Matthew Felsman, APP Securities
BUY RECOMMENDATIONS
Newcrest Mining (NCM)
Chart: Share price over the year
Negatives for gold are higher interest rates and a rising US dollar. But if the global economy stumbles and uncertainty emerges, gold will rise. I’m expecting a softening US dollar going forward to provide good buying opportunities for gold and related companies, such as Newcrest. NCM reported a 2017 first half surge in statutory profit to $US187 million.
BlueScope Steel (BSL)
Chart: Share price over the year
Posted a good earnings report for the 2017 first half. The share price has cleared $12, a resistance level stretching back about seven years. On Friday, February 10, the shares were priced at $11.75. On Thursday, February 23, the shares were trading at $12.75. Improving Australian business conditions should contribute to the stock reaching at least $15.
HOLD RECOMMENDATIONS
TPG Telecom (TPM)
Chart: Share price over the year
A huge amount of negativity is priced into the telecommunications space, as reflected in the capitulation of TPG and others in the past seven months. A good low now looks in place with decent buying emerging. Some major TPG shareholders are among the most successful investors and business people in Australia. The company is well managed.
The Star Entertainment Group (SGR)
Chart: Share price over the year
Guidance was good after posting a better than expected first half 2017 result. SGR stock was trading above $6 in October prior to a Chinese investigation into Crown Resorts staff. SGR is a beneficiary of inbound Chinese tourism. The shares closed at $4.93 on February 23.
SELL RECOMMENDATIONS
Fortescue Metals Group (FMG)
Chart: Share price over the year
This iron ore producer was recently trading at its highest levels since 2011. In my view, this stock has run well ahead of itself despite a recovery in iron ore prices. Investors were underweight in resource companies that outperformed last year and have chased the stocks up to elevated levels. I expect the FMG share price to be closer to $6 in coming months. The shares were trading at $6.815 on February 23.
Brambles (BXB)
Chart: Share price over the year
On Monday, January 16, the shares were priced at $12.61. On February 23, shares in this logistics company were trading at $9.45. Its US business is experiencing problems in an economy that’s meant to be the strongest. Smaller parcels delivered by postal vans to the addresses of online buyers are increasingly replacing pallet deliveries to stores. In my view, the stock still isn’t cheap and the dividend is small.
Simon Herrmann, wise-owl.com
BUY RECOMMENDATIONS
Salt Lake Potash (SO4)
Chart: Share price over the year
After delineating a potash resource of between 80 million and 85 million tonnes at its Lake Wells project in Western Australia, a pre-feasibility study may reinforce its economic potential. The previously completed scoping study highlighted potential for Lake Wells to be among the world’s lowest cost sources for sulphate of potash (SOP) in terms of operating costs and capital intensity. A speculative buy.
GALE Pacific (GAP)
Chart: Share price over the year
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During the 2017 first half, this manufacturer of branded screening and shaded products improved its balance sheet capacity and financial flexibility. Net debt decreased 32 per cent on the prior corresponding period to $13.7 million as at December 31, 2016. The company announced an on-market share buyback for up to 10 per cent of issued capital. The second half is traditionally stronger, positioning it well to further reduce debt levels.
HOLD RECOMMENDATIONS
Woolworths (WOW)
Chart: Share price over the year
Shares in the supermarket giant have rebounded strongly during the past 12 months and we believe there’s potential for further upside. Having completed the sale of its home improvement business Masters, management is now focusing on reducing costs and restoring sales momentum in its core operations. The company’s department store chain BIG W remains a sore point, but could turn into a catalyst if a strategic solution is found.
Greencross (GXL)
Chart: Share price over the year
This veterinary services provider delivered double digit revenue and earnings growth for the 2017 first half. Revenue increased 14 per cent on the prior corresponding period to $412.3 million, while EBITDA rose 14 per cent to $51.4 million. Net debt is also declining. The company offers diversified exposure to the Australian and New Zealand pet care market, with its portfolio spanning 164 veterinary clinics and 237 retail stores. Greencross remains a suitable addition for capital growth and income.
SELL RECOMMENDATIONS
Brambles (BXB)
Chart: Share price over the year
Investors sold down shares after the logistics company released its 2017 half year results. The market focused on an outlook of flat earnings and equal revenue growth on a constant currency basis. Statutory operating profit fell 26 per cent on the prior corresponding period due to a non cash impairment charge in relation to the company’s Hoover Ferguson Group joint venture. We don’t see a reason to hold this stock.
Domino’s Pizza Enterprises (DMP)
Chart: Share price over the year
Hundreds of millions of dollars have been wiped off Domino’s market cap in the past few weeks in response to allegations of wage fraud within the pizza chain’s network. Even though Domino’s posted a record half year result and upgraded its earnings guidance, its stock price tumbled. A head and shoulders formation is evident on the daily and weekly charts, which typically indicates a reversal of trend. The shares were trading at $56.21 on February 23.
Michael Wayne, KOSEC
BUY RECOMMENDATIONS
Bapcor (BAP)
Chart: Share price over the year
This aftermarket auto parts and accessories supplier recently reported growing revenues, earnings, margins and same store sales for the 2017 first half. Bapcor holds a strong industry position with plans to expand organically and through acquisition. The company’s growth target for Burson’s is at least 200 stores across Australia by 2021. The Autobarn brand operates a premium full service retail accessories line with 113 stores. The target is 200 stores in due course.
Trade Me Group (TME)
Chart: Share price over the year
TME is akin to a hybrid of realestate.com.au, eBay, iSelect, Seek and Carsales.com all rolled into one secure platform. Besides offering an excellent breadth of services, it’s been able to build up a highly engaged audience. TME has topped the Ipsos list as New Zealand’s most influential company.
HOLD RECOMMENDATIONS
Altium (ALU)
Chart: Share price over the year
The half year report for this electronics design software company was solid. The market treated the result like many others this reporting season. The share price had a good run into the reporting season, the report was OK without being spectacular; so the initial market reaction was to sell. Revenue grew by 14 per cent, EBITDA was up 18 per cent and earnings per share grew by 7 per cent. Margins expanded once again.
Challenger (CGF)
Chart: Share price over the year
CGF is a clear market leader in the retail annuity market with about 75 per cent market share. CGF provides investors with leverage to long term structural growth within the Australian superannuation system.
SELL RECOMMENDATIONS
Ardent Leisure Group (AAD)
Chart: Share price over the year
Problems continue as indicated by the company’s most recent report. The company reported a statutory loss of $49.4 million for the first half. The shares have plunged since the results and I believe there’s no respite in sight. The fatal incident at Dreamworld was a terrible tragedy, but its left the theme park as a decaying asset on the balance sheet. The key growth driver for AAD remains its Main Event family entertainment centres.
Flight Centre (FLT)
Chart: Share price over the year
Total first half revenue for the group was down 1 per cent on the prior corresponding period to $1.251 billion. Profit before tax was down 30 per cent to $109 million. Earnings per share fell 36 per cent to 73.7 cents. We previously warned that earnings had started to stagnate in light of fierce online competition. Better opportunities exist elsewhere.
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