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Cameron Bell, Intersuisse
BUY RECOMMENDATIONS
Woodside Petroleum (WPL)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Woodside is our favourite large cap investment opportunity in the oil and gas sector. The main attraction is the dominant LNG position Woodside holds in Australia as well as its strong project flow in relation to LNG developments. Woodside is pursuing a number of development opportunities, including the expansion at Pluto, which will provide a huge boost to Woodside’s bottom line.
Service Stream (SSM)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Service Stream is set to experience considerable revenue growth yet currently the stock remains quite cheap. Uncertainty surrounding the National Broadband Network has recently hampered the stock, but the company is nonetheless going to benefit greatly from spending associated with the NBN, environmental and power usage initiatives and the continuing rollout of improving wireless networks.
HOLD RECOMMENDATIONS
National Australia Bank (NAB)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Three of our major banks reported first half results recently and NAB’s was the standout. NAB has experienced a gain in market share and there are signs of a turnaround in the personal banking and UK divisions. The bank is currently trading at a small discount to its peers yet its momentum suggests it will experience higher growth than its competitors in the short to medium term.
Matrix Composites & Engineering (MCE)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
MCE has retreated to a more reasonable level and warrants interest at these prices. This oil and gas services company is set to increase sales and margins via its move to a new facility in Perth. Continuing spending in the offshore market will drive growth.
SELL RECOMMENDATIONS
Aristocrat Leisure (ALL)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
This poker machine maker recently reiterated full year guidance at its annual general meeting. But the guidance assumed an average Australian dollar to US dollar rate of $1 for the full calendar year. Combining the challenges in the US, Japanese and Australian markets with the fact that a 1 cent move in the exchange rate will impact NPAT (net profit after tax) by $1 million, it appears likely the stock will underperform.
Goodman Group (GMG)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
The market is expecting a recovery in development and funds under management growth. But with the weak economic environment in Europe, the targeted ramp of developments to $2 billion a year may be out of reach. The stock appears to be fully priced.
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George Sakellariou, Investorfirst Securities
BUY RECOMMENDATIONS
Cape Lambert Resources (CFE)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
An Australian mineral investment company, focusing on early stage resource projects and companies primarily in iron ore, copper and gold. CFE has sold a 25 per cent interest in the Lady Loretta Project for $30 million. It has also increased its stake in Pinnacle Assets Limited to 46.1 per cent via the purchase of 12 million shares for $13 million. As at March 31, the company had about $70 million in the bank. We view improving momentum and positive price action as supporting a strong rally, with upside potential to 72 cents a share in the medium to long term. The stock finished at 48.5 cents on May 19, 2011.
Woodside Petroleum (WPL)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
The company has hired energy sector veteran and ExxonMobil executive Peter Coleman as its new chief executive. WPL has a solid price/earnings ratio of about 22 times forecast earnings. Sales have grown on average by more than 11 per cent in the past five years. From a technical perspective, strong support is evident in the $44 region and our upside target remains at $65.
HOLD RECOMMENDATIONS
Rio Tinto (RIO)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Consensus estimates for Rio Tinto reveal flat earnings growth beyond 2011. This translates into a discounted forecast price/earnings ratio of just 9 times calendar year 2011 earnings. Rio is trading at a significant discount to our blended intrinsic valuation of $97.66. Improving momentum conditions should support a sharp rally over coming weeks, with initial resistance expected in the $86 region.
Oz Minerals (OZL)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
With improving momentum and encouraging price action, OZL should rally to initial resistance in the $1.75 region in coming weeks. Levels as high as $2 are also achievable. This gold and copper producer closed at $1.525 on May 19, 2011.
SELL RECOMMENDATIONS
Commonwealth Bank (CBA)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Credit growth in Australia is fairly weak across the board. The banks are involved in a competitive price war for subdued growth in residential mortgage lending, while business credit is still contracting. CBA is affected by deteriorating economic conditions due to its lending exposure across all segments of the economy.
Fairfax Media (FXJ)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Fairfax Media intends to outsource the sub-editing divisions of The Sydney Morning Herald and The Age, which would result in the loss of 82 full time jobs. It also plans to invest $3 million in its Sydney and Melbourne newsrooms and increase training budgets. Newspapers are up against growing online competitors. Our downside price target remains in the 80-to-85 cents region. The share price finished at $1.11 on May 19, 2011.
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Sean Conlan, Macquarie Private Wealth
BUY RECOMMENDATIONS
Karoon Gas (KAR)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
We still prefer KAR’s South American assets and believe the hype surrounding Poseidon clouds the investment case. Indeed, we estimate that South America alone is worth $8.50 a share, which more than justifies the current share price. As a result, we believe the discount on offer provides handsome rewards for KAR’s significant risk exposure. We have increased our valuation by 12 per cent to $11.65 a share to reflect new prospects in Australia and Brazil. On May 19, the share price closed at $6.51.
OZ Minerals (OZL)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
We rate this stock an outperform with a price target of $1.95 a share. With copper continuing to be our preferred base metals exposure, we believe OZL is well positioned to generate strong short-term cash flows, while continuing to pursue its regional and near-mine exploration program. On May 19, the share price closed at $1.525.
HOLD RECOMMENDATIONS
Woodside Petroleum (WPL)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Long-serving ExxonMobil employee Peter Coleman has been appointed Woodside’s new chief executive. He has an impressive track record at Exxon and a wealth of international experience. Also, as an external appointment, Coleman can bring a fresh approach to the ongoing negotiations with the East Timorese at Sunrise, with the joint venture at Browse and with third party gas providers at Pluto.
Virgin Blue Holdings (VBA)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
Macquarie research believes Virgin offers significant upside if it executes and delivers on its strategy. However, the macro environment is still challenging. The Delta Airlines alliance was one of the notable outstanding moves. With this deal now in place, management can focus on rounding out the virtual global network by the end of the year, and it should be in a stronger position to approach potential partners to associate with the airline’s loyalty program.
SELL RECOMMENDATIONS
Boral (BLD)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
We retain an underperform rating. With US losses likely to weigh on group earnings amid domestic headwinds building, we continue to see risk around mid-cycle earnings. We expect the US operations to continue edging back towards breakeven in the next few years, which will incrementally add to BLD’s earnings profile.
Foster’s Group (FGL)
Chart: Share price over the year to 20/05/2011 versus ASX200 (XJO)
New Foster’s is now trading ex-Treasury Wine Estates (TWE). Revenue and profit growth rate expectations will have to change following the demerger of TWE. New FGL is now largely a domestic alcoholic beverage play. Carlton and United Breweries is serving about 44 per cent of the alcoholic beverage market when measured in terms of litres of alcohol. There has been no beer market volume growth between 2002 and 2011. The category and CUB have been overly reliant on price to drive profit growth.
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.
