John Rawicki, State One Stockbroking
Ramelius Resources (RMS)
I regard Ramelius highly as Australia’s highest grade and lowest cost gold producer. With production costs around $400 an ounce, the company earns an enviable margin at current gold prices, resulting in strong cash flows and a cash-rich balance sheet. Ramelius is free of debt and can self-fund further exploration without shareholder dilution.
Tiger Resources (TGS)
Tiger is on the threshold of becoming a copper producer. Its exceptionally high-grade Kipoi project is located in the world renowned Katanga Copperbelt in the Democratic Republic of Congo. First copper concentrate production is expected soon. Tiger initially expects to produce an impressive 35,000 tonnes of copper a year. Further growth may come from Tiger’s second project, Lupoto, which has returned encouraging geochemical results, indicating widespread copper mineralisation.
Bank of Queensland (BOQ)
BOQ offers commercial and retail banking services, equipment finance, wealth management and insurance. With a strong presence in Queensland, the company is expanding interstate through an innovative, owner-managed branch model. BOQ has potential to outperform the larger banks due to historically high earnings per share of between 10 and 20 per cent. It makes for an attractive takeover target, although large exposure to Queensland’s natural disasters may be a drag in the short term.
QBE Insurance (QBE)
Despite the increase in claims from recent natural disasters, its targeted full year insurance margin remains in a healthy range of between 15 to 18 per cent. Insurance profits for 2011 are expected to grow 30 per cent due to recent acquisitions. With an enviable track record of strong earnings and a conservative business model, QBE represents good value at today’s price. QBE has diversified exposure across products and geography, and employs strong risk management strategies to protect all stakeholders.
QR National (QRN)
After a strong run up since listing, QRN’s risk/reward ratio appears less favourable at today’s level. Management guidance for underlying full-year 2011 EBIT (earnings before interest and tax) has been cut to between $380 million and $410 million. The company’s latest forecasts for full year coal haulage volumes are 25 million tonnes lower than originally budgeted. Although commodity markets are strong, some profit taking may be wise.
Flight Centre (FLT)
FLT is Australia’s largest traditional travel agent, covering all major market segments, including retail, wholesale, corporate and online. The company faces increasing competition from discount online booking agents. In addition, discount airlines are lowering the cost of travel. That means less revenue for travel agents. Its strategy of acquiring traditional bricks and mortar travel agents may generate some efficiencies, but doesn’t remove the threat from online agents. Take some profits.
James Cooper, Morningstar
Customers Limited (CUS)
Revenue growth is underpinned by bolt-on acquisitions, continuing rollout of ATMs in Australia and New Zealand, higher transaction prices and an increasing contribution from advertising. However, margin expansion on higher prices and volumes is expected to be limited by competition keeping pressure on rebate levels.
APN News and Media (APN)
Ongoing improvements in radio amid continuing strong conditions in the outdoor market will offset likely double-digit EBIT (earnings before interest and tax) declines in the Australian and New Zealand newspaper divisions in full year 2011, enabling positive bottom line growth. An unfranked dividend yield of 7.7 per cent is attractive.
ARB Corporation (ARP)
ARP shares are trading 40 per cent higher than a year ago after another pleasing result from one of the market’s most consistent small-cap growth stocks. Increasing the interim dividend by a third was a further reward. However, we expect second half growth to be more subdued.
ASX Limited (ASX)
Treasurer Wayne Swan rejected the Singapore Stock Exchange’s takeover of ASX in response to a unanimous recommendation from the Foreign Investment Review Board. Against the national interest was cited as the reason. ASX can go it alone, but wait and see what stgelops.
Aquila Resources (AQA)
Improvement at the Isaac Plains coal mine is encouraging, but the $27 million gross profit doesn’t justify a $3 billion market capitalisation. Development of additional projects is required, but hurdles include project funding, cost inflation and weaker commodity prices. AQA needs to rationalise its portfolio, resolve outstanding disputes and secure project funding, but progress to date has been slow.
Oil Search (OSH)
Oil Search faces hefty up-front Papua New Guinea/LNG capital expenditures in the lead up to first gas production from late 2013. Managing director Peter Botten has done an excellent job and is already talking up more LNG trains to follow the first two. Conservative investors should avoid placing too much value on LNG blue sky, given the immaturity of the sector.
Richard Batt, Shadforth Financial Group
Atlas Iron (AGO)
An iron ore producer and explorer based in the Pilbara. The company recently reported a maiden net profit for the six months to December 31, 2010 of $30.1 million. It expects its financial performance in the second half to be significantly stronger, with increasing sales volumes and higher iron ore prices. The company has also successfully acquired Giralia Resources NL (GIR), which is a strategic and financial fit, with both having complementary assets that significantly increase combined resource inventories, potentially providing for higher earnings.
The company’s share price recently hit a 12 month low over concerns the stronger Aussie dollar could hamper profitability. However, the share price fall provides an opportunity for investors to establish a holding in a company that’s a medical equipment innovator and leader in its industry. The company continues to stgelop new products, which should lead to higher earnings. With a strong balance sheet, RMD is ideal for growth portfolios.
Qube Logistics (QUB)
QUB owns stakes in stevedoring and land logistics businesses, and has a highly competent and experienced management team, which includes Chris Corrigan, formerly of Patrick Corporation. The share price recently reached all time highs and the company is now cashed up following Carlyle Infrastructure Partners (CIP) buying 15 per cent of the company for $175 million. This strong financial position will enable the company to pursue further growth opportunities to the benefit of long-term investors.
Oz Minerals (OZL)
A copper exposure, with the potential to grow via exploration and/or acquisitions. The company recently signed an agreement to buy the Carrapateena copper/gold deposit, which is 130 kilometres north of Port Augusta. The acquisition is a good fit and a logical growth option, as it will enable the company to leverage off its strong balance sheet and progress the project without any significant financial burden.
Nufarm is a world leader in producing crop protection products. The share price has rallied off its 12 month lows and, while the outlook for the agricultural sector is positive, we remain cautious about Nufarm’s outlook. This is because the company is still in transition and facing greater competition, which can put pressure on margins. We prefer other investments.
Flight Centre (FLT)
In the short term, earnings could be impacted by recent natural disasters and airfare price increases flowing from rising fuel costs. Therefore, we see this as an opportune time to sell and look at alternative investments.
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.
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