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PREVIOUS ARTICLE Broker Buy: Gryphon Minerals NEXT ARTICLE 18 Share Tips - 15 August 2011

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Andrew Inglis, Shadforth Financial Group

BUY RECOMMENDATIONS

Seek (SEK)

 

 Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO)

Seek is number one for online job ads in Australasia, south-east Asia, Mexico and Brazil. It’s number two in China.  Strong market positions provide an excellent platform for future growth as many of these countries still have relatively low internet usage rates. It will also benefit from employers continuing to switch to online advertising.  Seek is also building an education and training business.  Discounted valuations on the overseas subsidiaries and its education and training business, together with a solid balance sheet and strong growth outlook, present a buying opportunity.

Fortescue Metals Group (FMG)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

It recently achieved its short-term production target of 55 million tonnes of iron ore a year, and has ambitious plans to increase this to 155 million tonnes a year within two years and to 355 million tonnes by 2017.  A huge high grade iron ore resource in the Pilbara, strong cash flow and profitability, a modest price/earnings ratio, ownership of its infrastructure, a can do management team and a credible, if ambitious, expansion plan are behind our recommendation.

HOLD RECOMMENDATIONS

Origin Energy (ORG)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

Origin operates a growing, high quality vertically integrated energy business that’s well positioned for carbon credits. The share price reflects little, if any, value for the $20 billion Gladstone LNG project. The share price was trading at $14.44 on August 4.

Telstra (TLS)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

The NBN agreement provides Telstra with strong cash flows for the next 10 years. Telstra’s selling valuable but ageing infrastructure to the NBN at a full price. It’s now in a good position to concentrate on building its business as the fixed line decline diminishes. Offering a very attractive yield and a steadily rising share price from a low base make Telstra a definite hold.

SELL RECOMMENDATIONS

Macarthur Coal (MCC)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

Sell this on market and take advantage of the current takeover premium, as it’s still possible the Peabody Energy and ArcelorMittal takeover bid could fall over like the last one. Use the proceeds to take advantage of good buying opportunities, such as Fortescue Metals. The shares were priced at $15.79 on August 4.

ConnectEast (CEU)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

The Melbourne toll road operator recently received a takeover bid from Horizon Roads for 55 cents a share, or a scrip alternative. ConnectEast’s board supports the bid.  Rather than wait several months for the takeover to be finalised, we suggest selling on market and look for value elsewhere. ConnectEast was trading at 53.5 cents on August 4.

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Warwick Grigor, BGF Equities

BUY RECOMMENDATIONS

Platina Resources (PGM)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

Platinum isn’t talked about much these days, but it’s a precious metal and the price is trending up. PGM is the latest vehicle of Rob Mosig, the platinum buff who was behind Helix Resources. Platina has been making progress with its laterite platinum deposit at Owendale in NSW. Drilling suggests there may be enough low cost platinum for a mine of 40,000 ounces a year. This would be a first for Australia. Its big Skaergaard project in Greenland contains palladium, gold and platinum. Perhaps it’s time to have this on the radar screen.

West Wits Mining (WWI)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

West Wits has just acquired the Derewo River Gold Project in the central highlands of New Guinea in Indonesia. It raised $3 million in the process. The aim is to produce 20,000 ounces from a low cost sluicing operation. The big picture is a large Porgera-style hard rock deposit. Papua New Guinea has shown what this geology can hold, but exploration on the Indonesian side of the island is 30 years behind. In my view, there’s huge deposits waiting to be found.

HOLD RECOMMENDATIONS

Australian Pacific Coal (AQC)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

AQC was one of our earlier recommendations, which performed well, but the departure of its key technical director has left a hole in management. We continue to believe it’s good value, but have downgraded it to a hold until management issues are resolved and there’s greater clarity with funding.

Havilah Resources (HAV)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

Havilah continues to be one of the best asset plays in the emerging resources sector, with copper, gold and magnetite ore bodies justifying the multiple of its current share price. Directors are trying to figure out the best way to reward shareholders, whether it be asset sales and capital distributions as opposed to longer-term joint ventures. The shares were trading at 63 cents on August 4.

SELL RECOMMENDATIONS

Cudeco (CDU)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

The company hasn’t lived up to our expectations. The geology is good and there’s plenty of copper, but we’re uncertain about company direction. I consider it a thrill-seekers stock. If that turns you on then fine, but we would rather sell CDU and switch to mainstream companies.

Marathon Resources (MTN)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

Once a favoured uranium stock with a sizeable resource in South Australia, a state generally regarded as having good geopolitical credentials. However, something has gone wrong for MTN. It appears politicians are siding with the anti-mining lobby. The Premier has announced the Arkaroola region will be protected from mining. We expect the share price to suffer.

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Paul Shepherd, RBS Morgans

BUY RECOMMENDATIONS

ANZ Bank (ANZ)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

In May, ANZ, our preferred banking exposure, reported interim cash earnings of $2.8 billion, up 19 per cent year-on-year. Underlying earnings growth was up 4.7 per cent and profit continues to improve. The CEO’s outlook was cautiously optimistic, and the result update reinforced our overall bullish view on the banks. While expecting subdued mortgage lending in the next 12 months, we believe business lending will drive the next leg of credit growth. In our view, ANZ has the best exposure to this cycle.

APA Group (APA)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

The recent acquisition of the Emu Downs wind farm fits nicely into APA’s portfolio given the company’s ability to provide gas transmission and storage facilities to firm up generation. After updating our forecasts, our valuation increases to $4.55, so we have moved back to a buy recommendation. On August 4, the stock was trading at $4.02.

HOLD RECOMMENDATIONS

Iluka Resources (ILU) 

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

The mineral sands producer announced a resumption of mining at Eneabba and an extension of the operating life for synthetic rutile kiln 3, which are value accretive. ILU had been resisting mine restarts and operating life extensions until the pricing environment justified it. This has happened. We believe future price increases will be harder to win, so we move to a hold.

Toll Holdings  (TOL)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

This transport and logistics company continues to face a challenging retail environment, and the short-term outlook doesn’t appear to be improving. We downgrade full-year 2011 EBIT (earnings before interest and tax) by 6 per cent. Don’t expect Toll to outperform the market soon. This is a longer-term hold because its strong historical track record shows an ability to overcome hurdles.

SELL RECOMMENDATIONS

Paladin Energy (PDN)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

Second quarter production in 2011 was below our expectations following continuing ramp-up delays at its Kayelekera mine in southern Africa. We have materially changed our long-term production profile for Paladin and, accordingly, reduced our valuation. After the nuclear disaster in Japan, we believe investor appetite for uranium stocks remains weak.

Aquila Resources  (AQA)

 

Chart: Share price over the year to 05/08/2011 versus ASX200 (XJO) 

Despite an interim solution to their long running dispute, we believe the relationship between AQA and its joint venture partner Vale remains uneasy.  We believe the cancellation of previous coal shipments from Isaac Plains will be reflected in the cash flow numbers, so we retain our sell recommendation.

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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.