Joshua Stega, JAS Wealth
BUY RECOMMENDATIONS
Coca-Cola Amatil (CCL)
Chart: Share price over the year versus ASX200 (XJO)
Following two difficult years, we believe the downside risks are diminishing to a point where we can upgrade our rating to undervalued. There’s no doubt consumer tastes are changing. We feel CCL’s distribution network gives it a distinct competitive advantage in bringing new products to market and putting them in front of consumers. Having a look at domestic defensives as well as global competitors, we think CCL looks relatively cheap and was recently offering a dividend yield above 6 per cent.
Steadfast Group (SDF)
Chart: Share price over the year versus ASX200 (XJO)
Provides insurance broking services. SDF’s earnings stream is highly defensive and generates strong free cash flow. We believe earnings per share growth of more than 10 per cent a year is likely in the medium term. It will be driven by organic growth, efficiency improvements and future acquisitions. This is a recently listed business and we believe it’s time to start building a stake in a high quality franchise. It was recently trading on a price/earnings multiple of 16.6 times, which we argue is good buying for a defensive business.
HOLD RECOMMENDATIONS
Newcrest Mining (NCM)
Chart: Share price over the year versus ASX200 (XJO)
Australia’s largest gold producer and one of the world’s top 10 gold mining companies by production, reserves and market capitalisation. We believe that NCM’s cost profiles and significant number of projects in development phase provides investors with an attractive long term investment. The gold price has finally shown some positive moves while the Australian dollar has been depreciating, resulting in a 40 per cent increase in the share price during the past few months. Due to such a strong bounce, we feel the shares will take a breather at current levels and we’re happy to hold.
Telstra Corporation (TLS)
Chart: Share price over the year versus ASX200 (XJO)
TLS enjoys significant competitive advantages, with leading market share positions across all vital segments, particularly in mobile. TLS is regarded as a defensive stock and its share price rose as the broader market became more volatile. It was recently trading on a P/E multiple above 18 times and dividend yield around 4.7 per cent. We’re happy to continue holding at current levels.
SELL RECOMMENDATIONS
Perpetual (PPT)
Chart: Share price over the year versus ASX200 (XJO)
Offers a range of wealth management services. PPT’s share price rose after management delivered on the promised business cost savings. Focus will now shift to revenue growth, which we think will be harder to achieve. The markets have turned volatile and there’s no shortage of high quality competitors in the wealth management space. We recommend taking profits and reducing your exposure to market plays such as PPT.
Harvey Norman Holdings (HVN)
Chart: Share price over the year versus ASX200 (XJO)
HVN gained first mover advantage via the early adoption of the big box retail format and accumulating prime real estate that attracts significant customer traffic volumes. But, in our view, the business model was slow to evolve in meeting changing consumer shopping patterns. Also, we have already seen some domestic retailers report slow sales over the Christmas period. We believe the recent special dividend has increased the share price to a point where it’s worthwhile taking profits. The shares closed at $3.72 on January 21.
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Matthew Litchfield, PhillipCapital
BUY RECOMMENDATIONS
ANZ Bank (ANZ)
Chart: Share price over the year versus ASX200 (XJO)
My number one pick of the Australian banks at the moment. ANZ’s domestic business is strong, having reported a statutory profit of $7.3 billion in 2014. The bank provides investors with growth prospects via expansion plans in Asia. Trading at a discount to many broker price targets and underpinned by a 5 per cent plus dividend yield, it’s well worth topping up at these levels. The shares were trading at $31.85 on January 22.
G8 Education (GEM)
Chart: Share price over the year versus ASX200 (XJO)
A recent price pullback under our fair value has created a buying opportunity for this childcare operator. The company has embarked on a rapid consolidation of the industry, which has been highly successful. It anticipates exceeding earnings before interest and tax forecasts. The last acquisition announcement for this top 200 company was in October 2014.
