Tony Locantro, Argonaut
BUY RECOMMENDATIONS
Red Metal (RDM)
Chart: Share price over the year
RDM is my top speculative recommendation for 2017. There’s several potential company making projects (copper-gold-cobalt) to be drilled in coming months with an on-going pipeline. What makes RDM so attractive for a company with a $30 million market capitalisation is the Maronan Project in Queensland, which hosts a 30 million tonne lead-silver, copper-gold resource with soft ore and robust economics at current prices. A junior, with a chance of becoming a small company with a rising share price.
Alice Queen (AQX)
Chart: Share price over the year
With drilling at Horn Island underway, AQX is now working on building a sizeable gold resource in far north Queensland. While a target between 800,000 ounces to 880,000 ounces has been provided, there’s potential to expand on this and work towards a scoping study to recommence gold production. It could also prosper from the joint venture with Newcrest Mining on the NSW projects, where Newcrest is committed to spend more than $10 million in search of the next Cadia Valley deposit.
HOLD RECOMMENDATIONS
Metro Mining (MMI)
Chart: Share price over the year
MMI has delivered a top bankable feasibility study on its Bauxite Hills Mine in far north Queensland. With a forecast EBITDA of $145 million a year, an after tax internal rate of return of 81 per cent and $35.8 million of capital expenditure to put it into production, the upside case is compelling. MMI expects to produce from early to mid 2018, and we retain a price target of 44 cents. The shares were trading at 13.5 cents on April 27.
Metal Bank (MBK)
Chart: Share price over the year
MBK is drilling the Triumph Gold Project in Queensland, with the aim of identifying shallow resources prior to conducting a deeper program in search of a multi-million ounce resource. MBK is well managed and chaired by Ines Scotland, who oversaw the successful takeover of Citadel for $1.3 billion. Should a sizeable gold resource be defined, I would expect a share price re-rating and potential corporate activity.
SELL RECOMMENDATIONS
Genworth Mortgage Insurance Australia (GMA)
Chart: Share price over the year
In my view, Sydney and Melbourne’s property markets are due for a correction. GMA is exposed to a shift in sentiment in relation to property and the end of the cheap money cycle. In my view, the risk/reward profile isn’t balanced, so we prefer others.
Westpac Bank (WBC)
Chart: Share price over the year
The Australian Prudential Regulation Authority is clamping down on interest only mortgage loans. Housing affordability remains a major issue in the eastern states. Banks have continued to grow profits. But, in my view, the risk is now clearly to the downside. Westpac has performed well, so now may be a good time to take some profits.
Tony Paterno, Ord Minnett
BUY RECOMMENDATIONS
Telstra Corporation (TLS)
Chart: Share price over the year
The stock is priced for a material cut in dividends, but in our view that’s unlikely. Even a worst case scenario, say no core earnings growth until fiscal year 2022, we would still expect the dividend to be sustained. Fears of a fourth mobile network operator and its industry impact are overdone. In any case, we believe Telstra’s superior network and brand leave its rivals more likely to be adversely affected by a new operator.
Super Retail Group (SUL)
Chart: Share price over the year
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The new Rays retail business is performing better and Infinite Retail contracts have been resolved. Both of these initiatives support growth in fiscal year 2017. Across the rest of the business, the high quality auto divisions continue to deliver steady and dependable growth. Sports division growth remains elevated. In leisure, the boating, camping and fishing (BCF) brand is recovering.
HOLD RECOMMENDATIONS
Sonic Healthcare (SHL)
Chart: Share price over the year
The operating environment across Australian and US businesses exhibit low single digit volume growth. The European business continues to drive growth, but German funding pressure is on the horizon. In our view, there’s no key catalysts to move the stock higher at this point given the benign operating environments in Australia and the US.
Primary Health Care (PRY)
Chart: Share price over the year
Revenue at large scale medical centres has the potential to increase given more general practitioners are signing on and the strong underlying growth of allied health services. We see limited positive catalysts at this point, although we note the presence on the register of substantial shareholder Jangho Group. Possible corporate activity may arise as a result.
SELL RECOMMENDATIONS
Newcrest Mining (NCM)
Chart: Share price over the year
In our view, this gold miner is expensive on fundamental and relative valuations. While the stock has strong exposure to improving gold prices and a depreciating Australian dollar, we believe its premium rating is likely to be pressured in the absence of better than expected performance improvements at the Cadia and Lihir operations.
ALE Property Group (LEP)
Chart: Share price over the year
Owns a portfolio of more than 80 pub properties across Australia. But, in our view, its premium to net tangible asset value is too big relative to its peers. Its recent 4.4 per cent dividend yield trailed competitors in the real estate investment trust sector.
Simon Herrmann, Wise-owl.com
BUY RECOMMENDATIONS
Cooper Energy (COE)
Chart: Share price over the year
An Australian oil and gas explorer and producer. It has oil assets in the Cooper Basin and gas resources in the Gippsland and Otway basins. Despite recent weakness in the energy market, Cooper’s share price has held steady, which is testament to the company’s assets and capital structure. The Sole gas project is ready to proceed and the company is building a world class project at a low point in the cycle. A speculative buy.
Gold Road Resources (GOR)
Chart: Share price over the year
The Gruyere project is a low cost, long life gold mine, which has the potential to provide long term shareholder value. With construction of the mine well underway and financing secured, we believe the project has been de-risked. We recommend a long term view.
HOLD RECOMMENDATIONS
Steadfast (SDF)
Chart: Share price over the year
The share price of this insurance provider has gained more than 20 per cent in 2017, outperforming many peers in the industry. It announced strong half year results earlier this year, demonstrating growth across all key metrics. We believe the company is well positioned to take advantage of any cyclical recovery in domestic insurance markets and we’re attracted to its market position.
Heron Resources (HRR)
Chart: Share price over the year
We like the company’s high grade zinc assets. Shareholders on the registry before October 6, 2016 also received an allocation in Heron’s non-Woodlawn assets, spun out through a separate entity called Ardea Resources (ARL). ARL has performed well, but, in our view, its operations are more capital intensive and subject to more risk. We recommend holding HRR and selling the spin-off.
SELL RECOMMENDATIONS
Cradle Resources (CXX)
Chart: Share price over the year
This niobium explorer has received an all cash takeover bid from Tremont Investments. Cradle shareholders will receive 33 cents a share, valuing Cradle at $55 million. The board intends to vote in favour of the offer in the absence of a higher bid, which we believe is unlikely. We believe investors are better off selling rather than waiting for approvals even though they may sacrifice a cent or two. The CXX share price was trading at 31.5 cents on April 28.
TechnologyOne (TNE)
Chart: Share price over the year
A tough call as TNE has been a top investment in the past 10 years. I have followed this software company for many years for its strong balance sheet and history of profit growth. However, we believe it’s time to sell and capitalise on this trade. Competition in this sector is increasing, which may challenge TechnologyOne’s ability to retain margins in a cost efficient manner.
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.
