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Paul Clarke, State One Stockbroking

BUY RECOMMENDATIONS

Metcash Limited (MTS)

 

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

Metcash is a wholesale distributer and marketing company operating Mitre 10, IGA Food Distribution, Campbells Wholesale and Australian Liquor Marketers. Food distribution is the main growth sector of the business and the group enhances margins via scale, thereby generating efficiencies. Mitre 10 is being repositioned to remain competitive in the Australian hardware segment, while Campbells Wholesale is diversifying into the convenience store space. Metcash provides a yield above 7 per cent and offers defensive qualities.

Saracen Mineral Holdings (SAR)

 

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

This mid-tier Western Australian gold company continues to deliver results at the upper end of production and guidance despite encountering adverse weather in the past six months. It has upside potential via its Red October mine, a high grade underground project located 15 kilometres south of AngloGold Ashanti’s Sunrise Dam. The company anticipates average grades will increase during coming quarters and strong milling performance adds to the stock’s appeal. A speculative buy.

HOLD RECOMMENDATIONS

Echo Entertainment Group (EGP)

 

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

EGP is the second largest casino operator in Australia, owning Star City in Sydney and the Jupiters hotel and casino complexes in Brisbane, Townsville and on the Gold Coast. EGP was formed earlier this year after a demerger from Tabcorp Holdings. An objective of refurbishing Star City is to attract big gamblers. In the longer term, it could be attractive to potential suitors.

PanAust (PNA)

 

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

PNA is a copper and gold miner, with operations in Laos, Thailand and Chile. First half 2011 copper production, revenues and operating cash flows were disappointing due to bad weather causing shutdowns. PNA is led by a strong management team. We expect revenue and profit to recover in the 2011 second half as production returns to normal.

SELL RECOMMENDATIONS

Transpacific Industries (TPI)

 

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

TPI provides integrated industrial cleaning, recycling and waste management solutions in Australia and New Zealand. Since the global financial crisis, TPI has been adversely impacted at a management, operational and balance sheet level. Although TPI has undertaken recapitalisation and divisional restructuring, future performance remains uncertain. TPI still has net debt of $1.4 billion and is looking to sell assets to address this matter, or it may need to raise funds via an equity raising. With high debt levels, TPI remains a sell.

Pacific Brands (PBG)

 

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

Iconic brands include Bonds, Dunlop, Hard Yakka and King Gee among others. PBG has attempted to cut costs by closing domestic manufacturing and outsourcing to cheaper factories in China. The cost of this restructure has been high, and consumers are becoming less brand conscious, which is reflected in the increasing uptake of home brand products. Tighter margins across the business clouds future growth potential.

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Sean Conlan, Macquarie Private Wealth

BUY RECOMMENDATIONS

Perseus Mining (PRU)

 

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

We see commissioning of the Central Ashanti Gold Project (CAGP) in Ghana as a key step in de-risking the stock in the eyes of many investors. Consequently, PRU will be positioned to maximise its status as a several hundred ounce a year producer with a strong project pipeline. As shown by the recent tie-up between Adamus Resources and Endeavour Resources, consolidation within the West African gold sector is ongoing. We believe production of 250,000 ounces a year from the CAGP ideally positions Perseus to take part in any further consolidation.

Beach Energy (BPT)

 

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

While it’s encouraging to see Beach deliver strong operating cash flow and incremental reserves in the Western Flank area, the market will focus on news flow surrounding Cooper Basin shale. Expect the market to gain greater comfort from further encouraging drilling results, subsequently endorsed by a credible farm-in partner along with an independent resource booking.

HOLD RECOMMENDATIONS

CSL (CSL)

 

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

While this blood products group is trading considerably below its January price of $38, we don’t view it as under-valued given industry growth of 5-to-6 per cent, increasing margin pressure and a stock price still trading at a 40 per cent premium to the market. However, we don’t see material downside to today’s levels given the $900 million buyback is likely to start in October. In early morning trade on September 8, the stock was priced at $27.74.

Primary Health Care (PRY)

 

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

A successful cost-out program and slowing collection centre proliferation is positive for this service provider, but we believe it’s now reflected in the share price. But we harbour concerns about a possible rise in general practitioner churn given the material effect it may have on Primary’s cash flows.

SELL RECOMMENDATIONS

Paladin Energy (PDN)

 

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

In our view, near-term headwinds are likely to constrain potential cash flow generation, thereby increasing funding risk for this uranium producer. Risks to our call include renewed Chinese stockpiling underpinning an increase in uranium spot prices and a resurgence in merger and acquisition interest.

Goodman Fielder (GFF)

 

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

Volatile soft commodity prices and consequent changes to wholesale and retail pricing may be hiding a deteriorating pricing position for everyday basic staples supplied by Goodman Fielder. Accordingly, if soft commodity prices continue retreating, then expected falls in input costs will be exceeded by falls in wholesale pricing. We think this view played out over full-year 2011.

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Les Szancer, Alpha Broking

BUY RECOMMENDATIONS

Alkane Resources  (ALK)

 

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

An emerging zirconium, gold and rare earths company with operations in New South Wales.  It has signed MOUs (memorandum of understanding) to produce zirconium oxychloride from a new joint venture facility and an existing plant in Western Australia.  Zirconium prices have been high and the global product market continues to expand.  It has also entered into a 90,000 ounce gold forward sale that will underwrite a minimum price of about $A1600 an ounce for the first two and a half years of production. Company management is switched on and I believe the share price should be much closer to its 12-month high of $2.73. On September 8, the shares were trading at $1.94. 

Finders Resources (FND)

 

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

Finders is best known as a low cost copper producer in Indonesia. But it has a potentially valuable gold and silver project in Sumatra. Its advanced Ojolali project lies within the highly prospective Sumatran gold belt. It has a defined oxide gold resource of 175,000 ounces, open at depth. But the project over time could potentially unearth much more, with the company suggesting up to a million ounces.

HOLD RECOMMENDATIONS

Woolworths (WOW)

 

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

Rival Coles has snared market share. However, I would hold Woolworths stock, particularly if you bought between $25 and $30. It has bounced off a double bottom and we expect it to move back towards a recent high above $27. On September 8, it was trading at $25.41.

Tabcorp Holdings (TAH)

 

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

Like most other stocks, Tabcorp shares have recently taken a tumble. People don’t stop gambling in tough times. If anything, I would suggest they gamble more. If you own this stock, I would consider buying more, as the dividend has become even more attractive.

SELL RECOMMENDATIONS

QR National (QRN)

 

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

It recently signed a $900 million deal with a consortium of coal firms to build the Wiggins Island rail project to a new export terminal at Gladstone in Queensland.  First train loads aren’t expected for several years, so there’s plenty of time. The share price has been relatively stable in the past six months. You wouldn’t hold this stock for the dividend of just 3.7 cents a share and, at that, unfranked. I can’t see any decent share price upside from here.  I prefer Telstra as it offers a much better dividend.

BlueScope Steel (BSL)

 

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

I have suggested selling this stock when the price was higher. It’s tried restructuring. I’m sure management has tried just about everything. Now it’s getting rid of 1000 workers. If somehow this company turns around, there will be plenty of time to get back in. But for now, your money could be used more intelligently. On September 9, the shares were trading at 74.5 cents.

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