18 Share Tips – 3 June 2013

Scott Marshall, Shaw Stockbroking

BUY RECOMMENDATIONS

News Corporation (NWS)

Chart: Share price over the year to versus ASX200 (XJO)

Profit guidance is mid-to-high single digit growth for 2013. The $US10 billion share buyback is continuing.  NWS is primarily a US company, and our price target is $35 subject to moves in the Aussie dollar. Cable programming and film revenue growth remains very strong, but revenues from TV and print publishing are weak. NWS will split into publishing and entertainment businesses soon. The shares were trading at $33.66 on May 30.

Sydney Airport (SYD)

Chart: Share price over the year to versus ASX200 (XJO)

The strong outlook for SYD is based on capital investment and the resilient air traffic sector. Expect revenue growth from increasing international traffic, new car park and management, new low cost Asian airlines and growth in the consumer markets of India, China, Malaysia and Indonesia. SYD continues to invest in infrastructure to stimulate revenue growth. Issues include local traffic congestion, second airport discussions and an Australian Taxation Office review of some internal funding structures.

HOLD RECOMMENDATIONS

Amcor (AMC)

Chart: Share price over the year to versus ASX200 (XJO)

The company remains on track to secure a $50 million EBIT increase in 2015 due to the recent commissioning of a new paper recycling plant at Botany and new revenue opportunities. Key value determinants for Australian shareholders include AMC’s market dominance in most of its industry sectors. It generates solid cash flow amid improving industry dynamics. This innovative company can sustain market dominance and profit margins.

Transurban (TCL)

Chart: Share price over the year to versus ASX200 (XJO)

It recently reaffirmed its distribution of 31 cents a share for full year 2013. The cost of the M2 Sydney toll road widening is 15 per cent above previous expectations. To offset the added cost, TCL will increase the toll for cars by 22.2 per cent to $6.05 at completion. The toll for the M2 Pennant Hills Road exit has already been increased by 14.5 per cent to $3.15. The benefits accruing from a widened M2 include a 16 per cent traffic uplift (through existing and new toll booths), a concession extension from 2042 to 2046, toll rises and greater flexibility with regards to linking the M7 and Lane Cove Tunnel toll roads. The toll road works should be completed by August 2013. TCL is a low risk infrastructure stock for those seeking long term returns.

SELL RECOMMENDATIONS

Bradken (BKN)

Chart: Share price over the year to versus ASX200 (XJO)

We have recently reduced our 2013 and 2014 earnings forecasts by 16 per cent and 15 per cent respectively. The outlook for BKN remains mixed, with the 2013 fourth quarter barely ahead of the previous corresponding period. BKN is exposed to a downturn in the capital cycle for the resources sector, import competition and its customers’ cost cutting initiatives. BKN has strategies to expand internationally.

Boart Longyear (BLY)

Chart: Share price over the year to versus ASX200 (XJO)

Drill rig utilisation has been steady at low levels (around 60 per cent). The company has recently indicated the bottom of the market profit consensus is appropriate. BLY is directly exposed to the current downturn in exploration by the resources sector and spending by its major customers. Drill rig pricing is subject to sudden falls and, in our view, BLY hasn’t been cutting costs quick enough.

Simon Bond, RBS Morgans

BUY RECOMMENDATIONS

Ruralco Holdings (RHL)

Chart: Share price over the year to versus ASX200 (XJO)

First half 2013 operating conditions for this agribusiness were most challenging, with sustained dry weather impacting sales. Importantly, RHL is controlling what it can, has expanded its geographic footprint and network, is undertaking a material cost savings program and its “one back office” strategy is being rolled out. These initiatives position the company well when more normal seasonal conditions return.

Cardno (CDD)

Chart: Share price over the year to versus ASX200 (XJO)

The relatively smaller profit impact from a rapidly deteriorating Australian mining sector highlights CDD’s diversity. It appears to have been caught up in the indiscriminate “mining service” sell-off. A potential value opportunity exists. CDD remains positively leveraged to improving US economic conditions and a more positive post Australian election environment.

HOLD RECOMMENDATIONS

Toll Group (TOL)

Chart: Share price over the year to versus ASX200 (XJO)

With the operating environment largely unchanged this year, our optimism, following a better-than-expected first half result, has subsided. We think any recovery will remain gradual, with supply chain pressures a theme in the next 12 months.

