18 Share Tips – 16 June 2014

Peter Russell, Russell Research

BUY RECOMMENDATIONS

Magellan Financial Group (MFG)

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

This dynamic funds manager focuses mostly on key growth themes and major global shares. It’s impressed and built up Australian, US and European-based clients. Funds under management of $24 billion continue to rise significantly. Earnings are set to grow 50 per cent in both fiscal years 2014 and 2015, leaving an undemanding price/earnings multiple.

TFS Corporation (TFC)

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

TFS developed, manages and partly owns the world’s largest sandalwood plantations. Sandalwood oil is used in perfumes and has valuable medicinal properties. Soundly financed, vertically integrated, profitable and dividend-paying, TFS is completing its first harvest. Its current and future plantation value should lift its share price over the long term.

HOLD RECOMMENDATIONS

Domino’s Pizza Enterprises (DMP)

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

After a seven-fold price rise in five years and impressive February results, the stock has consolidated. Domino’s high price/earnings ratio reflects its track record and prospects for 25 per cent earnings growth. Expect a 2 per cent dividend. The store roll out across Japan and Europe will be supported by sound finance and company efficiency.

Technology One (TNE)

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

A top performing specialist software provider to the public and private sectors. Research and development costs are steadying. Software suites have moved to the cloud, enabling mobile access for clients. The UK market offers solid potential. We back its experienced guidance for 15 per cent growth to continue.

SELL RECOMMENDATIONS

Coca-Cola Amatil (CCL)

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

Massive competition in the grocery channel last year sliced margins and volumes. Finances remain strong and new managing director Alison Watkins has made a fast start in reviewing the strategic challenges, but restructuring will take some time to show results.

Goodman Fielder (GFF)

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

Suitors Wilmar International and First Pacific lifted the takeover offer from 65 cents to 70 cents a share. The GFF board supported the bid in the absence of a better offer. Don’t expect one. To minimise any risks and delay, sell on market. The shares were trading at 67.5 cents on June 11.

John Rawicki, PhillipCapital

BUY RECOMMENDATIONS

Crown Resorts (CWN)

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

Gambling expenditure is beginning to improve, the company’s costs are under control and domestic VIP turnover is expected to recover. The company is looking to expand through the development of integrated resorts in Sri Lanka and Barangaroo in Sydney.

ANZ Bank (ANZ)

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

The bank has been successful in executing its Asian expansion strategy, giving us confidence the plan will result in further growth upside. In particular, ANZ is set to become a major player in Asia’s loan arrangement market. ANZ was recently trading on a price/earnings multiple of 12.5 times, reflecting an 8 per cent discount to its major bank peer group. My 12-month price target is $37. The shares finished at $33.90 on June 11.

HOLD RECOMMENDATIONS

Pacific Brands (PBG)

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

Manages consumer brands in Australia and New Zealand, including Bonds and King Gee. The company’s recent earnings downgrade highlights the intense competitive pressure, retail headwinds and structural declines the business continues to face. Although the company is aggressively restructuring and investing to drive sales, I believe short term upside may be limited and the stock is fully valued.

The Reject Shop (TRS)

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

The company recently downgraded earnings guidance due to weaker sales and higher costs. Facing stiff competition in a volatile consumer spending market, I expect sales and profit margins to be pressured in coming months. While not expecting a rapid share price recovery, I see fair value around $9. The shares closed at $8.24 on June 11.

SELL RECOMMENDATIONS

Woolworths (WOW)

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

Woolworths plans to open 35 new supermarkets in the next three years, while Coles (owned by Wesfarmers) plans to open 20 new stores. On average, the Woolworths stores will be smaller than the Coles outlets, and they will be located in smaller population areas. While the Coles stores will be in new catchment areas, the new Woolworths stores appear to be cannibalising its existing network. Within the sector, I see better value in Wesfarmers.

Boart Longyear (BLY)

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

It’s the largest supplier of drilling services globally. I expect an ongoing difficult market outlook and challenging conditions within the mining space to put pressure on earnings and the balance sheet. It’s difficult to predict when the mining sector will rebound, so I believe the stock will remain depressed for some time.

Jonathon Feil, Morgans CIMB

BUY RECOMMENDATIONS

Transaction Solutions International (TSN)

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

There’s little froth in the share price. But we believe there’s 4 cents of potential value accretion if the Indian ATM venture is monetised in 2016/17. A memorandum of understanding with Salt Technology to develop a mobile payments platform in India could also unlock value if it proceeds. The company has $3 million in the bank. A speculative buy.

Donaco International (DNA)

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

Recent tensions between China and Vietnam resulted in a share price fall. On the positive side, the company opened a new five-star hotel and casino at Lao Cai in Vietnam. The hotel has 428 rooms and more than 40 gaming tables. Updates from the casino indicate minimal disturbance, with hotel occupancy almost 100 per cent amid strong forward bookings.

HOLD RECOMMENDATIONS

Envestra (ENV)

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

The Cheung Kong Group has bid $1.32 cash a share for gas distributor Envestra. Independent Envestra directors have recommended the bid. It’s unlikely APA Group will come back with a higher offer.

BHP Billiton (BHP)

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

BHP is holding up strongly despite price falls in iron ore – a key profit driver. Its resilience may be a response to the market possibly pre-empting capital management initiatives being announced during results in August. A potential off-market buyback this year would not only support the share price (possibly only temporarily), but may provide a tax effective way for long term holders to trim their holdings.

SELL RECOMMENDATIONS

Triton Minerals (TON)

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

Currently benefiting from the hype in the graphite market, TON was recently exhibiting the final stages of a retail investor rush into the stock. The company holds exploration licences at Balama and Ancuabe in Mozambique. In our view, a market cap of $100 million for this pre-production story leaves it over valued.

Sirius Resources NL (SIR)

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

The nickel market spike on the back of an Indonesian ore export ban has seen SIR’s share price rally like other nickel plays. Production won’t start for several years at its Nova-Bollinger project, meaning it will miss the current boom in prices.

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18 Share Tips – 16 June 2014: 18 Share Tips to BUY, SELL & HOLD from…

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