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Peter Rae, Morningstar

BUY RECOMMENDATIONS

Emeco Holdings (EHL)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

Emeco is a leading provider of rental earthmoving equipment to the mining industry in Australia and Indonesia. Earnings have recovered following a downturn in the resources sector in 2008/2009 and, with strong volume growth forecast over the next few years, particularly in iron ore and coal, EHL is expected to do well. EHL is more suited to higher risk investors given its cyclical earnings.

Stockland (SGP)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

Holds a diversified portfolio of retail, commercial and industrial investment properties across Australia, together with residential development and retirement community businesses. Its price has fallen considerably, partly on concerns that a softer residential market will have a negative impact. We think these concerns are overdone, and the stock looks excellent value trading at a large discount to its $3.65 net asset value. The stock was priced at $2.92 on August 18.

HOLD RECOMMENDATIONS

Transurban Group (TCL)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

A leading toll road operator with proven management skills. It has a good quality portfolio, including Melbourne’s CityLink and Sydney’s Hills M2 motorway. The recently reported full-year 2011 result was solid, with a pleasing 12.5 per cent increase in distributions to 27 cents a share amid expectations of an increase to at least 29 cents a share in full-year 2012. A good defensive stock in uncertain times.

Skilled Group (SKE)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

Provides labour hire and staffing services to a broad range of industries. Margins are low and earnings are highly exposed to the economic cycle. But exposure to resources, oil and gas offers the company several growth opportunities. Following a period of underperformance, new management is reinvigorating the company and earnings are expected to recover strongly during the next two years. But the share price already reflects much of this recovery.

SELL RECOMMENDATIONS

Macarthur Coal (MCC)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

There’s been numerous attempts to takeover this Queensland coal miner and the latest joint bid from Peabody and ArcelorMittal has added some corporate interest to the stock. The MCC board considers the offer price of $15.50 a share as undervaluing the company and is in discussions with other parties in an attempt to secure a higher offer. There is no certainty a higher offer will emerge and, with the stock well above our valuation, we see this as a good opportunity to sell and reinvest in more attractive opportunities.

ConnectEast Group (CEU)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

Owns the Melbourne EastLink toll road and is subject to a takeover offer at 55 cents a share from Horizon Roads. The offer is above recent trading prices and provides investors with an opportunity to exit the stock and to consider reinvesting in higher yielding infrastructure or property stocks. Investors can either sell on market close to the offer price, or vote in favour of the offer.

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Peter Day, Wilson HTM

BUY RECOMMENDATIONS

National Australia Bank (NAB)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

Unaudited cash earnings of $1.4 billion for the third quarter was in line with consensus. But the result was impeded by the wholesale banking arm, which masked strong momentum in the underlying core franchises. Given high earnings certainty from strong performing businesses and a dividend yield above 8 per cent, we continue to see upside potential and retain our buy recommendatio.

Coca-Cola Amatil (CCL)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

Natural disasters in Australia and New Zealand did have an impact on sales volumes, but we believe the trading environment is a short-term issue. Efficiency gains driven by capital expenditure will underpin improving profit growth in the medium term. We believe the higher price/earnings ratio is warranted due to growth prospects and a pipeline of value accretive projects. 

HOLD RECOMMENDATIONS

Commonwealth Bank (CBA) 

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

The bank is well positioned to deliver solid cash earnings growth and a 20 per cent return on equity in the next 12-to-24 months, even in a slowing volume environment. While this points to potential share price upside, the bank is already trading at a premium to its peers. As such, we retain our hold rating.

Telstra Corporation (TLS)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

After spending $1billion on a strategy designed to reinvigorate the business and restore earnings growth, Telstra’s result provided encouraging signs of progress towards transforming the company and achieving new objectives. While Telstra benefits from dividend yield support in the current volatile market environment, the stock is trading in line with our valuation and higher than overseas peer valuations.

SELL RECOMMENDATIONS

Tabcorp Holdings (TAH) 

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

Since the company was recently awarded the Victorian wagering and betting licence, we have undertaken a detailed review of its businesses.  Accordingly, we have reduced our 2012 earnings forecasts by 4 per cent, but raised 2013 earnings forecasts by 5 per cent. We retain our sell rating, with the stock trading at a premium to our target of $2.90 a share. The stock was priced at $3.24 on August 18. We continue to prefer Tatts.

Incitec Pivot (IPL) 

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

We remain of the view that earnings risks are to the downside, across both fertilisers and explosives. The stock is trading at a big premium to our valuation. On August 18, the shares were priced at $3.65.

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Richard Batt, Shadforth Financial Group

BUY RECOMMENDATIONS

BHP Billiton (BHP)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

The global miner has received final regulatory approvals from US authorities relating to its takeover offer for Petrohawk Energy Corporation. BHP has bid US$38.75 cash a share for a total of about $US12.1 billion. Expect another big profit result when the company is due to report on August 24. Fourth quarter production showed good volume increases in iron ore and copper. Take advantage of a weaker share price to buy or add to portfolios.

Wesfarmers (WES)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

This company delivered a strong full-year result, with operating revenue up 5.9 per cent to $54.9 billion, and net profit after tax up 22.8 per cent to $1.922 billion for the year ending June 30, 2011. The company also announced a final fully franked dividend of 85 cents a share, up 21.4 per cent, and taking the full-year dividend to $1.50. The result shows the advantages of multiple earnings streams, and in the current economic environment, earnings diversity is critical to profit growth. This stock should be part of any balanced portfolio as it’s likely to get stronger in line with an improving economy.

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

The oil and gas giant recently reported a first half profit after tax of $US828 million, down 8.1 per cent, but marginally better than expected. Revenue was strong at $US2.253 billion, up 7.2 per cent on last year’s first half. And the first half dividend rose US5 cents to US55 cents a share. Importantly, the Pluto LNG project is on target to start producing in 2012. Trading at $37.16 on August 18, the stock offers value for a company with solid growth prospects.  

Sundance Resources (SDL)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

An iron ore exploration and development company with projects in west Africa. Sundance has written advice from Hanlong Mining of its intention to buy all the company at 50 cents a share. The stock has recently been trading below 50 cents, so we suggest investors hold for a premium above the offer.

SELL RECOMMENDATIONS

APN News & Media (APN)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

In announcing its interim result for the six months to June 30, 2011, revenue was flat at $508 million and its net profit after tax was down 46 per cent to $21.8 million. Although in line with guidance, the company indicated that its publishing businesses had been through a challenging period, as weak retail markets and natural disasters had impacted earnings. In the current economic environment, it’s difficult to know how corporate spending will impact APN’s earnings over the short term and, accordingly, we believe better opportunities exist elsewhere in the market.

David Jones (DJS)

 

Chart: Share price over the year to 19/08/2011 versus ASX200 (XJO) 

The department store retailer recently downgraded its profit forecast by 15-to-20 per cent for the first half of 2012. By its own admission, the trading environment remains difficult. The continuing decline in consumer confidence shows first quarter trading in 2011/12 hadn’t improved on the previous quarter. Discretionary retailers are out of favour.  

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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.