Ridley (RIC)

Chart: Share price over the year to versus ASX200 (XJO)

The company has announced its intention to pay shareholders a capital return of 7.5 cents a share or $23.1 million. This was in line with our forecast, however we note this amount is much less than what was initially anticipated at the time of the salt sale. We expect the capital return may replace any final dividend. A general meeting to approve the capital return will be held on June 24, 2013. RIC noted that trading conditions for agri-products remain in line with its recent guidance.

SELL RECOMMENDATIONS

James Hardie Industries (JHX)

Chart: Share price over the year to versus ASX200 (XJO)

This building company’s fourth quarter and full year 2013 result came in ahead of expectations due to a lower-than-expected tax rate. Operationally, the result was below our expectations due primarily to lower-than-anticipated revenue growth. While JHX remains well run and US leverage is attractive, the recent report highlighted that exposure to new US residential construction isn’t the key driver for earnings at this point in time.

Fleetwood (FWD)

Chart: Share price over the year to versus ASX200 (XJO)

In our view, the investment thesis for FWD has changed. We had previously been attracted to FWD’s consistent dividend track record and earnings visibility. In our view, with uncertainty surrounding both issues, we believe risk continues to weigh to the downside in the near term.

Peter Day, Macquarie Private Wealth

BUY RECOMMENDATIONS

Myer Holdings (MYR)

Chart: Share price over the year to versus ASX200 (XJO)

Third quarter sales were better than feared. Sales grew on a comparable and total sales basis versus our forecasts. MYR is a reasonably priced opportunity. It’s likely to benefit from improving consumer confidence post a Federal election. Interest rate cuts should lift household leverage over time. MYR is also benefiting from solid online growth and this is helping offset general weakness. MYR has recently been trading on 12.5 times full year earnings per share. It’s been yielding above 6.7 per cent.

Arrium (ARI)

Chart: Share price over the year to versus ASX200 (XJO)

Arrium’s March quarter iron ore production was in line with expectations, with 1.97 million dry metric tonnes shipped. There’s no change to full year export guidance of between 8.2 million and 8.4 million metric tonnes. The company is still targeting between 11 million and 12 million metric tonnes by August.

HOLD RECOMMENDATIONS

James Hardie Industries (JHX)

Chart: Share price over the year to versus ASX200 (XJO)

The building products maker announced several proactive and positive financial initiatives in conjunction with its fourth quarter result. A US24 cent special dividend and a new 5 per cent on-market buyback were above expectations. Importantly, the door remains wide open for JHX to improve its capital structure ahead of a US cyclical recovery. This should send a strong positive signal to the market regarding management’s confidence in generating sufficient free cash-flow to meet its asbestos liability, fund growth and return capital.

Adelaide Brighton (ABC)

Chart: Share price over the year to versus ASX200 (XJO)

We are forecasting full year net profit of $146.8 million, 3.5 per cent below consensus and marginally below the previous period of $148 million. Our $3.30 target price and hold rating remains unchanged. The shares closed at $3.31 on May 29.

SELL RECOMMENDATIONS

David Jones (DJS)

Chart: Share price over the year to versus ASX200 (XJO)

Total sales and comparable store sales in the latest quarter declined. The unseasonably warm start to winter impacted the business, particularly in women’s wear. But beauty, men’s and children’s wear delivered growth. Sales haven’t been the focus. Rather, management suggests they have focused on gross margins, inventory and costs. The fourth quarter is expected to be challenging.

Cochlear (COH)

Chart: Share price over the year to versus ASX200 (XJO)

Industry feedback suggests the Chinese Government’s implant tender is moving to three separate contracts rather than two. However, we have no formal confirmation of this, nor do we have a good understanding as to the likelihood of success for various bidders, COH included. This has resulted in a material downgrade to 2014 earnings with more modest downgrades in later years.

Click on the links below to read other articles from this week’s newsletter

We Test 6 Dividend Payers for Total Shareholder Return: The best stocks are those that deliver both…

 18 Share Tips – 3 June 2013: 18 Share Tips to BUY, SELL & HOLD from…

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.