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Hamza Habib, Patersons Securities

BUY RECOMMENDATIONS

Adamus Resources (ADU)

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

A junior gold producer in Ghana, West Africa. Operating the Nzema mine, it produced 26,015 ounces for the 2011 June quarter. The company recently announced a “merger of equals” with Endeavour Mining Corporation, which is listed in Toronto. The deal will give the merged company an ASX and TSX listing, along with a strong balance sheet and improving leverage to the high gold price. A combined entity will bring three operations under management and enable potential production to exceed 250,000 ounces by 2014.

Mayne Pharma Group (MYX)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

This Australian pharmaceutical company delivered a disappointing full year result for 2011. This was mainly due to disappointing sales of the antibiotic Doryx. But recently receiving US Food and Drug Administration approval for its new product (a dual-scored 150mg Doryx delayed-release tablet) paints a brighter outlook. Expect a substantial sales increase for the drug in 2012.

HOLD RECOMMENDATIONS

Macquarie Group (MQG)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

This investment bank is struggling in volatile financial markets.  It cautioned the market it expects first half 2012 net profit after tax to be lower than the 2011 first half. But it indicated that full year 2012 NPAT should be higher than 2011. Given challenging economic times, MQG may take longer than expected to satisfy investors.

Myer Holdings (MYR)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

 Full year 2012 guidance pointed to flat sales and a potential 10 per cent fall in NPAT. Local and macroeconomic concerns present further headwinds. In our view, MYR will most likely trade sideways for some time before giving shareholders any major capital growth.

SELL RECOMMENDATIONS

Bathurst Resources (BTU)

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

An emerging producer of high quality coking and thermal coal. It’s stgeloping a coking coal project in New Zealand’s Buller coalfield. It recently acquired Eastern Resources Group’s two operating mines and a stgelopment block adjacent to the Buller project. But its approved coking coal project has met opposition from green group West Coast Environmental Network. The environmental group’s appeal against the decision could delay first production. The issue may end up court and take some time to resolve.

Incitec Pivot (IPL)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

Supplies chemicals, fertilisers and explosives for Australian and overseas markets. Explosives demand softened after the Queensland floods. While explosives volumes are recovering on Australia’s east coast, the outlook in North America, a major part of its business, is ordinary. Also, increasing competition has impacted fertiliser earnings. In our view, this doesn’t justify the company trading at a significant premium to its US peers.

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Chris Elliott, Shadforth Financial Group

BUY RECOMMENDATIONS

Wotif.com Holdings (WTF)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

WTF is a leading online accommodation provider. It enjoys more than 33 per cent of the Australian online market, equating to 10 per cent of all domestic bookings.  A strong Australian dollar, Queensland floods and a cyclone led to a $2 million profit fall in full-year 2011. The company continues to roll out its online model in Asia. This will improve earnings diversification in a popular travel market. The recent share price retreat makes WTF an attractive buy on a forecast price/earnings around 14 times and a fully franked dividend yield bouncing around 6 per cent for 2012. On September 22, the shares were trading at $3.72.

The Trust Company (TRU)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

While providing standard services, such as financial planning and funds management, it also offers estate administration, attorney and corporate custodian services. TRU carries no debt. A positive cash flow position and a forecast fully franked dividend yield above 7 per cent in 2012 makes for an attractive investment. Also, with recent corporate activity in the financial services sector, TRU may be a merger or acquisition participant.

HOLD RECOMMENDATIONS

InvoCare (IVC)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

This funeral and cemetery company has provided stable earnings growth since listing in 2003. This growth has appealed to investors looking for a reasonable yield (averaging around 4.5 per cent fully franked) and steady capital appreciation. IVC carries a high level of gearing, which is sensitive to interest rate changes. But income coverage is high enough to absorb corporate interest rate volatility in a market that’s debt focused.

