Marcus Obermeder, Ord Minnett
BUY RECOMMENDATIONS
Blackmores (BKL)
Chart: Share price over the year to versus ASX200 (XJO)
I continue to like the BKL business model as it remains conservatively managed, offering significant medium-term growth opportunities. Expect to see solid growth for financial year 2013, driven by acquisition FIT-BioCeuticals, continuing growth in its established Asian businesses and initial signs of growth in new Asian markets, particularly Korea and China.
Flight Centre (FLT)
Chart: Share price over the year to versus ASX200 (XJO)
FLT reported at the top end of our forecast range, with profit before tax of $290.4 million for the 2012 financial year. Guidance for financial year 2013 ranges between $305 million to $315 million. Drivers of expected growth include continuing expansion of its offshore businesses in the US and the UK and a growing presence of its corporate business services.
HOLD RECOMMENDATIONS
Duet Group (DUE)
Chart: Share price over the year to versus ASX200 (XJO)
A management restructure is positive, as it will provide cost savings. But, in relation to its Victorian business Multinet, the Australian Energy Regulator is reviewing gas distribution tariffs and any increase will have an impact on revenue. As a result, we have moved from accumulate to hold.
Leighton Holdings (LEI)
Chart: Share price over the year to versus ASX200 (XJO)
Leighton’s recent contract success shows it retains solid leverage to the Australian and Asian resources and infrastructure sectors. But, offsetting this is a 19 per cent stake in contract mining group Macmahon Holdings, which downgraded its net profit guidance for financial year 2013. Hold for developments.
SELL RECOMMENDATIONS
Sydney Airport (SYD)
Chart: Share price over the year to versus ASX200 (XJO)
Although SYD posted a solid result for financial year 2012, the stock now looks expensive. The pre-tax 7 per cent dividend yield is attractive and the company is a defensive monopoly asset. But, in our view, the medium-term risks aren’t yet discounted by the market. The yield is similar to many utilities and property trusts, yet SYD trades on twice the gross cash flow multiple.
Tatts Group (TTS)
Chart: Share price over the year to versus ASX200 (XJO)
Although net profit was up 16 per cent on last year, it was well in line with our estimates. With significant outperformance and a stretched valuation, there’s limited scope for earnings upgrades in financial year 2013. Therefore, the share price risk is to the downside at this point.
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Darren Jackson, Calibre Investments
BUY RECOMMENDATIONS
Aspen Group (APZ)
Chart: Share price over the year to versus ASX200 (XJO)
This property owner and manager is an S&P/ASX 300 company. Its 1-for-1 rights issue was at 17 cents. Post capital raising, the stock closed at 17 cents on October 2, representing a 40 per cent discount to net tangible assets and offering a forecast 8.82 per cent forward dividend yield for financial year 2013. Underlying assets appear adequate and gearing levels moderate.
GrainCorp (GNC)
Chart: Share price over the year to versus ASX200 (XJO)
A suitable macro environment should help this vertically integrated grain company. Favourable conditions include drought in the United States, higher food prices and a growing middle class in Asia. Buy on the dips, as it’s just completed a capital raising.
HOLD RECOMMENDATIONS
Arrium (ARI)
Chart: Share price over the year to versus ASX200 (XJO)
This international mining and materials company recently received a conditional takeover proposal from Noble Group and Posco at 75 cents a share. We see this conditional proposal as materially undervaluing the company and agree with the board’s rejection. However, we welcome the approach and the attention it brings to Arrium’s business divisions.
BHP Billiton (BHP)
Chart: Share price over the year to versus ASX200 (XJO)
BHP is the pre-eminent, blue chip miner that can withstand different phases of the economic cycle and fluctuations in commodity prices. Earnings and revenue are diversified, production costs are at the bottom of the curve and capital expenditure is flexible. This makes it a staple for any Australian portfolio.
SELL RECOMMENDATIONS
Ausdrill (ASL)
Chart: Share price over the year to versus ASX200 (XJO)
Ausdrill is operating in an extremely difficult sector – competition is stiffer and margins are thinner. Company specific, ASL has embarked on a top of the market acquisition that’s increased its drill fleet, but also its balance sheet debt.
Whitehaven Coal (WHC)
Chart: Share price over the year to versus ASX200 (XJO)
In our view, substantial shareholder Nathan Tinkler’s well-publicised personal debt problems may be exerting downward pressure on WHC’s share price, as the probability of a block trade, or board unseating are factored in. Should a resolution emerge, value in WHC may appear.
Peter Moran, Wilson HTM
BUY RECOMMENDATIONS
AGL Energy (AGK)
Chart: Share price over the year to versus ASX200 (XJO)
Investor concerns about possible reducing margins for energy retailers has contributed to a recent fall in AGL’s share price. But with a strong development pipeline, share price weakness presents a buying opportunity. The now 100 per cent owned Loy Yang A is integrating well and AGL have an additional five projects at various stages of development. Also, AGL continues to grow its customer base at the expense of competitors in NSW.
Universal Biosensors (UBI)
Chart: Share price over the year to versus ASX200 (XJO)
Makes medical diagnostic products for point-of-care and home use. The company announced a manufacturing and supply agreement with Siemens Healthcare Diagnostics for the point-of-care coagulation testing market. Under the agreement, UBI will become the exclusive manufacturer of products on behalf of Siemens. Although UBI isn’t without risk, we see substantial potential upside for investors. Our share price target is $1.75. The shares closed at 78.5 cents on October 5.
HOLD RECOMMENDATIONS
National Australia Bank (NAB)
Chart: Share price over the year to versus ASX200 (XJO)
A 7 per cent dividend yield is attractive in a falling interest rate environment. But also, a low credit growth environment may limit share price performance.
Australian Infrastructure Fund (AIX)
Chart: Share price over the year to versus ASX200 (XJO)
The Federal Government’s Future Fund has made a $2 billion bid for all assets held by AIX. Among other conditions, the offer comprises $3.19 a share in cash and 3 cents in franking credits. AIX closed at $3.00 on October 5.
SELL RECOMMENDATIONS
CSL (CSL)
Chart: Share price over the year to versus ASX200 (XJO)
The share price of this blood products group has almost doubled in the past 18 months. The stock has been re-rated for the right reasons, but its valuation is now capturing a most optimistic outlook. Our 12-month price target is $36.89 a share. The stock closed at $45.85 on October 5. We believe now is a good time to lock in a profit.
Ramsay Health Care (RHC)
Chart: Share price over the year to versus ASX200 (XJO)
The company’s share price has performed well in response to delivering on earnings during poor market conditions. There’s every chance it will repeat its performance in financial year 2013. But we believe the company’s valuation is too high and expect growth to moderate from financial year 2014. Our data suggests this stock should be trading on a price/earnings multiple of 15 times rather than above 18 times.
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