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Paul Shepherd, RBS Morgans
BUY RECOMMENDATIONS
ANZ Bank (ANZ)
Chart: Share price over the year to versus ASX200 (XJO)
Among the majors, we believe ANZ’s geographical presence in Asia leaves it uniquely positioned to grow its franchise. Growth could be accelerated if more European banks leave the region. In Australia, the ANZ is well positioned in today’s competitive earnings environment.
Cardno (CDD)
Chart: Share price over the year to versus ASX200 (XJO)
This engineering services company reported a strong first half result. Margins above 15 per cent from Australian and New Zealand professional services were better than expected. Improving economic conditions, particularly in the US, should drive earnings growth. Our price target is $7.83. On April 11, the shares closed at $6.80.
HOLD RECOMMENDATIONS
WorleyParsons (WOR)
Chart: Share price over the year to versus ASX200 (XJO)
While 2012 first half revenue was strong, margins were disappointing for this engineering services company. But we expect margin improvement in the second half and full-year 2013 in response to improving conditions and the company solving problem contracts. We see no structural problems with the business. Our reluctance to recommend a buy is valuation based. We believe multiples are very full despite the strong growth rates we expect in the next two years.
Campbell Brothers (CPB)
Chart: Share price over the year to versus ASX200 (XJO)
An analytical laboratory testing group that’s also involved in chemicals. Expect long-term growth to be driven by increasing capacity, utilisation and acquisitions. On valuation grounds, we retain a long-term hold, but expect positive news flow to provide some short-term upside.
SELL RECOMMENDATIONS
Ten Network Holdings (TEN)
Chart: Share price over the year to versus ASX200 (XJO)
We are cutting full-year 2012 EBITDA (earnings before interest, tax, depreciation and amortisation) by 19 per cent to $120 million and net profit after tax by 37 per cent to $34 million. Net debt was $416 million at August 2011, equating to 3.5 times full-year 2012 EBITDA on our revised forecasts. This remains within the 4 times covenant ratio. But headroom is getting tight given ongoing ratings weakness and the high level of operating leverage within the business.
Aquila Resources (AQA)
Chart: Share price over the year to versus ASX200 (XJO)
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This coal and iron ore company posted a first half 2012 loss of $30 million. We don’t see any reason for an earnings turnaround in the second half, so the result implies material consensus downgrades for the full year. If exploration spending continues at the current rate, we forecast a further decline in cash. Unless AQA completes an asset sale in the short term, we believe an equity raising is likely.
Mark Lennox, Halifax Investment Services
BUY RECOMMENDATIONS
Hastings Diversified Utilities Fund (HDF)
Chart: Share price over the year to versus ASX200 (XJO)
APA Group initially offered 50 cents cash plus 0.326 APA Group stapled securities for each HDF security. The Australian Competition & Consumer Commission is seeking further information on competition issues and has deferred a final decision to April 26, 2012. Any price weakness, particularly below the initial offer, may be seen as a good buying opportunity.
Far Limited (FAR)
Chart: Share price over the year to versus ASX200 (XJO)
The company raised $15 million to fund offshore oil and gas exploration in East Africa. The company plans to use the funds to maintain its equity interest in Kenyan blocks L6 and L9, close to a string of recent major offshore gas discoveries. The placement was well supported. A speculative buy.
HOLD RECOMMENDATIONS
Hawkley Oil & Gas (HOG)
Chart: Share price over the year to versus ASX200 (XJO)
It could be an exciting year for this oil and gas minnow. It has a fully funded work program and there may be upside from undeveloped discoveries in the Ukraine. Its projects are in the Dnieper-Donets Basin – said to be the most prolific gas basin in the Ukraine. Definitely one to watch.
Rio Tinto (RIO)
Chart: Share price over the year to versus ASX200 (XJO)
Rio recently announced it received a binding offer from H.I.G for its specialty aluminas business. Rio says it will respond after consultation with the relevant European works councils. The terms, while confidential, should be positive for Rio given its strategy of streamlining the aluminium group via the sale of non-core assets.
SELL RECOMMENDATIONS
QBE Insurance (QBE)
Chart: Share price over the year to versus ASX200 (XJO)
Lloyds of London recently announced an $US800 million loss for 2011 after paying record catastrophe claims, including floods in Australia. Lloyds counts QBE as one of its biggest syndicate members. After raising $150 million from retail investors at $10.70 a share, we expect some selling.
Qantas Airways (QAN)
Chart: Share price over the year to versus ASX200 (XJO)
The airline continues to suffer from higher oil prices. Qantas has announced a further increase to international fuel surcharges and domestic fares in response to high global jet fuel prices. Jet fuel is Qantas’ largest operational cost and market prices remain consistently high. Average year-to-date fuel prices are at their highest level since 2007/08.
Peter Russell, Russell Research
BUY RECOMMENDATIONS
M2 Telecommunications Group (MTU)
Chart: Share price over the year to versus ASX200 (XJO)
M2 provides fixed line, mobile and data services to small and medium sized business. We expect it to acquire more businesses and to prosper from the National Broadband Network. In the ASX 300 Index, it’s been an outstanding performer in the past 10 ten years, but strong management is set to ramp up further.
Legend Corporation (LGD)
Chart: Share price over the year to versus ASX200 (XJO)
A wholesaler and specialist manufacturer of equipment for power distribution and data rooms. The company is growing organically and via acquisition. Debt is low and a 15 per cent return on equity is good. The company is trading on an undemanding price/earnings ratio of about 7 times and offers a franked yield of about 6 per cent.
HOLD RECOMMENDATIONS
Miclyn Express Offshore (MIO)
Chart: Share price over the year to versus ASX200 (XJO)
MIO provides vessel services to the offshore oil and gas industry in Australia, south-east Asia and the Middle East. The company continues to perform, which has been reflected in a stronger share price. It’s in a sweet spot for growth, and on a price/earnings ratio of about 8 times, investors should consider buying more.
UXC Limited (UXC)
Chart: Share price over the year to versus ASX200 (XJO)
In 2011, UXC sold its non-core baggage and emerged a debt free and focused IT group. It’s a leader in installing Microsoft, Oracle and SAP software systems for the public and private sectors. Institutions have noticed it winning contracts and have jumped on board. Keep adding.
SELL RECOMMENDATIONS
Leighton Holdings (LEI)
Chart: Share price over the year to versus ASX200 (XJO)
Earnings per share growth for this construction and engineering giant were strong between 2004 and 2008. But since then, under-estimating costs on several projects has proved costly for shareholders. There’s no point winning contracts if projects incur losses. Management has acknowledged mistakes, but a recovery and a change of culture will take time.
QBE Insurance (QBE)
Chart: Share price over the year to versus ASX200 (XJO)
Between 2003 and 2007, the share price rose about 370 per cent, driven by astute acquisitions and clever management. But since August 2007, the shares have fallen about 60 per cent. After navigating the global financial crisis, 2011 provided one natural catastrophe after another. As a result, profits were hit hard. Insurance companies are doing it tough and QBE is no exception. QBE will take time to recover. Why wait? Sell now; perhaps buy back later.
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