Nicholas Brooks, RBS Morgans
Pacific Brands (PBG)
This clothing company’s share price dived after revealing asset write-downs in its most recent result. The initial selling was overdone and we believe the underlying result delivered quality earnings. This was aided by strong foreign exchange, improving margins and a respectable performance in a tough retail environment. The share price retreat provides a cheap entry point.
Fortescue Metals Group (FMG)
The stock may have looked expensive, but a buying opportunity has emerged in response to founder Andrew Forrest’s legal problems involving ASIC (Australian Securities and Investments Commission), bad weather causing operational delays at its shipping port and unrest in Libya generating commodity price uncertainty. A softer share price provides an attractive entry point for a company with a bright outlook.
Despite bad weather, the result was in line, and AIO still managed to post better than expected port and container figures. In an improving global recovery, AIO is well positioned to add to these volumes with a cleaner and leaner business since emerging from the global financial crisis. Hold for improvements.
The national carrier’s result was largely bolstered by Jetstar’s contribution. However, trading on historically low valuations of 1 times price-to-book and 7.9 times 2012 financial year earnings, Qantas appears over sold. Hold until valuations return to historically more realistic levels – which should be aided by increasing consumer confidence.
West Australian Newspapers Holdings (WAN)
In our view, the purchase of Seven Media Group (SMG) doesn’t offer enough value to WAN share holders. This is because WAN is paying a full multiple, increasing debt and there’s a KKR stock overhang. For media exposure, other companies offer more appeal.
Melbourne IT (MLB)
We were disappointed, but not surprised by this IT service provider’s latest result, with EBIT (earnings before interest and tax) falling 9 per cent to $22.9 million. While there’s talk of a strategic turnaround, better investment opportunities, offering more certainty, exist elsewhere.
Sean Conlan, Macquarie Private Wealth
Coca-Cola Amatil (CCL)
The beverage giant lifted 2010 net profit by more than 10 per cent to $497.3 million. CCL has redefined the market it serves by investing capital to reduce costs and increase service. It’s long-term pricing strategy should drive growth.
Makes and distributes medical equipment for sleeping disorders. It reported a NPAT (net profit after tax) of $US115.2 million for the six months to December 31, 2010. It beat consensus by 6 per cent. We believe ResMed offers a strong growth profile.
AGL Energy (AGK)
AGK remains attractive based on the pricing paid for the NSW power privatisation. But we think it will take time and clear evidence from AGK for investors to value the organic growth strategy.
UGL Limited (UGL)
This engineering services company has forecast earnings growth of between 10 and 15 per cent for the 2011 financial year. Its guidance is the strongest in the sector. An under-geared balance sheet provides good growth opportunities.
BlueScope Steel (BSL)
The medium-term outlook remains challenging. While many longer-term valuation metrics appear compelling at current levels, there’s likely to be significant volatility and, hence, risk around earnings.
Earnings for this major diversified property group should recover strongly in the next couple of years underpinned by improving profitability in its stgelopment businesses. However, we retain our underperform recommendation given the stock continues to trade around our target price.
Andrew Inglis, Shadforth Financial Group
Orica is the world’s largest explosives company and provides quality exposure to the resources boom. Future growth will be underpinned by expansion in China, Africa and Russia. Global mine stgelopment, building more explosives plants and construction of new infrastructure in emerging economies will also enhance growth.
Expect long-term growth from its proposed LNG projects. The stock appears cheaper than its peers in relation to reserves. Santos currently sells 27 per cent of its gas at export LNG oil linked prices, which are currently about double the domestic gas price. But by 2015, this proportion will increase to 70 per cent. The prospects for Santos are good after recently making a final investment decision on the Gladstone LNG project and selling down its stake to a more manageable level.
Sonic Healthcare (SHL)
Sonic Healthcare was sold off sharply after reporting a worse than expected first half result. However, all overseas operations grew solidly and expanded their margins. The company is confident about further growth. The problem area has been Australian pathology due to the Federal Government’s harsher regulatory environment. But pathology revenue growth has returned in recent months, so hold.
Woodside Petroleum (WPL)
Woodside’s share price has been locked in a sideways pattern due to uncertainties regarding the Pluto LNG start-up date and gas reserves for further Pluto LNG trains. Slow progress at the Browse and Sunrise LNG projects and the recent stock sell down by Shell hasn’t helped. Hold Woodside for strong long-term growth prospects.
Campbell Brothers (CPB)
The company’s core business is running laboratories around the world with a strong resources exposure. CPB has a good outlook, but the share price has increased five fold since March 2009 and appears fully priced. Retain a core holding, but today’s strong share price provides an opportunity to take some profits.
Monadelphous provides engineering services to the resources and infrastructure sectors. The company is well managed and its share price has quadrupled since March 2009. Again, retain a core holding, but consider pocketing some profits.
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.
From the Newlsetter