James Samson, Lincoln Indicators
BUY RECOMMENDATIONS
Credit Corp Group (CCP)
Chart: Share price over the year versus ASX200 (XJO)
The company recently found new growth by expanding its business into consumer lending, with a focus on the sub-prime personal loan market. CCP grew its loan book from $19 million to $63 million during fiscal year 2014. The core debt collections business continues to grow and provide a profitable base. CCP appears well placed for future growth.
GBST Holdings (GBT)
Chart: Share price over the year versus ASX200 (XJO)
Provides financial services software for broking and planning businesses. More than 75 per cent of trades on the ASX use GBT’s middle or back office systems and the company has a mature domestic business generating strong profits and cash flow. Lately, the company has started gaining sales traction in the UK and Asia, and is expanding operating margins as investment in product development begins to convert into sales. GBT reported strong fiscal year 2014 profits and has a bright future through international expansion.
HOLD RECOMMENDATIONS
Crown Resorts (CWN)
Chart: Share price over the year versus ASX200 (XJO)
CWN’s fiscal year 2014 results beat market expectations. The company showed the defensive side of the gambling business, with domestic gaming performance exceeding expectations despite poor employment and economic conditions. We expect CWN will continue to grow, but note the company is facing challenges to fund rapid expansions on multiple fronts, including casino ventures in Sri Lanka, Las Vegas, Brisbane, Sydney and the Philippines. Given the risks involved in expanding investment at such a rate, we believe CWN warrants a wait and see approach.
Ardent Leisure Group (AAD)
Chart: Share price over the year versus ASX200 (XJO)
The company’s share price has risen 75 per cent in the past 12 months. While AAD is one of the best quality businesses on the market, recent share price fervour has diluted the chief reason to own the business – dividends. While the company’s distribution is expected to grow, investors seeking yield might like to see enhanced expectations for dividends, or volatility in the share price to create an opportunity for higher yield.
SELL RECOMMENDATIONS
Xero Limited (XRO)
Chart: Share price over the year versus ASX200 (XJO)
Despite much excitement surrounding cloud based accounting firm Xero, the company is yet to turn a profit. The accounting software market isn’t an easy nut to crack, as customers tend to stick with existing providers. We believe XRO is trading at lofty prices for a business yet to turn a profit and investor caution is warranted.
Aurizon Holdings (AZJ)
Chart: Share price over the year versus ASX200 (XJO)
AZJ is the old QR National rail operator that was privatised by the Queensland Government in 2010. The business is profitable and it’s built a decent track record since listing on the ASX. But the company faces challenges. Coal markets remain under pressure and the recent attempt to diversify into iron ore infrastructure, via a significant investment in Aquila Resources, will be capital intensive. We believe the share price is yet to fully reflect mounting risks.
Boe Campion, Ord Minnett
BUY RECOMMENDATIONS
ResMed (RMD)
Chart: Share price over the year versus ASX200 (XJO)
Makes medical devices to treat sleep disordered breathing. The underlying demand dynamics remain strong despite temporary disruptions. The company is well positioned in a growing market with a strategic focus on new applications for its products. Entry into new geographies is likely to keep growth elevated in the medium-to-long term.
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CSL (CSL)
Chart: Share price over the year versus ASX200 (XJO)
The CSL result once again proved that this high quality company delivers. The company is gaining market share and expanding margins at the same time. Key immunoglobulin (IG) sales grew by 12 per cent for the full year in constant currency terms, accelerating to 16 per cent in the second half of the year. EBIT margins grew by 50 basis points and are expected to rise by a further 80 basis points to 31.7 per cent in fiscal year 2015.
HOLD RECOMMENDATIONS
Bank of Queensland (BOQ)
Chart: Share price over the year versus ASX200 (XJO)
We continue to believe recent share price weakness on the back of last week’s CEO resignation presents a buying opportunity below $12. Banks are like ocean liners – it takes a long time to build momentum and just as long to stop. Stuart Grimshaw, who resigned, had built a team of high quality executives who were co-architects in the five-year turnaround strategy. We continue to recommend picking up stock now ahead of the fiscal year result in October.
