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Richard Batt, Shadforth Financial Group
BUY RECOMMENDATIONS
Alumina (AWC)
Chart: Share price over the year versus ASX200 (XJO)
AWC is involved in bauxite mining, alumina refining and aluminium smelting. Its primary asset is a 40 per cent interest in Alcoa Worldwide Alumina and Chemicals (AWAC). The company is a beneficiary of increasing demand for alumina, particularly from China. It’s a low-cost producer and long term investors should make gains in line with improving market conditions across the globe.
Atlas Iron (AGO)
Chart: Share price over the year versus ASX200 (XJO)
AGO has two operational mines in the Pilbara region producing 6 million tonnes of ore annually. Production is expected to reach 12 million tonnes by 2013. The company also has port facilities at Port Headland, which can provide capacity for up to 15 million tonnes. AGO has also completed three mergers, resulting in a large tenement base. It has an excellent track record of resource growth and low capital expenditure requirements. It remains an ideal exposure to the iron ore sector, and portfolios should benefit over the long term.
HOLD RECOMMENDATIONS
Mesoblast (MSB)
Chart: Share price over the year versus ASX200 (XJO)
MSB is commercialising technology, enabling adult stem cells to be extracted from a donor’s bone marrow and developed into quantities that can be administered to patients. The company recently reported highly encouraging results from its phase 2 trials of Revascor, a drug for treating patients with heart failure. It has five other products in trials, so investors should retain their exposure.
Metcash (MTS)
Chart: Share price over the year versus ASX200 (XJO)
In times of economic uncertainty, Metcash recently announced a positive result, with a 1.7 per cent increase in first half revenue to $6 billion. Net profit after tax was up 1.4 per cent to $117 million for the half year ending October 31, 2011. A recent court decision allowing the acquisition of the Franklins supermarket chain should improve earnings. The acquisition increases the size of its buying group, enabling Metcash to compete more effectively on price against its major competitors.
SELL RECOMMENDATIONS
Symex Holdings (SYM)
Chart: Share price over the year versus ASX200 (XJO)
The company recently announced that its strategic review of operations is taking longer than expected and market conditions have seriously deteriorated since August. While the company is taking action to meet its challenges, margins are being eroded in an immensely challenging retail environment. Better opportunities exist elsewhere.
Navitas Limited (NVT)
Chart: Share price over the year versus ASX200 (XJO)
NVT is experiencing a general downturn in international student enrolments in Australia and the United Kingdom. Despite strong growth in North American and Singaporean colleges, total enrolments are still down 9 per cent on this time last year. With the Australian dollar still strong against most currencies, we don’t see a turnaround in domestic enrolment numbers anytime soon.
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Peter Rae, Morningstar
BUY RECOMMENDATIONS
Emeco (EHL)
Chart: Share price over the year versus ASX200 (XJO)
EHL is benefiting from the resources boom, with increasing volumes of coal, iron ore and other metals leading to high utilisation rates for its earth moving equipment fleet. First half 2012 earnings are likely to be subdued in response to fleet expansion costs, but full year earnings should grow strongly as the benefits from the new equipment flow through to profits.
National Australia Bank (NAB)
Chart: Share price over the year versus ASX200 (XJO)
The major Australian banks all reported strong full year 2011 earnings results, with excellent dividend growth. With fully franked dividend yields above 7 per cent, the sector is attractively priced. NAB looks particularly cheap. It offers the strongest earnings growth and business momentum, so the shares have the potential to outperform.
HOLD RECOMMENDATIONS
Brambles (BXB)
Chart: Share price over the year versus ASX200 (XJO)
Conditions in BXB’s core markets aren’t particularly good, with the economic outlook in Europe continuing to deteriorate. But the group is expected to achieve strong earnings growth over the next few years as it expands its CHEP pallet business into new regions, such as central and Eastern Europe. Acquiring IFCO Systems’ plastic crates business will also provide strong growth.
Skilled Group (SKE)
Chart: Share price over the year versus ASX200 (XJO)
New chief executive Mick McMahon has done a good job in refocusing this labour hire and staffing services business by divesting non-core assets and reducing debt. Strong earnings growth is expected during the next few years, with businesses exposed to the resources sector performing strongly. But weakness in non-resource related industries presents some risk.
SELL RECOMMENDATIONS
Primary Health Care (PRY)
Chart: Share price over the year versus ASX200 (XJO)
PRY is the largest domestic pathology provider, but also generates revenue from radiology and medical centres. While age demographics are favourable, pathology funding cuts and collection centre deregulation adds some industry uncertainty as market entrants adapt to the new regime. Debt is high and interest cover is low at less than three times, leaving little headroom for any unexpected downturn in profits.
Aquila Resources (AQA)
Chart: Share price over the year versus ASX200 (XJO)
This coal and iron ore company has a multi billion dollar market capitalisation, but free cash flow and profits are negative. It lacks the billions of dollars required to develop mining projects. The dual role of managing director/chairman poses corporate governance concerns. A track record of litigation with joint venture partners is an additional concern.
Hamza Habib, Patersons Securities
BUY RECOMMENDATIONS
Resource Equipment (RQL)
Chart: Share price over the year versus ASX200 (XJO)
Supplies high quality pumping and associated rental equipment to the mining, oil, gas and engineering markets in Australia. The company is well positioned to grow in 2012 via contract wins and the recent acquisition of Dewatering Services Australia, which increases its service offering.
Seek Limited (SEK)
Chart: Share price over the year versus ASX200 (XJO)
Seek has two operating divisions – online jobs classifieds and training and learning. The company is Australia’s premier online job classifieds provider, with almost 70 per cent of the Australian and New Zealand markets. Given its recent international expansion and substantially low operating costs, the company offers a good entry level. The shares were priced at $6.06 on December 8.
HOLD RECOMMENDATIONS
Metcash (MTS)
Chart: Share price over the year versus ASX200 (XJO)
This grocery wholesaler is free to progress with its recent acquisition of the Franklins supermarket chain. Although an encouraging outcome for MTS following court action, the current economic climate for the grocery business does present significant challenges with increasing costs and low purchasing volumes.
Monadelphous Group (MND)
Chart: Share price over the year versus ASX200 (XJO)
This engineering group provided the market with a positive outlook at its recent annual general meeting. This has been well reflected in the share price outperforming the broader market. The current outlook remains solid, but the recent high growth may be harder to achieve in 2012.
SELL RECOMMENDATIONS
Murchison Metals (MMX)
Chart: Share price over the year versus ASX200 (XJO)
The company recently announced asset sales to Mitsubishi for $325 million. It leaves MMX with an early stage exploration permit but no current operations. This is hardly attractive from an investment point of view.
New Hope Corporation (NHC)
Chart: Share price over the year versus ASX200 (XJO)
This coal company has received several takeover proposals, which substantially pushed up the share price. But any deal is expected to take several months. There’s also a distinct possibility there won’t be a takeover of NHC. Investors are better off selling and taking their premium.
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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.
