Scott Marshall, Shaw Stockbroking
BUY RECOMMENDATIONS
BHP Billiton (BHP)
Chart: Share price over the year to versus ASX200 (XJO)
The global miner has underperformed the market by about 12 per cent since the beginning of 2013. US gas prices are increasing and BHP intends to spend $5 billion expanding its Petrohawk site, with significant growth in cash flow projected. BHP is also expanding its low cost coal, copper and iron ore mines.
Flight Centre (FLT)
Chart: Share price over the year to versus ASX200 (XJO)
The company’s half year result was at the top end of expectations. Flight Centre intends to increase store numbers by 10 per cent in 2013, reflecting the group’s confidence about its outlook. Consumer sentiment appears to be improving and the travel market has proven to be resilient. While Australia is 80 per cent of group profit and growing strongly, operations in the US and UK should provide longer term growth.
HOLD RECOMMENDATIONS
Coca-Cola Amatil (CCL)
Chart: Share price over the year to versus ASX200 (XJO)
This beverage giant has invested its cash flow into extending its leverage over rivals. The group retains pricing power and its brand portfolio provides flexibility to grow in many beverage segments as the markets change over time. The key growth drivers will continue to be product price increases in several countries, maturing of the Indonesian strategy, market share gains and value enhancing capital spending.
Transurban (TCL)
Chart: Share price over the year to versus ASX200 (XJO)
We expect TCL to retain positive distribution growth going forward. Development opportunities – subject to government approval – include the M2-F3 link in Sydney, WestConnex link roads in Sydney and the East West Link in Melbourne. Widening other roads, such as the M5 in Sydney, should lead to higher toll rates and revenue. Increasing patronage on the opened 495 toll road in Washington should also be beneficial.
SELL RECOMMENDATIONS
REA Group (REA)
Chart: Share price over the year to versus ASX200 (XJO)
REA is the leading online real estate company in Australia. Growth has come from increasing use of value added products, increasing visitors to the group’s various sites and growing mobile penetration. REA continues to develop its Italian online real estate site and it has small exposure in Germany and France. The group generates significant cash flow. But, in our view, the stock is just too expensive trading on a price/earnings multiple of about 34 times on March 19.
Wotif.com (WTF)
Chart: Share price over the year to versus ASX200 (XJO)
WTF has disappointed, with half year profit well down in a growth industry reflecting strong competition. Growth in accommodation inventory isn’t being reflected in bookings, and commission increases may be harder to achieve. WTF is struggling to identify new revenue streams given that most of the accommodation market now operates online.
Peter Arden, Russell Research
BUY RECOMMENDATIONS
Northern Star Resources (NST)
Chart: Share price over the year to versus ASX200 (XJO)
Notwithstanding a softer gold price and the likelihood of it remaining at current levels for some time, NST is lifting gold production and profitability as its revamped Paulsens mine in Western Australia performs strongly. Gold ore grades have significantly improved and good exploration results have been reported at its Ashburton gold project.
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Mount Gibson Iron (MGX)
Chart: Share price over the year to versus ASX200 (XJO)
Export iron ore demand and prices to China are expected to remain higher than the current pessimistic market forecasts. Sales should match production from multiple operations at about 10 million tonnes a year. With its cost reduction program on track, this underpins profitability and a prospective fully franked dividend yield of about 7 per cent.
HOLD RECOMMENDATIONS
Adelaide Brighton (ABC)
Chart: Share price over the year to versus ASX200 (XJO)
ABC is Australia’s second largest cement maker. Diversified operations and a successful cost reduction strategy have enabled it to weather the housing construction downturn. Development of its globally significant lime business is benefiting from strong lime demand in the resources sector. The stock is on a prospective fully franked dividend yield of about 5 per cent for 2013.
Beadell Resources (BDR)
Chart: Share price over the year to versus ASX200 (XJO)
Gold production is steadily improving at the company’s new Tucano mine in Brazil and is still forecast to be at least 200,000 ounces in 2013. The magnetic separation plant is due be completed soon, contributing to even lower gold cash operating costs when fully operational in the second half of 2013.
SELL RECOMMENDATIONS
Iluka Resources (ILU)
Chart: Share price over the year to versus ASX200 (XJO)
Continuing weakness in the zircon market in response to global financial uncertainty has led to lower demand for ILU’s most profitable product. The company has been cutting production to reduce stockpile build-ups, but stabilisation of the zircon market is needed before demand improves and there’s a return to more profitable production levels.
Whitehaven Coal (WHC)
Chart: Share price over the year to versus ASX200 (XJO)
Softer coal markets in response to the global economic slowdown and the growing influence of US shale gas production has resulted in lower demand and prices. The company recently reported a first half loss and is facing growing uncertainty over its coal expansion plans.
Charlie Heerey, PhillipCapital
BUY RECOMMENDATIONS
Cooper Energy (COE)
Chart: Share price over the year to versus ASX200 (XJO)
There’s a lot to like about an oil and gas group, which has 10 wells to announce results from and is also a producer delivering positive cash flow. Cooper has well regarded management and strong joint venture projects in key acreages.
Ansell (ANN)
Chart: Share price over the year to versus ASX200 (XJO)
Ansell is a top quality global provider of health and safety solutions and should continue to benefit from the green shoots of recovery in the US market. The prospect of a falling Australian dollar would be another boost to earnings.
HOLD RECOMMENDATIONS
Myer Holdings (MYR)
Chart: Share price over the year to versus ASX200 (XJO)
The retail giant’s interim result was encouraging given improving sales trends and a milder than expected increase in costs. The dividend remains healthy. However, perhaps much of the easy gains have been made. I’ll be looking for evidence of improving margins.
Seek (SEK)
Chart: Share price over the year to versus ASX200 (XJO)
Seek’s results were very solid – thanks to a good contribution from the education division. The share price valuation is a bit stretched. I’d like to buy a bit cheaper, but I’m not holding out for too much of a retreat. It’s a quality stock.
SELL RECOMMENDATIONS
Ausdrill (ASL)
Chart: Share price over the year to versus ASX200 (XJO)
This mining service company’s results were reasonable – thanks to strong margins in Africa and a favourable tax rate. But Australian operations were weak and gearing is stretched at 62 per cent.
Oakton (OKN)
Chart: Share price over the year to versus ASX200 (XJO)
We believe Oakton’s guidance is a bit optimistic and will require a substantial turnaround in EBIT (earnings before interest and tax) margins. The main driver of the IT consulting firm’s result was weak spending from the Federal Government and continuing competition on margins. The company needs a significant increase in demand in a very competitive industry.
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.
