John Rawicki, PhillipCapital
BUY RECOMMENDATIONS
Commissioners Gold (CGU)
Chart: Share price over the year versus ASX200 (XJO)
Investors who bought CGU when I recommended it to readers of TheBull in May this year are so far up 50 per cent. I believe the stock has much further to run, and is top value below 3.5 cents. With a new board of directors proactively exploring the lucrative Papua New Guinea gold project, the next few months should see the release of initial sampling results. Given the top tier location of the project, I expect the results to be promising. The shares finished at 2.9 cents on December 10.
Challenger (CGF)
Chart: Share price over the year versus ASX200 (XJO)
An investment firm that provides retirement income products, Challenger is well positioned to benefit from strong growth in the annuities business. Recent legislative changes that mandate an increased allocation of retirement income to annuities will naturally have a positive impact, and I expect to see the stock increase towards $9 within the next 12 months. The shares finished at $6.08 on December 10.
HOLD RECOMMENDATIONS
Federation Centres (FDC)
Chart: Share price over the year versus ASX200 (XJO)
Formerly Centro Retail Australia, FDC is a real estate trust that owns and manages 70 Australian shopping centres. The group has disposed of and acquired seven properties in the past six months. Improving retail sales growth will translate into higher rental income. On the downside, the company’s mix of shopping centre investments has become slightly riskier. The stock appears fully valued.
SG Fleet Group (SGF)
Chart: Share price over the year versus ASX200 (XJO)
Involved in fleet management, vehicle leasing and salary packaging services. The recent share price rise has resulted in the stock trading at a lofty price/earnings ratio of about 12 times, indicating it’s fully valued at this point. It’s a well-managed fleet business with solid growth prospects, although unlikely to outperform the rest of the sector. Dividend hungry investors may wish to keep it, as the fully franked yield is forecast to rise to 6 per cent and beyond in coming years.
SELL RECOMMENDATIONS
Mount Gibson Iron (MGX)
Chart: Share price over the year versus ASX200 (XJO)
Following landslips and pit flooding in October this year, MGX has placed its Koolan Island mine in Western Australia on care and maintenance. Koolan Island was the company’s best and most defensive asset. Ensuing redundancies will cost the company about $11 million. I believe MGX is likely to struggle going forward given it relies solely on less attractive assets in the mid-west.
Atlas Iron (AGO)
Chart: Share price over the year versus ASX200 (XJO)
While production guidance for the iron ore miner remains on target, the company recently reduced its workforce, which is indicative of declining productivity. The cost cutting measures won’t be enough to outweigh the effects of lower iron ore prices, putting the company’s cash flows at risk.
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Jonathon Howe, Red Leaf Equities
BUY RECOMMENDATIONS
Ainsworth Game Technology (AGI)
Chart: Share price over the year versus ASX200 (XJO)
We see the recent sell off as a buying opportunity as the company is still growing and currently paying an annual dividend yield of 4.5 per cent. Additionally, it earns about 50 per cent of its income abroad, primarily in the US. Although the company hasn’t given guidance for fiscal year 2015, we believe it should post a $70 million profit before tax. That recently put it on a relatively low price/earnings multiple of about 11 times, compared to larger peer Aristocrat Leisure on a recent P/E of about 22 times. AGI could potentially be a takeover target given the amount of M&A activity in the sector and trading on such a low P/E.
Estia Health (EHE)
Chart: Share price over the year versus ASX200 (XJO)
Listed on December 5 at a significant discount to its IPO price. Australia’s ageing population supports the aged care space. EHE intends to pay a dividend of between 4 per cent and 5 per cent on the IPO price of $5.75. With 3200 beds at 39 aged care facilities in Victoria, South Australia, New South Wales and Queensland, it’s the fourth largest provider of residential aged care in Australia. Additionally, EHE is well funded to make further acquisitions. The shares finished at $4.65 on December 10.
HOLD RECOMMENDATIONS
RungePincockMinarco (RUL)
Chart: Share price over the year versus ASX200 (XJO)
Provides IT solutions to mining companies. This firm should see growth in its IT division this year as mining companies look to reduce onsite costs and create efficiencies. The company raised about $25 million earlier this year to invest in software products and to expand the business in future.
Donaco International (DNA)
Chart: Share price over the year versus ASX200 (XJO)
Recent weakness can be attributed to sliding revenue in Macau. But we believe the impact on the share price will be short, as the new Aristo casino has only been operating for about three months. We believe the Cambodian acquisition will be value accretive to Donaco and we should see an update on this in coming weeks.
SELL RECOMMENDATIONS
Programmed Maintenance Services (PRG)
Chart: Share price over the year versus ASX200 (XJO)
The company is heavily exposed to the oil and gas sector, providing services to many clients. If the oil price continues to decline, PRG may potentially downgrade earnings.
BC Iron (BCI)
Chart: Share price over the year versus ASX200 (XJO)
Heavily exposed to the iron ore price. Although currently trading at net cash, if the iron ore price stays at current levels or drops even further, the ramifications for BCI could be enormous.
Matthew Felsman, Shaw Stockbroking
BUY RECOMMENDATIONS
Macquarie Group (MQG)
Chart: Share price over the year versus ASX200 (XJO)
We expect it to be a beneficiary of the investment environment moving forward in 2015. Benefits include lower interest rates and a weaker Australian dollar as it earns revenue in US dollars. The massive amount of corporate activity (M&A, IPOs) from 2014 means fees. The dividend yield is about 5 per cent. At December 10, the price had been down about 4 per cent over the past month.
Regis Resources (RRL)
Chart: Share price over the year versus ASX200 (XJO)
Benefits from a higher gold price and lower Australian dollar and is one of the most leveraged gold equities. Small movements in commodity and currency rates can move the share price dramatically. We’re moving into the gold bull season, so now is the time to consider buying before potentially trading out early in the New Year.
HOLD RECOMMENDATIONS
Qantas Airways (QAN)
Chart: Share price over the year versus ASX200 (XJO)
Falling oil prices means the company’s fuel bill will be substantially reduced in the months ahead. The fuel tax remains and passenger numbers are up. It’s undergoing a business restructure and should be profitable in 2015. Even if you don’t like airlines, or have been burned by Qantas, keep holding until half year results are announced on February 26, 2015.
Bank of Queensland (BOQ)
Chart: Share price over the year versus ASX200 (XJO)
Despite CEO Stuart Grimshaw resigning, the bank is well funded and growing. In addition to its growth potential, the bank was recently offering a 5.2 per cent fully franked dividend yield. It boasts a most healthy common equity tier-1 ratio, a good net interest margin and decent return on average tangible equity.
SELL RECOMMENDATIONS
Insurance Australia Group (IAG)
Chart: Share price over the year versus ASX200 (XJO)
Prior to the Brisbane storms, chief executive Michael Wilkins had been selling millions of dollars of his shares. Investors should take note when executives and directors buy and sell shares within their own company, as it can move the share price in either direction. The company is exposed to claims from the Brisbane storms. Sell.
Atlas Iron (AGO)
Chart: Share price over the year versus ASX200 (XJO)
I’m not an investor in iron ore stocks, only a trader. As the companies are price takers, management can’t predict future profits outside of production changes any better than a commodities trader. Until you see movement in the Chinese construction and property market driving up iron ore imports, ore prices will fall and flounder. So steer clear of the mining juniors like Atlas.
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.