Suncorp (SUN)
Chart: Share price over the year versus ASX200 (XJO)
We expect special dividends to continue going forward. Suncorp has now paid special dividends with the final ordinary dividend in each of the past three years (15 cents, 20 cents and 30 cents respectively). The current surplus capital position could fund at least two more years of special dividends.
SELL RECOMMENDATIONS
Computershare (CPU)
Chart: Share price over the year versus ASX200 (XJO)
The weakness in registry revenues highlights the market can be fundamentally wrong when it sees corporate actions as unambiguously good for CPU. Corporate actions deliver a one-off fee, but often at the expense of the annuity-style registry business.
Goodman Fielder (GFF)
Chart: Share price over the year versus ASX200 (XJO)
The outlook remains poor. While a number of cost pressures from fiscal year 2014 will drop out in fiscal year 2015, this will be offset by continued pricing, volume and margin pressure from competitors and private label offerings. Consequently, the earnings recovery will be far less significant than we had previously expected.
Peter Day, Macquarie Private Wealth
BUY RECOMMENDATIONS
BHP Billiton (BHP)
Chart: Share price over the year versus ASX200 (XJO)
While we’re not convinced the spinout will create significant value, the strategic positives are clear. Meanwhile, the cheap expansion to 290 million tonnes of iron ore per annum in the Pilbara and cost cutting are further positives. That said, these positives were perhaps understandably overlooked in earlier UK trading given the absence of a buyback and that UK shareholders will now receive Australian listed stock. This is an opportunity to buy on a pull back in the stock.
Sino Gas & Energy (SEH)
Chart: Share price over the year versus ASX200 (XJO)
We initiate coverage with a buy rating and a 35 cents target price, which is set at a discount to net asset value of 40 cents. SEH holds a 49 per cent interest in the Linxing and Sanjiaobei tight gas onshore in China’s Ordos Basin, where 2P (proven and probable) reserves have grown to 4 trillion cubic feet gross. We expect a substantial de-risking of these assets as SEH moves to pilot production and full field development over the next two years.
HOLD RECOMMENDATIONS
Suncorp (SUN)
Chart: Share price over the year versus ASX200 (XJO)
Full year 2014 cash earnings of $1.304 billion beat consensus estimates. Capital returns remain at the forefront with the company paying a special dividend of 30 cents a share on top of the final dividend of 40 cents. We have incorporated a special dividend of 30 cents into our 2015 numbers. General insurance margins are expected to offset challenges in the life division and slowing insurance premiums.
Skycity Entertainment Group (SKC)
Chart: Share price over the year versus ASX200 (XJO)
The full year 2014 result met market and Macquarie forecasts. The final dividend is 10 cents. Our full year 2015 forecasts have been downgraded to reflect a delay in the timing of its New Zealand construction contract and growth assumptions for Adelaide. Recognising the value of the Adelaide re-development, we see 2015 as a year of consolidation and retain a hold recommendation.
SELL RECOMMENDATIONS
ANZ Bank (ANZ)
Chart: Share price over the year versus ASX200 (XJO)
Cash profit of $5.2 billion for the nine months came in 2 per cent below our expectations. Full year 2014 guidance softened – we await further detail on ANZ Trustees reinvestment adjustments. We downgrade earnings between 2 per cent to 3 per cent across the forecast period. Our price target moves from $33.81 to $32.59.
Bank of Queensland (BOQ)
Chart: Share price over the year versus ASX200 (XJO)
Managing director Stuart Grimshaw has resigned and will leave at the end of August. BOQ is on track to report a full year 2014 cash profit of $298 million, which is above our forecast of $292 million. While bank CEO transitions can be seamless, this transition appears to have been forced upon the board. We move to sell recommendation.
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