John Rawicki, PhillipCapital
BUY RECOMMENDATIONS
Oil Search (OSH)
Chart: Share price over the year versus ASX200 (XJO)
An oil and gas explorer and producer based in Papua New Guinea. The stock provides a pure play exposure to a highly prospective gas area in PNG. Boasting intensive capital investment into the LNG project, the company is now evolving into a mostly de-risked, high cash flow business. Oil Search will now focus on expanding its existing operations, which will enable it to pay a strong dividend and reduce debt.
QBE Insurance Group (QBE)
Chart: Share price over the year versus ASX200 (XJO)
While QBE’s negative earnings surprises have featured in the headlines in recent times, the group’s multi step capital plan is underway, markedly improving the company’s capital position. QBE offers exposure to strong underwriting profits and attractive cash generation. The balance sheet has also strengthened, allowing the group to pay a steady stream of good dividends.
HOLD RECOMMENDATIONS
Atlas Iron (AGO)
Chart: Share price over the year versus ASX200 (XJO)
AGO has been an iron ore producer since 2008, aiming to produce about 12.5 million tonnes in fiscal year 2015. The company has an innovative business model, targeting iron ore resources within reasonable trucking distance of Port Hedland in the Pilbara. Its operation has been expanded to include mines further away from port, but with plans to execute an infrastructure agreement with a third party. Until this agreement is completed, the stock will be held back due to relatively high production costs.
Asciano (AIO)
Chart: Share price over the year versus ASX200 (XJO)
Owns and operates transport infrastructure, including container terminals in Melbourne, Sydney, Brisbane and Fremantle, and bulk ports across Australia. It also owns the Pacific National railway. Bulk shipping volumes over the Christmas period are likely to be seasonally slow. The stock appears fully valued at current prices, recently trading on a fiscal 2015 price/earnings multiple of 16.1 times.
SELL RECOMMENDATIONS
Leighton Holdings (LEI)
Chart: Share price over the year versus ASX200 (XJO)
Leighton is Australia’s largest project development and contracting group. The group’s activities include engineering, construction, contract mining, environmental services, operations and maintenance. It’s majority owned by Hochtief. We believe lower offshore revenue growth, a cyclical downturn in domestic infrastructure and mining construction and declining contract mining will lead to lower margins and overall group revenues. The stock appears over priced at these levels.
Coca-Cola Amatil (CCL)
Chart: Share price over the year versus ASX200 (XJO)
The beverage maker is facing several key challenges, including subdued growth in the carbonated beverages sector, aggressive competition within the grocery channel and significantly higher investment needed to deliver on the long term plans for the Indonesian business. Better returns at lower risk can be found elsewhere.
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Matthew Felsman, Shaw Stockbroking
BUY RECOMMENDATIONS
Qantas Airways (QAN)
Chart: Share price over the year versus ASX200 (XJO)
The share price has risen about 30 per cent in the past month after recently announcing a return to underlying profitability. Passenger numbers and revenue per passenger rose 2.7 per cent and 1.1 per cent respectively on a year ago. Qantas looks technically good. Previous highs above $1.90 are likely. It was trading at $1.68 on November 6.
Seek (SEK)
Chart: Share price over the year versus ASX200 (XJO)
Seek is Australia’s number one job search website. In the past five years it’s grown earnings an average 22 per cent annually. It’s using good investment returns to expand the business in Australia, Malaysia, Indonesia, China and Brazil. Overseas, Seek is developing job search websites like its market-leading one in Australia. The share price recently lost about 12 per cent, so this quality stock that can be bought at these levels.
HOLD RECOMMENDATIONS
CSL Limited (CSL)
Chart: Share price over the year versus ASX200 (XJO)
If you had bought $10,000 worth of CSL shares in 1994, they would now be worth a cool $1.1 million. CSL announced it would become the second largest influenza vaccine maker in the world after acquiring the Novartis influenza business. Apart from acquisitions, the company also has enough excess funds for a $950 million share buyback, which it recently announced. The company expects net profit in fiscal year 2015 to grow about 12 per cent.
