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James Georges, Patersons Securities

BUY RECOMMENDATIONS

Mesoblast (MSB) 

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO)

Develops biological therapy products in the field of regenerative medicine. The company has a range of products that could potentially treat cardiovascular disease, diabetes and bone marrow cancers. Mesoblast reported a net profit after tax of $90.61 million for the year to June 30, 2011. Revenue from ordinary activities surged to $120.92 million. This stock is a high growth, high risk story, but it’s a global leader in the lucrative stem cell arena. Buy on dips.

BHP Billiton (BHP)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The mining giant will continue to reward investors.  Demand for its diverse suite of products from emerging economies should drive profit growth. The company reported yet another record full year net profit after tax of $US23.65 billion, an increase of more than 80 per cent. It also increased its dividend to US55 cents.  An increase in the group’s underlying EBIT (earnings before interest and tax) margin to 47 per cent emphasises the quality of the company’s diversified portfolio.

HOLD RECOMMENDATIONS

Qantas Airways (QAN)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The national carrier announced an underlying profit before tax of $552 million for the full year ending June 30, 2011. This result was achieved while overcoming significant external and operational factors, including a series of natural disasters, a 28 per cent increase in average fuel prices and an underperforming international business. Restructuring seems to be the only way it can compete on a global scale.

Wesfarmers (WES)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The industrial conglomerate reported a full year net profit of $1.922 billion for the 12 months to June.  The profit represented a 22.8 per cent increase on the previous corresponding period. We believe the company’s retail divisions may face challenging times, as consumers remain guarded about spending. However, hold for consumer confidence to return.

SELL RECOMMENDATIONS

BlueScope Steel (BSL)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The steelmaker reported a net loss of $1.05 billion for the 12 months to June 30, 2011. The loss was mostly due to net impairment write-downs and currency issues. A major restructure of Australian operations plans to reposition the company for profit and growth. But local steel manufacturing is under pressure as it battles cheap imports and a strong Australian dollar. This story will be tough for some time. Sell on rallies.

Woolworths (WOW)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

A net profit after tax increase of 5.1 per cent to $2.12 billion was at the bottom of guidance. The company expects the retail sector to face subdued trading conditions in 2012. The company’s growth is clearly slowing as it faces fierce competition from Wesfarmers-owned Coles and Bunnings. It may be prudent to sell on rallies.

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Paul Shepherd, RBS Morgans

BUY RECOMMENDATIONS

Flight Centre  (FLT)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

In our view, the quantum of Flight Centre’s profit growth in full-year 2011 is a very solid outcome, particularly in light of a weak retail environment and the number of natural disasters over the period. The company has further diversified its geographical source of income, while increasing its penetration of the corporate market. We also believe that providing full-year 2012 guidance for 10 per cent growth at this early point demonstrates management’s confidence in the

Gloucester Coal (GCL)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

Net profit after tax of $54.5 million for full-year 2011 was in line with guidance. GCL is in a transitory phase as it beds down the Donaldson acquisition, ramps up the Middlemount coal mine and undertakes formal reviews regarding its New South Wales strategy.  There should be more news on a clearer strategy by the end of the year, in time for an anticipated tick-up in physical prices. GCL is trading at a large discount to net present value when compared to its peers.

HOLD RECOMMENDATIONS

WorleyParsons (WOR)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

This engineering services company booked a headline net profit after tax of $364 million. But it includes a significant revaluation of existing entities, leaving true NPAT at $298 million. Although conditions continue to improve, we are cautious about the company’s price/earnings ratio of 17 times for full-year 2012.

Wotif.com Holdings (WTF)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The online travel and accommodation site reported a 3.8 per cent fall in net profit after tax to $51 million for full-year 2011. It was a tough year for the company. Weak domestic travel demand was due to a strong Australian dollar providing an incentive to travel overseas. Expectations of a lower growth profile moving forward mean the multiples applied to this company need to be adjusted accordingly.

SELL RECOMMENDATIONS

Primary Health Care (PRY)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

Adjusted full-year 2011 results were weaker than expected, with flat top-line growth and declining margins. Positive trends are evident across divisions, and capital structure concerns appear to be addressed.  But we believe visibility is lacking and profitability metrics remain soft.

Melbourne IT (MLB)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The result was poor in our view. Revenue was down across all divisions and guidance was cut. We believe consensus downgrades are likely to follow. Cash flow was down and the only real positive was retaining the dividend at 7 cents a share. This appears to be a sign of confidence from the board, but given it represents a payout ratio of 113 per cent, it’s a worry to us. There appears to be much better value elsewhere as MLB, in our opinion, will continue to face material headwinds.

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Shawn Uldridge, William Shaw Securities

BUY RECOMMENDATIONS

Newcrest Mining (NCM)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

Newcrest is the world’s fifth largest gold producer, with forecast production of 2.77 million ounces for full year 2012. The company recently reported a net profit of $908 million, up 63 per cent on full-year 2010. The share price has been mostly flat for the past 12 months, and we believe this is due to its modest dividends compared to global peers such as Newmont Mining. We believe this pricing disparity provides a buying opportunity. Expect Newcrest’s share price to chase up the bullion price should gold remain high.

BHP Billiton (BHP)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The world’s largest diversified mining company recently reported another record full year profit of US$23.65 billion on revenue of US$71.7 billion. Bumper earnings have enabled BHP to make two major acquisitions in the past six months – Chesapeake Energy Corporation and Petrohawk Energy. Importantly, in this difficult credit climate, BHP has gearing of just 27 per cent after the Petrohawk deal, according to senior company management.

HOLD RECOMMENDATIONS

Woodside Petroleum (WPL)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

Australia’s largest listed oil and gas company recently reported in line with expectations, booking a first half profit of $US828 million. WPL has declined from an average share price of $45 in the past 12 months to $35.62 on September 1. Over the long term, we hold a positive view on oil and, accordingly, will continue to hold our positions in WPL for the foreseeable future.

AMP (AMP)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

We are satisfied with recently reported results. First half net profit of $349 million was down 18 per cent on the previous period. The lower profit was expected as AMP digests the recent acquisition of AXA Asia Pacific. AMP’s recent price decline from $5.50 to $4.30 levels left it trading on a conservative price/earnings ratio of 11.4 times and a dividend yield of about 7 per cent. We have AMP as a long-term hold at current prices. On September 1, it was trading at $4.59.

SELL RECOMMENDATIONS

Woolworths  (WOW)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The company’s share price has been flat for more than four years as its businesses mature and the Australian consumer market softens. The company’s 5.1 per cent rise in 2011 full year net profit to $2.12 billion on August 25 was met with fierce selling, driving the share price down by $1.52 on the day to $25.75. The company now forecasts net profit to rise by just 2-to-6 per cent in full year 2012. The company’s price/earnings ratio may suggest the market expects higher profit growth than guidance. Without higher profit growth, Woolworths may trade towards $20 and on a price/earnings multiple more suited to a low-growth company. On September 1, the shares were priced at $25.70.

National Australia Bank (NAB)

 

Chart: Share price over the year to 02/09/2011 versus ASX200 (XJO) 

The bank has rallied almost 20 per cent from its lows of August 8. Credit markets are potentially facing another severe squeeze, which may push up the cost of credit.  A slowing east coast economy exposes all Australian financials to the possibility of businesses failing and a falling property market. We view any major rallies across financials as a selling opportunity.

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.