Nicholas Brooks, RBS Morgans
BUY RECOMMENDATIONS
Pacific Brands (PBG)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Pacific Brands
Investor centre: Pacific Brands
Fortescue Metals Group (FMG)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Fortescue Metals Group
Investor centre: Fortescue Metals Group
HOLD RECOMMENDATIONS
Asciano (AIO)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Asciano
Investor centre: Asciano
Qantas (QAN)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
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Company website: Qantas
Investor centre: Qantas
SELL RECOMMENDATIONS
West Australian Newspapers Holdings (WAN)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: West Australian Newspapers
Investor centre: West Australian Newspapers
Melbourne IT (MLB)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Melbourne IT
Investor centre: Melbourne IT
Sean Conlan, Macquarie Private Wealth
BUY RECOMMENDATIONS
Coca-Cola Amatil (CCL)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Coca-Cola Amatil
Investor centre: Coca-Cola Amatil
ResMed (RMD)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Resmed
Investor centre: Resmed
HOLD RECOMMENDATIONS
AGL Energy (AGK)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: AGL Energy
Investor centre: AGL Energy
UGL Limited (UGL)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: UGL Limited
Investor centre: UGL Limited
SELL RECOMMENDATIONS
BlueScope Steel (BSL)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: BlueScope Steel
Investor centre: BlueScope Steel
Australand (ALZ)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
Earnings for this major diversified property group should recover strongly in the next couple of years underpinned by improving profitability in its development businesses. However, we retain our underperform recommendation given the stock continues to trade around our target price.
Company website: Australand
Investor centre: Australand
Andrew Inglis, Shadforth Financial Group
BUY RECOMMENDATIONS
Orica (ORI)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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 development, building more explosives plants and construction of new infrastructure in emerging economies will also enhance growth.
Company website: Orica
Investor centre: Orica
Santos (STO)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Santos
Investor centre: Santos
HOLD RECOMMENDATIONS
Sonic Healthcare (SHL)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Sonic Healthcare
Investor centre: Sonic Healthcare
Woodside Petroleum (WPL)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Woodside Petroleum
Investor centre: Woodside Petroleum
SELL RECOMMENDATIONS
Campbell Brothers (CPB)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Campbell Brothers
Investor centre: Campbell Brothers
Monadelphous (MND)
Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)
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.
Company website: Monadelphous
Investor centre: Monadelphous
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