Newcrest Mining  (NCM)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

Underlying net profit after tax rose 39 per cent to $1.058 billion for full year 2011. Including acquisition Lihir, sales revenue was up 46 per cent amid a 42 per cent rise in gold sales. All very positive despite a strong Australian dollar and gold price constraining the result.  Be aware of a speculative bubble in gold and the negative effect it could have on NCM’s share price if it burst. This would be compounded if the Australian dollar eases as well.

SELL RECOMMENDATIONS

Virgin Blue Holdings (VBA)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

The airline operates in a difficult industry when it comes to making profits. The airline industry carries high overheads, and VBA is no different to its peers. VBA maybe suitable for a trader, but as an investment, it offers limited growth opportunities and no dividend. 

News Corporation (NWS)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

The global media group produced a solid result, with overall revenue increasing by about 10 per cent to US$8.9 billion for the three months ending June 30, 2011. But we are concerned about phone hacking issues in the UK, uncertainty surrounding boardroom succession plans and exposure to an extremely volatile US sharemarket. It makes for a rollercoaster ride in what is a weak global growth environment – at best.

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John Rawicki, Oracle Asset Management

BUY RECOMMENDATIONS

OZ Minerals (OZL)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

One of Australia’s lowest-cost copper and gold producers, with its flagship Prominent Hill mine in South Australia churning out an impressive 100,000 tonnes of copper and almost 200,000 ounces of gold a year. Substantial gold credits help to keep cash costs for copper production at a very low 46.4 cents a pound. Its well timed Carrapateena project acquisition in May 2011 is expected to yield huge exploration upside and potential for another highly productive copper mine.

SMS Management & Technology  (SMX)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

With a cash-rich balance sheet and no debt, this established IT services and business company is in pole position to start making acquisitions at a time when valuations remain depressed. The IT industry is experiencing strong growth as businesses and governments begin to invest in new high-tech systems. Encouraging full-year 2011 results included solid revenue growth of 24 per cent to $306.1 million and a profit rise of 7 per cent to $29.8 million. It shows the company is reaping the rewards of good management and industry growth.

HOLD RECOMMENDATIONS

Cochlear (COH)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

Looks oversold at these levels after investors dumped the stock in response to the company’s voluntary recall of its nucleus implant range. Cochlear is a leading innovator in the hearing aid industry, and is unlikely to suffer a level of damage the market seems to be pricing in. Furthermore, its expansion into emerging markets will likely secure strong growth for many years and continue enhancing the company’s enviable profit margins of around 30 per cent. On September 22, the company was trading at $50.59.

Fairfax Media (FXJ)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

The media giant publishes numerous printed and electronic titles across Australia and New Zealand. The company’s dominant position in regional Australia should provide earnings protection and shelter from a slowly declining global newspaper industry. The sale of the company’s radio assets will free up cash and enable it reduce debt and lift dividends if it desires.

SELL RECOMMENDATIONS

Harvey Norman (HVN)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

The company announced a net profit after tax of $252.6 million for the 12 months to June 30, 2011, a 9 per cent increase. But it included property revaluations and a profit from selling a property. In our view, bricks and mortar retail conditions are deteriorating across the board. Online retailers are rapidly stgouring market share through more competitive pricing. Declining prices in many big-ticket items, such as flat screen TVs, hasn’t helped, and is only expected to make trading conditions tougher for traditional shop front retailers. Not the best sector to be in at this time. Look for alternatives.

Insurance Australia Group (IAG)

 

Chart: Share price over the year to 23/09/2011 versus ASX200 (XJO) 

Under pressure from industry competition, Australia’s largest general insurer may struggle to deliver consistent growth as market share, in our view, shifts to more mature and better-prepared players, such as QBE. The company’s full-year 2011 results, while delivering a healthy rise in NPAT, showed a decline in capital coverage to just 1.58 times minimum regulatory requirements – well below expectations. Investors looking for dividend yield in the insurance space can find better value elsewhere.

 

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.