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Hamza Habib, Patersons Securities

BUY RECOMMENDATIONS

IOOF Holdings (IFL)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO)

IOOF is a medium-sized, vertically integrated wealth manager. Growth in compulsory superannuation contributions add to the company’s growth profile. The financial services industry remains robust. With pressure on smaller firms to consolidate due to new reforms, IOOF will most likely continue growing via further acquisitions. The company’s fully franked dividend yield above 6 per cent is also attractive.

iiNet Limited  (IIN)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

The company has reaffirmed full-year 2011 EBITDA (earnings before interest, tax, depreciation and amortisation) guidance of $106 million, with incremental growth achievable from the Netspace and AAPT acquisitions. iiNet is the second biggest provider of broadband services in Australia. Its own ADSL2+ network reaches about 4 million households. Importantly, the company looks attractive for any acquirer looking to enter the Australian IT space.

HOLD RECOMMENDATIONS

GPT Group (GPT)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

The core of the trust comprises high quality retail, office and industrial assets. The group has an Australian funds management business and operates as a stapled trust. GPT recently initiated a buy-back of up to 5 per cent of issued capital through an on-market program. Although a good initiative, GPT looks fully valued at these levels.

New Hope Corporation (NHC)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

A well managed major coal company operating three open pit mines. Although NHC has a substantial cash balance and is able to expand capacity, development costs aren’t yet clear. The company may also look at acquisitions to increase its growth profile, but it looks fully valued at current prices.

SELL RECOMMENDATIONS

Tabcorp Holdings (TAH)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

The company has demerged its casino businesses.  It now predominantly provides wagering and gaming facilities in Victoria, where it has an exclusive wagering licence until 2012. Given the new company structure, TAH may face increasing risks if there’s changes to gaming taxes, levies and from more competition in the wagering industry. Any negative outcome regarding renewal of its Victorian licence would pose a risk to future company earnings. 

Charter Hall Office REIT (CQO)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

Invests in quality office properties in Australian and Europe. The trust’s underlying rental income is underpinned by government and investment-grade tenants. The company’s recent decision to sell US assets and return capital to unit holders is positive for long term investors. But the recent share price rise reflects this and we believe the company appears more than fully valued.

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Nicholas Brooks, RBS Morgans

BUY RECOMMENDATIONS

Fortescue Metals Group (FMG)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

Andrew Forrest will retire as chief executive in July, but will become chairman of this iron ore company. More importantly, Fortescue is ramping up expansion to 155 million tonnes a year – 12 months ahead of original forecasts. Fortescue is highly leveraged to the iron ore price, which is our preferred commodity exposure.

Rio Tinto (RIO)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

When the reporting season starts in August, Rio should be completely ungeared – such is the cash generation within this company. All divisions are expected to report quality results, and with Rio currently trading at a discount to rival BHP, we expect that gap to close in the short term.

HOLD RECOMMENDATIONS

Origin Energy (ORG)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

This huge retail energy provider recently bought New South Wales’ power assets and will be hoping they are one of the key growth areas. Approval of its joint APLNG (liquefied natural gas) project with ConocoPhillips is expected in the next few weeks, which is seen as a good catalyst for the stock.

Telstra (TLS)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

No nasty surprises are expected from the NBN (National Broadband Network) decision. Clarity should be a good catalyst for Telstra investors. It’s proving to be a solid defensive stock in a period of uncertainty.

SELL RECOMMENDATIONS

Aquila Resources (AQA)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

Higher costs and capital expenditure have offset any increase in coal production. We believe timing is also proving an issue at Aquila, where construction starts this year could see capital expenditure exceed its current cash position. Too many headwinds.

Pharmaxis (PXS)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

The company still represents good long-term value. But it’s been heavily burdened after a European regulatory committee indicated it will probably reject the company’s application to market its cystic fibrosis drug Bronchitol. A rejection will significantly affect forecast company earnings, and in the short term better value can be found elsewhere.

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Cleo Nanni, Novus Capital

BUY RECOMMENDATIONS

Woodside Petroleum (WPL)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

Australia’s premier oil and gas company is a proven performer, well managed and offering a strong balance sheet. It’s suitable for conservative investors seeking oil and gas exposure for potentially standout long-term growth. The recent volatile price indicates a great buying opportunity on dips towards $40.

Newcrest Mining (NCM)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

A gold and copper producer, with its main operations in Australia and Indonesia. Despite the company downgrading full-year gold production, Newcrest offers ideal exposure to a rising bullion price that’s breached $US1530 an ounce. Consider buying this company on any dips below $38 and continue to accumulate at each opportunity.

HOLD RECOMMENDATIONS

BHP Billiton (BHP)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

Offers a global portfolio of quality and diversified assets. Recent price action has us buying on dips towards $43, where the company provides great value at these levels. Don’t sell; this will always be a long-term hold.

Rio Tinto (RIO)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

Another of the world’s quality mining companies. Like BHP Billiton, the current price action indicates a strong buying opportunity, particularly below $80. Hold and consider accumulating while a good opportunity exists.

SELL RECOMMENDATIONS

BlueScope Steel (BSL)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

Affected by a strong Australian dollar, cheap imports and the prospect of a carbon tax. The company expects the second half to remain challenging with NPAT (net profit after tax) to break even. Investors have deserted this company and, in this environment, we expect this trend to continue. Sell on any rallies.

ANZ Bank (ANZ)

 

Chart: Share price over the year to 10/06/2011 versus ASX200 (XJO) 

All the banks are now struggling to find growth opportunities. I would normally be recommending a buy at these levels, as support has been found in this price range in the past two years.  But in the current climate of European sovereign debt, I would sell and wait – with cash on the side.

>>Back to the newsletter to view other articles – June 13th 2011

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