HOLD RECOMMENDATIONS
APA Group (APA)
Chart: Share price over the year versus ASX200 (XJO)
This infrastructure group with good quality assets and a proven management team recently outbid competitors to acquire the gas pipeline assets from BG. APA should unlock extra value over the long term from the acquisition. Management is astute and has confirmed the existing business is on track to meet guidance, demonstrating its focus on long term security holder value.
Magellan Financial Group (MFG)
Chart: Share price over the year versus ASX200 (XJO)
The favorable momentum continues for the stock, which announced bumper performance fees and record funds under management. MFG benefits from an increasing number of investors looking to diversify exposure to international equities and MFG has a strong brand to offer.
SELL RECOMMENDATIONS
Kathmandu Holdings (KMD)
Chart: Share price over the year versus ASX200 (XJO)
This retailer of outdoor clothing and equipment is struggling along and our analyst believes the Australian operations have “fallen in a crevasse”. The small cap has led the way with a downgrade to kick off confession season just days before Christmas by failing to meet sales guidance. I struggle to see the benefits for owning the stock, with better opportunities existing elsewhere.
Iluka Resources (ILU)
Chart: Share price over the year versus ASX200 (XJO)
The small mineral sands market has been hit in terms of pricing, indicating price increases in 2011 and 2012 were only temporary. Despite hinted supply headwinds, sales revenue fell in 2014, as demand for zircon was weaker across Europe, the Middle East and India. Perhaps a stock for the traders, however, too risky for my investment dollars.
Boe Campion, Ord Minnett
BUY RECOMMENDATIONS
Village Roadshow (VRL)
Chart: Share price over the year versus ASX200 (XJO)
We retain our buy recommendation on VRL in light of the stellar film line up for 2015 and 2016, longer term growth expected from Asian theme park developments, the defensive nature of the theme park and exhibition businesses and the ample valuation support on offer at current levels. We see recent weakness as a buying opportunity for long term investors.
Lend Lease Group (LLC)
Chart: Share price over the year versus ASX200 (XJO)
This property and infrastructure company is performing strongly on the back of strong transactional markets, growing development pipelines and a weaker Australian dollar. Lend Lease continues to prove its real asset creation capabilities, selling its 30 per cent stake in Bluewater Shopping Centre in London for £656 million, 19 per cent above the last reported market valuation. It started construction on Tower 1 at Barangaroo after securing pre-commitments from HSBC and PWC.
HOLD RECOMMENDATIONS
Hotel Property Investments (HPI)
Chart: Share price over the year versus ASX200 (XJO)
HPI looks fairly priced, but with defensive, high yield small cap REITs currently looking expensive across the board, we retain a preference for HPI in this space. Its 6.2 per cent dividend yield is one of the highest in the sector, with risk to the upside if acquisition capacity is deployed.
Coca-Cola Amatil (CCL)
Chart: Share price over the year versus ASX200 (XJO)
After two difficult years and a resetting of earnings expectations, Ord Minnett believes the risk/reward equation for the beverage company has improved. However, concerns exist about structural changes in the market, issues at its Indonesian business and uncertainty regarding earnings in calendar year 2014. These issues restrain us from taking a more positive view on the stock at this point in time.
SELL RECOMMENDATIONS
Computershare (CPU)
Chart: Share price over the year versus ASX200 (XJO)
We’re forecasting first half 2015 earnings per share to be below first half 2014 (in line with guidance). We’re less bullish about prospects for the second half of 2015 in the absence of acquisitions. We note earnings headwinds from the loss of a key customer, interest rates hedge rolling off and shrinking shareholder numbers are also factors. The macro economic recovery appears to be already priced in the stock.
Treasury Wine Estates (TWE)
Chart: Share price over the year versus ASX200 (XJO)
The risk/return equation has improved in response to favourable currency movements. But the wine industry remains difficult with inherent risks, and we’re reluctant to be more positive about the company at this stage. We retain our lighten recommendation.
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