Boe Campion, Ord Minnett
BUY RECOMMENDATIONS
Bellamy’s Australia (BAL)
Chart: Share price over the year
Produces organic food and formula for infants. BAL has operations in Australia, China and South East Asia. It also delivers products to customers via an online portal. We still see significant upside to its current level of earnings via price increases implemented in late November 2015. Increasing sales into Asia, most notably China, combined with further margin expansion also appeals.
Rhipe (RHP)
Chart: Share price over the year
Offers pure play, capital light leverage through the structural shift to cloud computing. It has an early mover advantage, key vendor relationships, such as Microsoft, and a strategic partner network. We believe these factors ensure RHP is well placed to take share from incumbent distributors. Licensing revenue growth remains strong at 38 per cent. This is the key metric for RHP in its growth phase, as scale in distribution builds long term profitability.
HOLD RECOMMENDATIONS
Telstra (TLS)
Chart: Share price over the year
Telstra’s guidance for financial year 2016 remains unchanged. The mobile segment continues to grow despite an increase in competition. The post paid handset segment recorded a modest increase. Operationally, the company delivered a solid result.
Amcor (AMC)
Chart: Share price over the year
The global packaging company posted first half EBIT of US$489 million, topping our forecast by 7 per cent. Growth across the business was better than expected. Developed markets delivered an EBIT uplift of 4 per cent on a constant currency basis and emerging market earnings grew by 6 per cent.
SELL RECOMMENDATIONS
Woolworths (WOW)
Chart: Share price over the year
We retain our lighten recommendation. Our target price is $19. Further investment may be needed to drive sales growth. Also, turning the food and liquor business around will take time and carries execution risk. The shares were trading at $22.31 on March 3.
Coca-Cola Amatil (CCL)
Chart: Share price over the year
The beverage maker posted a profit attributable to shareholders (before significant items) of $393.4 million for the financial year ending on December 31, 2015. Profit was up 4.8 per cent on the previous corresponding period. EBIT, before significant items, increased by a paltry 1.4 per cent to $660.6 million. Product and channel challenges remain, with the shift to value water another headwind. We retain our lighten recommendation and target price of $8. The shares were trading at $8.65 on March 3.
Carey Smith, Alto Capital
BUY RECOMMENDATIONS
National Australia Bank (NAB)
Chart: Share price over the year
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NAB has finally closed the book on its disastrous UK banking adventure with the sale and spin out of Clydesdale and Yorkshire, enabling management to concentrate on its profitable Australian operations. NAB is our preferred Australian bank, which we believe will be able to retain its annual dividend at or near the current $1.98 level, placing it on a fully franked yield in excess of 7.5 per cent.
Legend Corporation (LGD)
Chart: Share price over the year
This engineering solutions provider to the electrical, IT, semiconductor and medical industries continues to produce excess cash from its operations, enabling the company to pay down debt, retain its dividends and continue its share buyback program. Trading on a price/earnings multiple below 8 times and a fully franked dividend yield above 7 per cent, we believe the company offers top value.
HOLD RECOMMENDATIONS
QBE Insurance Group (QBE)
Chart: Share price over the year
This large insurer offers value for the long term investor. QBE has benefited from a weaker Australian dollar. We’re forecasting improving profit results for 2016 and increasing dividends.
Retail Food Group (RFG)
Chart: Share price over the year
Owns Gloria Jean’s, Crust Gourmet Pizza, Donut King and others. Earnings per share rose 15 per cent for the half year to December 2015. Going forward, we expect wholesale product sales, contract roasting and in-house products (coffee capsules) to drive increases in revenue.
SELL RECOMMENDATIONS
Pacific Brands (PBG)
Chart: Share price over the year
The share price of this clothing brands firm has jumped almost 200 per cent since June last year on the back of improving retail conditions. The company is trading above fair value, in our view. Recently on a price/earnings multiple above 18 times, we believe the market has reacted too positively too fast.
AP Eagers (APE)
Chart: Share price over the year
One of Australia’s largest motor vehicle dealerships. Low interest rates make vehicle financing more affordable. But we believe a significantly weaker Australian dollar in the past 12 months is likely to impact profitability going forward. Investors should consider taking profits from a stock that’s up more than 500 per cent since 2011.
Gavin Wendt, MineLife
BUY RECOMMENDATIONS
Gascoyne Resources (GCY)
Chart: Share price over the year
A gold exploration and development company. It’s led by a vastly experienced board and management team with a strong blend of exploration, discovery and mining backgrounds. The company has grown its resource inventory to 2.05 million ounces of gold in three advanced projects that are all located on granted mining leases in WA. Solid corporate interest in what could be the next domestic gold miner is driving share price performance. The shares closed at 29 cents on March 3.
Aurora Minerals (ARM)
Chart: Share price over the year
Under a relatively new management team, the company has utilised its solid cash reserves to invest in three promising, up and coming ASX listed resource plays, encompassing gold exploration in West Africa and base metals, lithium and graphite in South Korea. The company is currently trading at a 54 per cent discount to its asset backing. The shares closed at 2.9 cents on March 3.
HOLD RECOMMENDATIONS
West African Resources (WAF)
Chart: Share price over the year
Remains one of our favourite emerging African gold producers. Operating in Burkina Faso since 2007, it ranks as the largest ASX listed acreage holder in the country and has accelerated its progress towards production status during the second half of 2016. Recent high grade drilling results from its M1 prospect boosts overall resource potential within a 1.5 kilometre long geochemical trend.
Consolidated Tin Mines (CSD)
Chart: Share price over the year
CSD has been the sole tin exposure in our coverage for several years. The company’s advanced Mt Garnet project in northern Queensland is aiming to establish tin production while growing its regional base metal production ambitions. It’s just secured a $US20 million debt facility.
SELL RECOMMENDATIONS
Pilbara Minerals (PLS)
Chart: Share price over the year
PLS is generating strong market interest. Its share price has risen as a result of successful exploration, appraisal and pre-production activity on its Western Australian tantalum and lithium resource assets. The company’s key attraction is its low risk exposure to lithium via its WA Pilgangoora project. Our positive view on the stock hasn’t changed. However, investors who bought at lower prices might contemplate realising some profits at current levels. The shares closed at 36.5 cents on March 3.
Metalicity (MCT)
Chart: Share price over the year
MCT is effectively a new zinc and lithium play following the acquisition of the large and advanced Admiral Bay zinc project in Western Australia in late 2014. The company has also acquired prospective lithium and tantalum tenements in Western Australia’s Pilbara region, host to some of the world’s largest hard rock lithium and tantalum projects. Like Pilbara Minerals, our positive view on the stock hasn’t changed. Consider taking some profit. The shares finished at 8 cents on March 3.
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