Top Gainer: Ausdrill (ASL)
A favourite with brokers, the day’s top gainer Ausdrill (ASL) – as has been the case with many mining services stocks – has boomed over the past year, rising a whopping 107% for the past 12 months. Sure, the stock is down from its peak hit in April this year of $3.90, but the lineup of brokers with buys on the stock makes it worth another look.
As reported earlier this month on TheBull PREMIUM, and in an article “Mining Services Stocks Leveraged to the Mining Boom” in February on TheBull, and in 18 Share Tips on March 21st, brokers and funds have been jumping on board – which can’t have hurt the company’s share price.
On May 17, Invesco became a 5% shareholder of Ausdrill – the Invesco Smaller Companies Fund is overweight in a diverse pool of securities, led by mining services company Ausdrill Ltd (ASL). This appears to have been a good move, as JP Morgan and RBS Australia both initiated coverage of Ausdrill in May with buy ratings. The company is heavily focused on the gold and iron ore mining industries. JP Morgan, which expects a recent equity raising to enable additional capital investment, targeted the company’s share price at $4.17. This brings the consensus target up to $3.99. RBS noted that 65% of the company’s revenues come from customers at the production stage, protecting ASL against price volatility.
“Ausdrill’s business has experienced strong growth in recent years and, assuming continued strength in the resources sector, Ausdrill anticipates a high level of tender activity in the next 12 months,” the company said in April in anticipation of the equity raising. RBS forecasts 13-16% revenue growth across FY12-FY12; JP Morgan expects earnings per share to grow 20% in FY12.
Graeme Carson, Senior Industrial Analyst for Patersons, said that Ausdrill “expected to report a solid interim earnings result later this month following renegotiation of some key contracts previously operated by Brandrill as well as an earlier recommencement of exploration drilling operations in the New Year due to high demand.” Carson added, “The company is well and truly emerging as a dominant force in Australian and African contract mining services and the growth outlook is underpinned by the gold and iron ore-dominated order book.”.
Hamza Habib, Patersons Securities also has a BUY on ASL, pointing out that this diversified mining and services company reported a 71.7 per cent increase in interim 2011 earnings on the previous corresponding period. “Management has increased earnings guidance and expects to provide the market with positive news flow regarding new contract wins moving forward,” says Bigwood. “ASL’s African business exposure has been strengthened by its strategic alliance with Barminco, which is expected to grow the company’s revenue during the next two years.”
Based on Thomson Reuters data this is a favourite with brokers – 100% of analysts have a buy on ASL with a total of eight analysts covering the stock.
Chart: Share price over the year to 26/07/2011 versus ASX200 (XJO)
Stock code: ASL
Charts: Ausdrill Limited
More news: Ausdrill Limited
Investor Centre: Ausdrill Limited
Biggest Loser: Bathurst Resources (BTU)
Phenomenal gains have been made on companies that specialise in the hottest commodities, such as coal explorer Bathurst Resources (BTU), whose shares have risen from just 19 cents to $1.15 – an incredible gain of 500 per cent over the past year. BTU is a New Zealand-focused coal miner with a spot in the Buller coalfield on New Zealand’s South Island.
Investors should always consider the company, sector and global outlook before buying shares. In the case of coal – thermal for generating electricity and metallurgical or coking for steelmaking – the outlook appears relatively bright.
According to the Australian Bureau of Agricultural and Resource Economics and Sciences, world thermal coal trade is projected to increase by 4 per cent a year to 962 million tonnes in 2016. Increasing thermal coal imports into developing economies – particularly India and China – will drive growth, and growing demand will be met by Australia, Indonesia and Columbia.
And in its 2011 March quarterly report on Australian commodities, ABARES says global metallurgical coal trade is forecast to increase at an annual average of 5 per cent to reach 341 million tonnes in 2016, with emerging Asian economies lifting imports. Coal companies may be a welcome addition to any balanced portfolio, and State One Stockbroking’s John Rawicki offers his value selections for investors to consider.
Rawicki’s list focuses on explorers and junior producers, as he believes they offer the most upside in percentage terms if all goes to plan. That’s the point – potentially bigger gains carry substantially higher risk, which investors should carefully weigh before buying stocks with promising objectives. And BTU was firmly on the list.
BTU plans to start producing high quality coking coal from its Bulla project in New Zealand late this year. “The company’s coal is top quality as its low in ash and sulphur and high in carbon,” Rawicki says. “Another benefit is the coal is near the surface and occurs in thick seams.” He says Bathurst has a JORC Resource of 47.1 million tonnes and will spend most of 2011 trying to shore that up towards its planned exploration target of between 60 million and 90 million tonnes.
CSLA Markets has a buy on BTU with a price target of $1.50, saying that it is cheap based on CSLA’s NPV valuation with substantial upside. “Bathurst is trading at a 53% discount to our A$1.50 target price, which includes a development of the Buller Coal Project to 2.1mtpa,” it says. “Longer term there remains a possibility to increase production to 4.0mtpa, albeit with significant uncertainty around timing. Factoring in an expansion to 4.0mtpa from 2016 would see our valuation increase by 75% to A$2.50, representing around 150% upside to the current share price.” You can read their comprehensive report here.
Other brokers are also bullish on the coal explorer, with both E.L & C Baillieu’s Adrian Prendergast and Goldman Sachs’s Neil Goodwill placing a $1.40 price target. However Prendergast warns that there are risks to the coal miner in terms of weather because the area where they intend to mine is subject to heavy rainfall year round. “The company has designed its pits adequately but can not prevent some fines from being washed away,” says Prendergast. “Also, given the project is in the mountains, operations are at times brought to a standstill by clouds touching down, creating dangerous zero visibility at site.” You can read E.L & C Baillieu’s report here.
Meanwhile Goldman Sachs has a positive outlook for coking coal and BTU. “We think BTU is attractively priced given its coal production profile, coal quality and our coking coal price forecasts and, as a commodity, it is geologically scarce,” it says. “While there are always start-up/construction risks with new projects, we regard these as relatively modest for BTU and, given the longer duration of the coking coal story, any such delays will not significantly affect the valuation, in our view.” You can read Goldman Sachs’sreport here.
The Goldman Sachs Resources Fund is also overweight BTU.
Based on Thomson Reuters data, 100% of analysts have a buy on BTU (3 analysts).
Stock code: BTU
Charts: Bathurst Resources Limited
More news: Bathurst Resources Limited
Investor Centre: Bathurst Resources Limited
Each trading day we will look at the top gainer and biggest loser for the day. Note that these are not recommendations to buy or sell, although we do include broker views on these stocks in the article.
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