie Industries SE (JHX)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
The building products sector is doing it tough and it looks like continuing for some time. JHX is exposed to weaker housing markets in the US, New Zealand and Australia. Until there’s signs of confidence returning to the housing markets, James Hardie may struggle to generate any meaningful growth in key markets.
Aquila Resources (AQA)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
This coal and iron ore company is carrying too much debt for our liking. With big amounts of capital expenditure required to develop iron ore projects amid long lead times, there’s a possibility that today’s high iron ore price may weaken in future if greater supplies are generated elsewhere in the world. From an iron ore producing perspective, it’s lagging its competitors.
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Darren Jackson, Calibre Investments
BUY RECOMMENDATIONS
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Alcyone Resources (AYN)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
The company has produced 100,000 ounces of silver since the re-commissioning of its Queensland project in April. Demand has seen the silver price recently climb to $A41 an ounce. The company’s forecast operating costs are $A15 an ounce. The company is in the process of increasing capacity and upgrading facilities. It offers sound fundamentals and is optimally positioned to exploit the high silver price. Soaring Chinese demand for silver and sovereign debt woes should only serve to help this company. But it is speculative.
Telstra (TLS)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
The stock overhang from The Future Fund has been removed. Consequently, the stock has been trending up. At current levels, Telstra’s dependable fully franked dividend yield is far superior to returns offered on bank deposits. The company is increasing mobile and internet market share in a competitive market. Its full year profit of $3.23 billion for the 12 months to June 30 beat expectations. Certainty is returning to Telstra and the stock is defensive in volatile times.
HOLD RECOMMENDATIONS
National Australia Bank (NAB)
We argue the stock is well positioned and continuing to gain market share at the expense of the other three majors. Unaudited June quarter earnings of $1.4 billion were very robust. NAB also offers a high fully franked dividend yield of about 7 per cent.
David Jones (DJS)
Retail continues to be a challenging market to navigate, with DJS fourth quarter sales down by 10.3 per cent. However, the stock has been massively sold off and shorted on the back of negative news flow. Any easing in monetary policy would also be a positive catalyst.
SELL RECOMMENDATIONS
Country Road (CTY)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
A difficult macro environment is unhelpful for this specialty fashion retailer. Country Road hasn’t experienced the same dramatic share price falls as David Jones and Myer. But in today’s subdued spending environment, we would look to reduce exposure to any highly valued retailer, particularly discretionary and specialty ones selling fewer lines.
Westpac Bank (WBC)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
A recent trading update underwhelmed investors and the stock was subsequently sold off. The company reported a 2 per cent fall in unaudited cash earnings to $1.55 billion for the third quarter. By its own admission, the third quarter operating environment was subdued. We believe generating credit and lending growth will be a challenge. We see better value elsewhere in the sector and Westpac remains our least preferred of the four majors.
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Nicholas Brooks, RBS Morgans
BUY RECOMMENDATIONS
GrainCorp (GNC)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
This grain handler had been subjected to heavy selling over weather concerns. But well-timed rains in Queensland, New South Wales and Victoria are setting up what should be a record crop this year. Recent acquisitions will provide more earnings stability. The share price has retreated from about $8.36 in July, so it looks cheap at these levels. On August 25, the shares were priced at $7.46.
NextDC (NXT)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
This data centre storage company had to fast forward development plans due to overwhelming demand for products. After comfortably completing a capital raising to cover its expansion, NextDC is well placed, well managed and more than capable of delivering on its attractive growth pipeline.
HOLD RECOMMENDATIONS
AMP (AMP)
AMP’s result highlighted larger than expected cost synergies from its new acquisition AXA. The result also revealed the group’s ability to retain key personnel. Regulatory and market headwinds may persist, but the stock is trading on attractive multiples. It’s worth holding for a double digit grossed up dividend yield.
BHP BILLITON (BHP)
The world’s biggest miner delivered another record full year profit of $US23.6 billion – the biggest in Australian corporate history. It reported record production across four commodities and 10 operations. It expects strong demand for its core commodities to continue. The company generates incredible cash flows as shown by net operating cash flow of more than $US30 billion. Hold through volatility.
SELL RECOMMENDATIONS
ConnectEast (CEU)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
The takeover bid for this Melbourne toll road operator doesn’t show any signs of going higher. Horizon Roads has offered 55 cents a share. Speculation that Transurban would make a competing bid appears unlikely. Either take up the offer, or sell on market. The shares were trading at 53 cents on August 25.
Energy Resources of Australia (ERA)
Chart: Share price over the year to 26/08/2011 versus ASX200 (XJO)
Uranium in general faces enough headwinds amid speculation Japan may shut down more nuclear plants. ERA faces its own challenges from rain-affected sites reducing output. It’s facing increasing cost pressures from continuing productivity delays.
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.
