Peter Day, Wilson HTM
BUY RECOMMENDATIONS
News Corporation (NWS)
Chart: Share price over the year to versus ASX200 (XJO)
Despite governance issues surrounding the phone hacking scandal, we believe this media giant offers a compelling opportunity driven by strong earnings momentum and management aggressively returning capital. The company’s latest quarterly results exceeded market estimates.
Orica (ORI)
Chart: Share price over the year to versus ASX200 (XJO)
Orica’s first half result exceeded market expectations, with full year guidance retained. The result highlighted strong explosives demand across key regions. Its specialty bolts and chemicals business, Minova, is also improving.
HOLD RECOMMENDATIONS
National Australia Bank (NAB)
Chart: Share price over the year to versus ASX200 (XJO)
We expect the share price to be supported by a strong second half outlook and an attractive dividend yield above 7.4 per cent. The company recently announced a fully franked interim dividend of 90 cents a share. This is 6 cents higher than last year’s interim dividend. We retain our hold recommendation.
Origin Energy (ORG)
Chart: Share price over the year to versus ASX200 (XJO)
Origin is tracking broadly in line with analyst forecasts. But the risk of delays to its LNG project is a concern to investors. The stock has tracked sideways in recent months and we expect this to continue while development risks remain.
SELL RECOMMENDATIONS
Domino’s Pizza Enterprises (DMP)
Chart: Share price over the year to versus ASX200 (XJO)
Australian and New Zealand operations are growing strongly and Europe offers long-term growth potential. But we believe the built-in share price premium may be excessive. Should earnings growth fall short of market expectations, the share price will suffer. On a risk/reward basis, we moderate to a sell.
Elders (ELD)
Chart: Share price over the year to versus ASX200 (XJO)
Elders should receive about $80 million cash in coming months from forestry asset sales and a tax refund. Proceeds from forestry asset sales are broadly in line with book value. The remaining forestry assets are lower quality. We expect earnings downgrades. Elders still has high gearing levels.
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Simon Bond, RBS Morgans
BUY RECOMMENDATIONS
Lynas Corporation (LYC)
Chart: Share price over the year to versus ASX200 (XJO)
An appeal has been lodged over the issuing of a temporary operating licence in Malaysia. Lynas, a rare earths company, is waiting for an announcement. Its facility is 98 per cent complete – the appeal is the major delay. Dismissing the appeal would, in our view, be a major positive catalyst for the stock, which has underperformed the sector in the past three months.
Oil Search (OSH)
Chart: Share price over the year to versus ASX200 (XJO)
The company’s first quarter result was largely in line with our expectations. Importantly, the LNG progress report was good. There’s additional potential from recently announced wells and a formal commitment to drill later this year. Opportunities may emerge in Tunisia and Kurdistan.
HOLD RECOMMENDATIONS
Orica (ORI)
Chart: Share price over the year to versus ASX200 (XJO)
Its 2012 first half result was solid in the context of a difficult period. Global explosives volumes grew 8 per cent, with the outlook suggesting growth is sustainable. The key driver going forward is delivering on range of growth projects, which aren’t without risk. ORI is offering 8 per cent upside to our valuation, so we retain a hold recommendation.
Insurance Australia Group (IAG)
Chart: Share price over the year to versus ASX200 (XJO)
We believe the acquisition of Malaysian insurer Kurnia makes strategic sense. But IAG faces significant challenges before reaping full acquisition benefits given Kurnia’s relatively poor underwriting performance. Following IAG’s recent share price rally, future upside is limited in our view.
SELL RECOMMENDATIONS
David Jones (DJS)
Chart: Share price over the year to versus ASX200 (XJO)
The department store giant is embarking on a strategy to meet retail challenges. It’s planning to invest more in technology, grow its store network and restore gross profit margins. We think the strategy represents a step forward for the business. But on valuation grounds we have moved to a sell.
Wesfarmers (WES)
Chart: Share price over the year to versus ASX200 (XJO)
The 2012 third quarter retail sales result was broadly in line with expectations. The Coles Supermarkets division delivered solid growth. But the resources update revealed that production cost increases and incremental wash plant commission losses could negatively impact earnings.
Alan Marrs, Alpha Broking
BUY RECOMMENDATIONS
NewSat (NWT)
Chart: Share price over the year to versus ASX200 (XJO)
A satellite communications company, delivering internet, voice, data and video. It will be expanding satellite capabilities via its Jabiru program starting in 2014. This stock offers an opportunity to buy relatively cheaply, as we believe the market will start building in a premium in the lead-up to the launch. The company has completed a capital raising at 60 cents a share. The stock carries risk, but the long-term revenue prospects look bright. The shares were priced at 77 cents on May 17.
Senex Energy (SXY)
Chart: Share price over the year to versus ASX200 (XJO)
The company is trading 20 per cent below its recent high. Senex has just upgraded its coal seam gas reserves in the Surat Basin. Oil production at its Snatcher field in the Cooper Basin is resuming after floods. The company is targeting 700,000 barrels of oil equivalent. We expect it to surprise on the upside.
HOLD RECOMMENDATIONS
Goodman Fielder (GFF)
Chart: Share price over the year to versus ASX200 (XJO)
The food company is restructuring, and the balance sheet is stronger following a $259 million capital raising. It’s focusing on becoming a leaner operation. If margins improve and market share increases, your patience may be rewarded.
Ten Network Holdings (TEN)
Chart: Share price over the year to versus ASX200 (XJO)
First half net profit crashed 70 per cent to $14.8 million. But the worst may be behind it. The advertising market still presents challenges, but if you still own the stock, wait for the company to improve.
SELL RECOMMENDATIONS
Atlas Iron (AGO)
Chart: Share price over the year to versus ASX200 (XJO)
We expect weaker demand for iron ore in response to a slowing Chinese economy. This will lead to a price fall. Atlas Iron, like other mining companies, has planned to lift production. We believe this mismatch of supply and demand will eventually have a negative impact on company value.
Biota Holdings (BTA)
Chart: Share price over the year to versus ASX200 (XJO)
Drug development company Biota plans to move to the US after signing a merger implementation agreement with NASDAQ listed Nabi Pharmaceuticals. Regulatory approvals still need to be met. If things go to plan, Biota Holdings is expected to delist from the ASX later this year. I expect share price weakness in the intervening period.
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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.