Nearmap (NEA)
Chart: Share price over the year versus ASX200 (XJO)
It has no debt, is profitable and is a potential target for Google. A provider of geospatial mapping technology, this successful Australian business announced it was expanding into the US market, a significant milestone. People might be put off by the strong run in the past 12 months, but I think there’s plenty of growth in this stock.
SELL RECOMMENDATIONS
OzForex Group (OFX)
Chart: Share price over the year versus ASX200 (XJO)
The foreign exchange provider is a $560 million company, having listed in October 2013 after issuing shares at $2. The share price rapidly moved to $3.50 by March this year. Since then, investor enthusiasm for the stock has waned and the price retreated. I like this stock, but capital can be more productively used. The shares closed at $2.44 on November 5.
Select Harvests (SHV)
Chart: Share price over the year versus ASX200 (XJO)
Grows one of the world’s most popular nuts, the almond. Now might be a reasonable time to lock in profits with the stock at six month highs. The recent drought in California has tightened up almond supply, giving Australian suppliers a chance to take advantage of firmer prices. Since July, SHV has been a beneficiary, with the stock advancing almost 30 per cent.
Gavin Wendt, MineLife
BUY RECOMMENDATIONS
Consolidated Tin Mines (CSD)
Chart: Share price over the year versus ASX200 (XJO)
Our preferred emerging tin producer that in the past six months has finalised a series of company transforming corporate transactions. Expect these deals to accelerate progress towards production status during 2015 via access to existing infrastructure. The deals will also expand its overall regional tenement and resource footprint, providing for a much longer life production opportunity.
Shaw River Manganese (SRR)
Chart: Share price over the year versus ASX200 (XJO)
The company remains a standout among manganese peers in terms of the quality of its acreage and its share register. Shaw River’s overwhelming focus is its advanced Otjozondu project in Namibia, where securing significant project funding via a hugely experienced industry group accelerates the prospect of near term production and a likely sharemarket re-rating.
HOLD RECOMMENDATIONS
Talisman Mining (TLM)
Chart: Share price over the year versus ASX200 (XJO)
A high quality explorer that’s formulated a Bryah Basin farm-out joint venture with Sandfire Resources. Sandfire can earn up to a 70 per cent stake in three projects by spending at least $15 million over a five and a half years. More recently, Talisman has secured the advanced Sinclair nickel project from Glencore for $10 million, a project that Talisman’s board knows intimately, having been involved in its initial discovery.
Rox Resources (RXL)
Chart: Share price over the year versus ASX200 (XJO)
The company is receiving strong market recognition for its Fisher East nickel sulphide project in WA after doubling its regional resource base. More recently, Rox has started to generate market interest in its secondary exploration projects – the Reward zinc project and its Bonya copper project. Both are in the Northern Territory, where initial drilling results are most encouraging.
SELL RECOMMENDATIONS
Fortescue Metals (FMG)
Chart: Share price over the year versus ASX200 (XJO)
Iron ore plays are under pressure and it’s even worse for pure iron ore exposures like Fortescue. The company forecasts its post tax cash margin for fiscal year 2015 at $US85 a tonne (cost and freight China) to be within a band of $US7-to-$US12 a tonne, assuming operating costs of $US28-to-$US31 a tonne (free on board). These are skinny margins indeed given the risks involved, with iron ore supplies on the rise.
Newcrest Mining (NCM)
Chart: Share price over the year versus ASX200 (XJO)
Uncertainty abounds the problematic Lihir Island gold operation in PNG. The company says the problems can be fixed, however specific timing and capital assumptions are the big question marks. The problems at Lihir aren’t new. While the deposit is huge, it’s hasn’t really lived up to operational expectations, a situation we can’t see changing.
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